Abandoning the World Bank: Pitfalls when Right and Left Agree
Engler, Mark
IN 1994, activist groups mounted a unified campaign against the World Bank and its sister organization, the International Monetary Fund (IMF). The two institutions were then celebrating a...
...In addition to debt relief, the proposal laid out demands that the World Bank create mechanisms to "Respect Worker Rights," "Promote Environmental Sustainability," "Target Gender Equality," and "End Undemocratic Trade and Investment Deregulation...
...Unlike progressives, they do not recognize flawed macroeconomic assumptions or the rigidity of neoliberal structural adjustment as sharing fault for impeding poverty reduction...
...Likewise, Lerrick's description of Bank efforts at poverty reduction as "fifty years of failure" echoes the call of "Fifty Years is Enough...
...unilateralism, cleverly packaged to grant other nations just enough slack to prevent them from fighting it...
...OR MORE than two decades, the bank has played a shell game with worthless developing nation loans by recirculating funding in what even the UK Treasury describes as 'balance sheet fantasies, — Lerrick writes...
...Here, the United States is willing to antagonize traditional capitalist allies in pursuit of nationalistic economic gains...
...But talks advanced very little, and the "Doha Round" of negotiations ultimately collapsed in late July 2006...
...In short, the Bank would remain an overseer of neoliberal policy, but would let the private sector handle most of the cash...
...Conservative critics consider this a sham...
...Although the United States largely dominates these bodies, they nevertheless require compromise...
...Crisis and Opportunity In light of past failures of reform, the eagerness of conservatives to diminish the Bank should be considered an opportunity, reflecting a wider crisis of legitimacy for the institution...
...In the Wolfensohn years, the Bank also claimed to abandon structural adjustment in favor of more flexible Poverty Reduction Strategy Programs developed by participating countries themselves...
...There may be good reason for the imprecision of these visions...
...Being in the development business means writing off loans that long since should have been considered irretrievable, ending the reloaning cycle, and adopting a more efficient mechanism of development grants, closer to Bush's MCA...
...First put forth by Harvard economist Kenneth Rogoff and Stanford's Jeremy Bulow in the early 1990s, this analysis denounces the Bank's inefficiency and ineffectiveness...
...Ultimately, though, such defenders continue to hold up the Bank as an important foreign policy instrument, and they are loath to risk losing it...
...At times, they can obstruct White House designs— anathema to the unilateralists in power...
...The shift away from a multilateral approach to globalization has been most evident with regard to the World Trade Organization...
...In the end, poor countries and progressive movements do not have the power to dictate the terms of a post–World Bank system...
...In response to the conservative attack, liberal and centrist defenders of the Bank have The IMF faces struggles of its own...
...The World Bank, in contrast, simply distributes new loans that allow indebted countries to keep paying...
...If conservatives had their way, getting rid of the World Bank and relying on private financing (plus a system of politicized, bilateral grants) would end up further entrenching U.S.backed neoliberalism...
...And Bank staff members, skilled at preserving their institutional power, may be waiting for a new White House administration to revert to something resembling the corporate globalization of the 1990s—when their institution was a central player in U.S...
...Another part has been a willingness to sidestep or even undermine the multilateral structures of corporate globalization...
...Conservative critics have presented a vision of a world without the Bank...
...However, any push for World Bank reform in the current environment should take into account past difficulties of changing the institution...
...Conservatives prefer that the Bank let go...
...If the World Bank stopped collecting payments on outstanding debts, it would have less money to use to give out future loans, contended the White House...
...Although Meltzer and Lerrick would displace the Bank, they would also hand over any profitable development lending to private bankers...
...At the onset of the Bush administration, Walden Bello of Focus on the Global South predicted that the Bretton Woods sisters would "lose their liberal internationalist protectors like Treasury 58 n DISSENT / Fall 2006 Secretary Larry Summers who believe in using the Fund and Bank as central instruments to achieve U.S...
...MARK ENGLER, a writer based in New York City, is an analyst with Foreign Policy In Focus...
...The World Bank's branch institutions operate on a similar system to the IMF's—and the fact that an 85 percent supermajority is required for major decisions gives the U.S...
...Such bilateral aid deals played a large part in the strategy to mobilize a "Coalition of the Willing" to invade Iraq...
...Rather than focusing on using World Bank loans to promote neoliberal development, the Bush administration has preferred using bilateral foreign aid— and tying aid packages to specific political and military objectives of the United States...
...The bank is nowhere near being the dominant funder it once was...
...Therefore, the Bretton Woods institutions are in danger...
...Significant increases in U.S...
