1. World Bank Lessons on Development Assistance Erh-Cheng Hwa, Shih-Hsin University

2. International Financial Architect World Bank along with IMF and GATT form the pillar of post WWII international financial architect. World Bank: fight world poverty IMF : safeguard stability of currency by providing balance of payments assistance; often acts as the lender of the last resort GATT/WTO: promote free trade All three institutions promote international cooperation through trade and investment

3. Evolving Missions Immediately after the WWII, the mission focused on European economic reconstruction. The mission had been changed to aid the third world economies when they became independent states en mass, in particularly in the 1960s.

4. Evolving Strategies 1970s – –Basic needs approach: health, education, and health –Focus on redistribution 1980s – –Background : Latin America debt crisis –Approach: urge countries to undertake structural adjustment program to restore growth and external credit worthiness –Washington consensus : Liberalizing markets and open trade 1990s – –Background : 1997-98 Asian financial crisis –Emphasis on corporate governance

5. Assistance Instruments Development aid –IDA: concession terms –World Bank loan: market terms Development policy Advisory capacity and/or Conditionality –Sector policy: e.g., rationalization of power tariffs –Macro policy and development strategy

6. Lessons Learnt Although effective development assistance cannot be separated from financial aid, financial aid is often not the most critical constraint for sustained development. As a hindsight, the early thinking on development like big-push, Restow’s stages of growth, two- gap model, Solow model and the like all had paid lopsided attention to the financial/capital shortcoming of under-developed economies such as saving and foreign exchange shortfalls.

7. The “elasticity pessimism” has also proven to be unfounded; developing countries on the whole has been able to escape the poverty trap, with the glaring exception of some countries in the African continent.

8. Institutions and Policy Matter Institutional capacity building proves a far more critical constraint to development –In fact, one can argue that economic development itself is nothing but building new institutions to accommodate growth –The challenge is what are the right institutions to develop, at what time, and how to build them

9. Government capacity is by far the most limiting factor for development in the third world economies –Africa, Latin America, and transition economies (e.g. Russia) –Corruption weakens development assistance –However, World Bank’s intervention on government corruption treads on a careful line for fear being charged of invading national sovereignty

10. Development policy also matters –But the right set of policies must be conditioned on the situation of each country. –A “one-size-fit-all” policy framework is doomed to fail. Herein lies the criticism of the “Washington Consensus” of which the World Bank is presumably partly to blame. –Country must choose its own path, not unduly influenced by aid agencies. Although international experiences help, there is only so much countries can learn from one another.

11. Assessing World Bank Performance The world development over the last five-decades after the WWII has been uneven. It is hard to pass judgment on the effectiveness of the World Bank or any multilateral institution based upon the development record of the third world economy. Why? This mainly because what makes a successful development experience or one ended in failure is largely the making of the country itself.

12. Paradoxically, a more successful country knows how to tap the World Bank resource for its own- good and use it more effectively than a country with poor performance. This says to make development aid effective, the recipient country must be able to “own it”. But too often aid is stuffed to it by granting parties for a variety of reasons including geopolitics, aid targets, etc. and is taken by leaders for private gains. The result is mounting debt arrears and, worse, stagnation in development.

13. Conclusion: Implications for Taiwan Bilateral aid can hardly escape meeting a country’s diplomatic objectives. After all, domestic constituencies would not support an aid program that do not help the friends but the enemies. However, if an aid program is conditioned on friendship, it should pay even more attention to aid efficiency.

14. The size of the aim program should be based upon a country’s absorptive capacity which, in turn, depends upon macro policy environment, cleanness of the government, and implementation capacity of the aid-receiving agencies. Whenever feasible, seek opportunities to co- financing with other bilateral or multi-lateral donors and to involve able and effective local partners.

15. The government’s aid program should try to tap the knowledge of local academics and other professionals and in the process help nourish local intellectual capacity for doing overseas development work. The good example is provided by U.K. More important, this is also the best way to transmit Taiwan’s successful development experience to developing economies.