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Sunday, July 31, 2011

THE BANK PROGAMS IN POOR COUNTRIES: MATTERS ARISING


                                                                ABSTRACT

An attempt is made here to look at the activities of the World Bank in poor countries. The World Bank is view in the developing countries as a monster, unsympathetic to the flight of the poor. It is observed in this paper that for the past few years the World Bank has been changing the course of it direction from one concern with economic growth to one concern with many things including issues of poverty alleviation, environmental protection, and fight against diseases. The paper is critical of the ways the Bank issues loan and it rigidity in selection of project. The paper conclusion is that the Bank needs to continue moving in the direction of good governance and institutions in poor countries, grass-root development and be objective in it project selection.


INTRODUCTION
From Santa Cruz in Bolivia to Sanfernando in Philippine, Satu in Romania to Swakopmund in Namibia one common feature that bring these culturally and geographically heterogeneous regions together, is abject poverty. In the last few years the World Bank has continued to voice out it determination to fight poverty by way of fighting corruption, good governance and institutions. Alas, there is more to fighting of poverty…..
     This short article does not attempt, in any way to tell the World Bank experts how to go with their works, but as an observation of the nature of things. The article is divided into six parts: part I is Introduction; II brief historical account of the Bank activities; III look at Boadway general equilibrium model; IV discusses the need for micro financing; V is on the need for the Bank to reduce it conservatism and VI is conclusion.

LOOKING BACK……
     Being a hybrid multinational institution World Bank programs consists of Long term development lending, issuing of Aid, and technical assistance, among others. From 1968-1981, the Bank programs were dominated by long term development lending (The period of Robert Mc Namera, Longest serving president of the World Bank). Most of these Bank’s loans were issued for development of over blown infrastructural project, thus increasing the ratio of investment to Gross national product (GNP)[1] which turned negative at the end.
     This negative return and poor management were the major reasons behind the debt crisis in Latin America, Africa and South Asia. "The bank; writes Kenneth Rogoff [2], 'littered the developing World with pharaonic infrastructural projects that made it few friends among greens or budding anti-globalization activities. Worse still, many developing countries began accumulating debts to the bank which whether originally granted on concessional terms or not, still grew a lot faster than their economics.  Some of which were actually shrinking".
     The 1980s was the period of adjustment programs, the debt crisis after spending boom of 1968-1981 was the main cause of adjustment programs initiated by the Bank; Interest rate sky rocketed and foreign lenders stop lending money for fear of default other contributing factors are poor term of trade and internal factors. In this period (1968-1981) Adjustment loan replace project loan as the main segment of the Bank lending portfolio. [3]
As with the debt crisis, adjustment loan highten the debt burden of poor countries, Nigeria is a good example in this case, but others like Ghana and Cameron have done well. This brought the question of necessary environment for reform, because over the years micro economic policies from import substitution to market friendly policies have failed in many developing countries; something is missing in the Analysis.
     The missing link as the World Bank (now) come to understand it, is good governance and this explain the Bank emphasize on good governance and institutions. The Bank now pays more attention to 'soft' issues, like support for health, women education as well as war against corruption; others include environmental protection, youth development (as contain in this year world development report, 2006) and conflict resolution. [4]
     To this end, programs like heavily indebted poor countries (HIPC) were conceived to channel loans and assistance to countries that embrace good governance and reforms. The last World Bank – IMF annual meetings in Singapore witnessed the continuing debate on the issue of good governance as the necessary condition for Bank loans and assistance; these are commendable efforts.

BOADWAY GENERAL EQUILIBRIUM MODEL
Many models were proposed to explain the welfare impact of the Bank programs. Boadway General Equilibrium model is one such model:
                   dx           -1          dy                               dx                 -1     
dw =      -t dp      . E       .       dp       dt+      p + t .   dq        . E            dz

Welfare is the function of adjustment loan (dt) and project loan (dz).
Now that the World Bank has gone a long way in understanding the importance of 'soft' issues in economic growth and poverty reduction, how should the two type of lending be balance?