...By the time of the WTO's September 2003 ministerial meeting in Cancim, the New York Times reported that the United States had "compiled a long record of violating trade rules" and noted that "[t]op officials at the DISSENT / Fall 2006 n 57 WORLD BANK World Trade Organization say they are worried that the Bush administration's go-it-alone policy is threatening international trade...
...Both visions of the global order are neoliberal, but they differ significantly in their management of international affairs...
...The international order that Monbiot suggests, in which traditional allies appalled by naked U.S...
...Even as liberals warned that Wolfowitz could destroy the World Bank, critics further to the left argued that the move showed the continued centrality of the institution in promoting U.S...
...Although the changes are being implemented in the name of efficiency and accountability, Oxfam America identified USAID reorganization as a further step in "a drastic shift in U.S...
...Conservatives point to corruption and lack of accountability in developing nations...
...The left must recognize some pitfalls in bolstering the conservative critique...
...policy...
...While emphasizing these positions, progressives in an anti-Bank coalition would show no allegiance to institutions that refuse to abandon undemocratic governance...
...The White House has maintained at best a lukewarm relationship with the World Bank—and at times has abandoned it altogether...
...Left visions of what a more just structure of development financing would look like in the post-Bank world have been vague...
...A clear instance of this took place in discussions leading up to the G8 agreement on debt relief in the summer of 2005...
...After examining Bank documents and interviewing experts, the commission concluded that the Bank had a failure rate of 55 percent to 60 percent for projects in all developing countries, with even higher failure rates in Africa...
...Money in the Bank Seeking to curtail the World Bank's most profitable activities, right-wing critics argue not only for transforming the World Bank, but for defunding it...
...Strange Bedfellows In this contentious context, those with more radical criticisms of the World Bank are put in a strange position: they must decide whether to ally themselves with the libertarian-leaning right that wants to get rid of the institution or the neoliberal center that wants to keep it around in a slightly modified form...
...More important than an elaborately wrought blueprint for the future are firm principles that policy critics and movement advocates can use to craft responses to a changing international situation...
...By the institutions' sixtieth anniversary in 2004, however, things had changed...
...foreign economic policy objectives...
...And when other followers of Allan Meltzer propose to downsize key functions of the World Bank and IMF, they hold much common ground with street protesters chanting that the institutions have "got to go...
...Decline of Multilateral Globalization In the Clinton era, American power was deployed to expand and defend a corporatefriendly, "rules-based," multilateral global economy...
...The United States argued that the World Bank and IMF should use their own resources to pay for the cancellation...
...Walden Bello gives only a somewhat more developed sketch for the future...
...The bank must accept that it is in the development business, not the banking business...
...When coupled with the loss of revenue coming from debt relief to the poorest countries, conservative plans would make the World Bank more dependent on "replenishment" funding sent by donor countries...
...Yet it falls short of being a plan to create something new and better out of a climate of hard-nosed U.S...
...The end result was a role reversal for many activists who traditionally opposed the World Bank: the NGOs essentially advocated holding up a debt deal until G8 governments agreed to extra financing for the much-scorned institution...
...The group's call to action against the international financial institutions seemed to come at an inopportune moment...
...Instead, the economists argue, the institution should make "performance-based" development grants to countries in need...
...Heralded by Bush as a "new compact for global development," the MCA provides development assistance "to those countries that rule justly, invest in their people, and encourage economic freedom...
...Right-wingers make even more drastic proposals with regard to the IBRD...
...They are seeking to replace a hegemonic system that is enduring and effective with one that is untested and (because other nations must fight it) unstable...
...Among them are planks rewarding "a country's openness to international trade" (as measured by the arch-conservative Heritage Foundation's Index of Economic Freedom), while penalizing "financial regulations on foreign investment and capital...
...As Einhorn notes, proposals for reform, liberal or conservative, that seriously threaten the Bank's influence or financial wellbeing face "fierce bureaucratic resistance" from within the institution...
...One of the key findings of the Meltzer Commission was that the World Bank has a terrible track record of accomplishing its stated mission of reducing poverty...
...Its voting structure is weighted based on each country's economic heft and financial contributions to the institution...
...Paul Wolfowitz has often looked more like a Clintonian "free trader" as World Bank president than a neocon militarist...
...The prediction proved true...
...He can be reached via the Web site www.DemocracyUprising.com . Research assistance for this article was provided by Kate Griffiths...
...Many progressive advocates of debt relief, in Africa as well as the United States, support the shift from World Bank loans to grants...
...Few considered that, from a neocon perspective, being shipped off from a key post at the Department of Defense should be considered a demotion, or that undermining the World Bank could be part and parcel of the administration's imperial doctrine...
