Whats up at the World Bank? Robert Wade LSE March 2010

Questions & answers Q: Is there a crisis at the World Bank? A: No and yes Q: Is the WB rethinking its development prescriptions (new-liberalism, Wash Con)? A: Yes & no

I. Crisis? No. Good news (1) WB enjoying good global econ crisis (GEC). (2) Lending soaring. Asking for general capital increase (GCI): IBRD of 30%, IFC of 100%. IDA target up by 25%. (3) MICs support, in return for increase in power & cuts in transaction costs.

Good news (contd) (3)* But US & other Part I doubtful abt gen cap increase. Demand reforms. (4) WB launching proposals for major reforms to structure, products, modes of operations. Eg more decentralization. (4)* Reform proposals – high fluff/substance ratio.

Good news (contd) (5) More lending in budget support (DPLs), less in projects; more use of country systems for safeguards: fiduciary, environmental, social. These changes lower transaction cost of borrowing; & demonstrate more trust in borrower governments. MICs support. UK supports more budget support.

Good news (contd) Bank mgt says: boost culture of implementation support, weaken culture of supervision & compliance. The Bank needs to create a culture of implementation support in which teams spend a greater proportion of available resources helping clients to address implementation issues, quickly resolve problems, and build capacity. Unfortunately, many of these activities have been crowded out by fiduciary and other demands on staff time.

Good news (contd) (6) Staff Attitude Survey, Nov-Dec 09: Proud to work at WB: 89% Rate WB highly as place to work: 84% All things considered, the WBG has changed for the better in the past year: survey of 2007 (Zoellick honeymoon), 58%, survey of 2009, 41%.

II. Crisis? Yes. Bad news (1) IDA in quiet crisis – disbursements static while demand soars. Why? (2) WBs own safeguards against fraud & corruption (F&C) weak, esp in IDA (new IEG report). (3) Projects whose monitoring & supervision is satisfactory or better: 37% (new IEG report).

Bad news (contd) (4) Reform proposals (more budget support and reliance on country systems) weaken standards further. (5) Reform proposals made with hardly any consultation of staff. We dont know what these reforms are in aid of. (5) US Congress demanding tighter safeguards -- before GCI.

Bad news (contd) (7) Bank leadership: Z tries to be top leader & top manager. Gives impression he hardly needs others views, considers managing directors & VPs second-rate. Temper tantrums with IEG staff. Treats Board with disdain (= Wolfensohn). No sense of vision for WB (cf Wolfensohn) In past year, hes not here. Seen as lame duck, one term president. (8) Top appointments made at say-so of president, based on criteria other than merit. Undercuts HR procedures.

III. WB rethinking devt prescriptions? Yes (1) Econ Growth in 1990s: Learning from a Decade of Reforms, We need to be more pragmatic, move away from one- size-fits-all. (2) Push to give borrower govts more responsibility/ autonomy: budget support (DPLs), country systems. (3) VP for Econ Research, Justin Lin, cautiously advocates industrial policy.

IV. WB rethinking devt prescriptions? No Country Policy & Institutional Assessment (CPIA). Score largely determines IDA lending, & influences MIC operations too. IEG report on CPIA: the literature offers only mixed evidence regarding the relevance of the content of CPIA for aid effectiveness broadly defined – that is, mixed evidence that it represents the policies and institutions important for aid to lead to growth.

Rethinking? No (contd) IEG report (contd): (1) Governance component so overweighted as to get 68% of total weighting. (2) Trade policy indicator reflects a one-size-fits-all approach to trade liberalization that is not supported by country experience. (3) Financial sector indicator assumes that lightly regulated financial sector, with open opportunities for foreign banks, is best for development. (4) Labor market indicator gives highest score to countries with least worker protection. (April 2009 World Bank announced changes in labor market indicator used in Doing Business reports on countries business environment. A new worker protection indicator will give countries points for well-designed worker protection schemes.) IEG report calls for complete overhaul of the CPIA.

V. Rethinking WB (1) WB needs a strategy, based on answers to: (1) what is main focus; (2) how shd it be managed so as to deliver? Cf the WBG must become more efficient, more effective, & accountable…to be a better partner for other donors & multilaterals in the field, & to be faster & more flexible. Without a strategy, WB tries please everyone – mission creep. Core competitive advantage: global center of excellence in investment sustainability. Set the pace on sustainability standards. Shd not compete with no-frills, no-questions-asked macro- finance from China. (2) Must rethink its vast safeguard apparatus, which significantly raises costs of borrowing & makes staff very risk-averse.

Rethinking WB (contd) (3) Resource transfer instruments: needs to de-emphasise debt and re-emphasise equity or quasi-equity (eg repayments linked to GDP growth, export growth, etc.). That is, Bank needs to innovate its financial instruments beyond those of mid 20th century. (4) Job description of president: (a) Open to non-Americans. (b) Shd lead, not manage. (5) Answer question: does new world need a World Bank? If yes, why? END