FROM MACRO FINANCING TO MICRO FINANCING
So far so good, the Bank has recognized good governance and institutions as important to it programs. Not only that, the Bank is also part of the global campaign for good governance in the developing world; but more still need to be done.
     First is the way the Bank gives loan to poor countries, many economists believes that the way the Bank gives loan is at the centre of the Bank problems. [6] Lord Bauer in particular belief that foreign aids is responsible for the creation of the private sector- Aid politicized economics directing money into the hands of governments, rather than towards profitable business.[7]
    This point is important, giving cash to a corrupt government is like pouring water into a broken bucket. Take Niger republic in particular, it was reported sometimes this year that ministers diverted aid money means for education into their personal accounts. Thus, at the end the bank aid instead of reducing poverty might increase it, by enriching the exploiters in power.
    I suggest that the bank pays more attention to assisting individuals and private business. This year Nobel peace prize honored micro financing by recognizing Gramen bank and it founder. The 2005, World development report emphasized micro financing, but these efforts should not stop there, the bank should assist in setting up micro financing institutions in the developing countries.



THE BANK NEED TO BE LESS CONSERVATIVE
    In a corrupt society loan in kind is better than loan in cash, because it is easier to determine whether the loan is used or not. For example, if country (A) approaches the World Bank for loan to build power plant, (instead of issuing cash money or check) the bank can purchase the necessary machineries and hire consultants to install them. The same rule should be applicable to the Bank assistances for provision of houses, drinking water, sanitation, protection of the environment and training programs [8]; as well as the bank war against diseases (Malaria, Aids, Tuberculosis, etc.) illiteracy, hunger and numerous others.
     Little and Mirrlees have similar view on the Bank promotion of Public investment planning: "The World Bank does not seem to have played a leading role in the promotion of rational public investment planning yet there would appear to be room for the World Bank to have considerable beneficial influence. It is surely an essential part of continuous (sustainable) structural adjustment that public sector investment be well chosen. This applies both at the most central level, where inter sectoral choices are required and at sectoral levels whether or not sectoral adjustment loans are being made.” [9]
 The Bank Conventional conservatism on project selection has now been reduced, hence, the bank current concern with soft issues; but more still need to be done. The Bank needs to come down a little more, one particular case relating to this in Nigeria is whether the Bank assistance programs to education should include religious schools- the Almajiri system of Qur'anic education in Northern Nigeria- where children leave their parents and move from one place to another with their teachers. Shall the World Bank assist it newer and modernize version that incorporated modern Western education?  I am of the opinion that the bank should assist in such a scheme.
CONCLUSION
As a World class development financial institution, World Bank needs to restructure to go in line with changing needs of the twenty – first century developing countries. That remains the only way for the bank to remain of relevance to that group of nations.
The main conclusion of this paper is that the bank shall continue to move in the direction of good governance and institutions, grassroots development, and for it to become more liberal in it project selection.
NOTES AND REFERENCES:
1.     Little and Mirrlees (1991) "Project appraisal and planning twenty years on "in proceedings of the World Bank annual conference on Development economics, 1990. p.364.
2.     Rogoff, Kenneth, "The sisters at 60", The Economist, July 24th 2004, p.57-59.
3.      Kanbur, ravi(1991) "project Versus policy reform proceedings of the world Bank annual conference, p.397.
4.     Thomas, Vinod, "Why quality matters", The Economist October 7th, 2000, p.118.
5.     Opcit, Kanbur p.397
6.     See, World Bank's Bureaucrats in Business (1995) published by Oxford university press, p.17 and 81, to see how foreign aid slow reform and foster corruption
7.     On how foreign aid can better assist state owned enterprises reform; thus, help in fighting corruption. See, Bureaucrats in Business p.17 and 81
8.     Emprical evidences have shown the effects of training programs to continue years after the training. See, Greenberg, D.H and etals (2004) "What happens to the effects of government funded training programs over time, The journal of human resources, 39(1); p.277-93
9.     Opcit, Little and Mirrlees, p.372.

          NOTE: this article was earlier published on the World Bank site (www.worldbank.org/sup) on December 2006

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