...He contended, "Once you start picking at the bank's intricate mechanism for financing soft loans, it is not hard to imagine the whole system unraveling...
...The left's critique—which challenged the World Bank's practice of forcing structural adjustment on countries needing loans, its support for environmentally destructive dams and other megaprojects, and its undemocratic governance structure—drew mass protests to previously inconspicuous World Bank meetings...
...Congress very nearly denied the IMF some $18 billion in funding—and it was their dissent that forced the creation of the Meltzer commission in the first place...
...The two institutions were then celebrating a half-century in business, having been founded at the Bretton Woods conference near the end of the Second World War...
...SUCH DEMANDS represented a reasonable agenda for near-term reform...
...The Bank, properly named the World Bank Group, actually consists of several allied financial bodies...
...Sebastian Mallaby, Washington Post columnist and author of The World's Banker, argued in the May/June 2005 issue of Foreign Affairs that by paying the small cost of keeping the institution involved in lending, "the United States and its allies keep the World Bank active in strong developing countries, allowing it to earn a profit on its loans and therefore to sustain the professional standards that make it an important tool of U.S...
...As a result, the United States alone holds 17 percent of the voting power...
...Outgoing World Bank president James Wolfensohn garnered himself a reputation as a reformer by emphasizing "poverty reduction" as the core mission of the institution and by engaging the Bank's critics in civil society...
...WORLD BANK proposed various schemes to tweak the institution's function and governance...
...Economists like Meltzer and Lerrick charge that this claim is based on financial practices that would never be accepted in the private sector...
...Rather than repudiating past abuses of America's foreign aid, the White House is making the political use of aid more overt than ever...
...The Right•Wing Critique There is more to right-wing aversion to the World Bank than a general unilateralist disposition...
...foreign aid have not been channeled through the World Bank...
...soft" power, and eagerness to cut off uncooperative "Old Europe" from the spoils of the Iraq War are part of the shift...
...In the past, this "gatekeeper" role has given the IMF and World Bank much of their power to dictate economic policy in the developing world...
...And the Bank was compelled to launch a major public relations offensive promoting its righteous mission of ending poverty...
...In a critique of the Meltzer Commission's findings, Sarah Anderson of the Institute for Policy Studies points out that under the rightwing restructuring, "the IMF would terminate long-term assistance tied to structural adjustment conditions but would maintain tremendous influence by requiring that countries meet free market-oriented 'preconditions' to qualify for emergency assistance...
...China and India are dramatically underrepresented...
...Institutional self-interest is a final serious barrier to change...
...British journalist and Guardian columnist George Monbiot provided an exception to the trend with an April 2005 column, acknowledging the shift at hand and wishing Wolfowitz well in his new position...
...Critics on both left and right cite these figures, but they hold very different understandings of why projects have failed...
...Anyone who believes in global justice should wish them luck...
...In principle, the MCA aims to make aid more transparent by basing award decisions WORLD BANK on defined criteria and measurable outcomes...
...Rather, money has been pumped into new go-it-alone initiatives, such as the Millennium Challenge Account (MCA...
...Negotiating on their own, less powerful trading partners lose the ability to join a bloc like the G20+, which resisted U.S...
...Because the Bank makes loans at market-based rates to middle-income countries, and because those clients are the ones with the greatest ability to pay their debts, the "IBRD has become a crucial source of financial support and clout for the development community," writes Jessica Einhorn, a former managing director at the World Bank, in the January/February 2006 issue of Foreign Affairs...
...The Clinton administration placed structures like the World Bank, the IMF, and the World Trade Organization (WTO) at the center of its foreign policy, and the march of economic neoliberalism seemed unstoppable...
...foreign assistance" since the attacks of September 11, 2001, "that has blurred the lines traditionally separating development and humanitarian aid from political and military action...
...At the same time, they would keep the remnants of the multilateral institutions on hand to continue evaluating the credit-worthiness of poorer governments...
...These include the International Development Association (IDA), which finances the poorest countries, and the International Bank for Reconstruction and Development (IBRD), DISSENT I Fall 2006 n 59 WORLD BANK which provides loans to middle-income countries...
...Lawrence Summers, Clinton's treasury secretary at the time of the Meltzer report, was well aware of this...
...Such principles include the need for international structures to give developing nations a representative voice in decision-making, the insistence that the WORLD BANK straitjacket that binds countries to a constricted set of neoliberal policy options must be removed, and the idea that involvement of grassroots organizations in development planning and execution is critical for creating effective programs...
...nationalism...
...When developing countries fail to pay off their loans, a private bank would be forced to declare a default...
...foreign assistance...
...Bucking the Bank Even as it pushes development aid through its own bilateral mechanisms, the Bush administration has effectively advocated de-funding the World Bank...
...And countries from Argentina and Brazil to Russia and Thailand are paying off their IMF debts early to escape the institution's oppressive oversight...
...In the wake of the Meltzer report, Summers himself promoted a series of modest reforms designed, among other things, to create a "clearer delineation of the respective roles of the World Bank and the IMF...
...Already, the Bush administration, burdened by a disastrous occupation of Iraq, is shedding some of its unilateral belligerence and approaching multilateral structures with a more conciliatory attitude...
...The name of the activist coalition, and its slogan, was "50 Years Is Enough...
...the strategies of their choice...
...Rather than abolish the World Bank, the right would privatize it...
...Enthusiasm about the expanding "New Economy" was rising...
...Asian countries that were burned by the region's neoliberal financial crisis in 1997 are building up large cash reserves so that they will not have to go back to the Fund in times of economic downturn...
...Europe holds approximately 40 percent, while developing countries as a whole have only 37 percent...
...The mid1990s were high times for corporate globalization...
...Agency for International Development] defines `security' as the main goal of U.S...
...In the Bush years an interesting landscape has appeared...
...It has since been prominently advanced by a congressional committee headed by economist Allan H. Meltzer, which released its findings in March 2000, and by Adam Lerrick, a visiting scholar at the American Enterprise Institute...
...They argued that "additionality," or a net increase in aid funds from wealthy nations, was absolutely necessary...
...There, debate centered on how billions of dollars worth of debt cancellation for eighteen heavily indebted countries would be financed...
...In contrast to this Clintonian "corporate globalization," Bush has crafted a more aggressive, unilateralist "imperial globalization...
...Like their opponents, the neocons fail to understand how well Roosevelt and Truman stitched up the international order...
...The downgraded status of the World Bank in the eyes of Bush administration officials also contributed to some questionable analysis upon the appointment of Paul Wolfowitz as the Bank's new president in early 2005...
...Even these institutions have fallen out of favor with White House unilateralists...
...His "reforms," however, ultimately took the shape of public relations maneuvers rather than real change...
...The neoconservatives' assertive militarism, disregard for U.S...
...DISSENT / Fall 2006 s 6 3...
...Representative of those who have sought reforms, a coalition of civil society groups, including the AFL-CIO, Oxfam America, and Environmental Defense, issued a call for "Responsible Reform of the World Bank" in advance of Congress's vote for IDA replenishment in 2002...
...In addition, having a large loan portfolio adds to the Bank's clout...
...Tom Barry, policy director of the International Relations Center, noted early last year, "The 2004-2009 strategic plan produced by the State Department and USAID [U.S...
...This is not the only case in which progressive stances have been muddled...
...A critique of the institution developed by several conservative economists has become influential within the Bush administration...
...The IMF, meanwhile, proclaims itself "accountable to its shareholders...
...These moves are sapping both IMF revenue streams and the institution's influence...
...Still, Lerrick writes, it "is struggling to maintain market share...
...He pictures "a more fluid, less structured, more pluralistic world, with multiple checks and balances, [in which] the nations and communities of the South—and the North—will be able to carve out the space to develop based on...
...She further explains, "IBRD income helps sustain the World Bank's administrative budget of $2 billion...
...Yet perhaps more disconcerting still for World Bank defenders, influential conservative economists and Bush administration officials were also ready to declare "enough...
...Indeed, this type of alliance has already made a political impact...
...Progressives can take advantage of this opportunity by joining alliances that weaken the Bank's stranglehold over development policy, while still working to highlight the failure of neoliberal policies that the right would like to perpetuate, even with the Bank gone...
...In each of his heralded efforts to invite civil society to review Bank practices—the Structural Adjustment Participatory Review, the Extractive Industries Review, and the World Commission on Dams—a similar pattern emerged...
...In this new context, progressives have been called upon not only to distinguish their own demands but also to consider the possibilities for some unusual alliances...
...Crises in Asia and Argentina helped to quell international exuberance for the policies of the Washington Consensus...
...and European foreign policy...
...The conservative stance provides a rationale for dramatically downsizing several branches of the World Bank...
...What they fail to understand is that the "multilateral" system is in fact a projection of U.S...
...Yet many of the criteria, especially those related to "economic freedom," are highly problematic...
...Before the Cancun talks collapsed, Shefali Sharma of the Institute for Agriculture and Trade commented, "before, the European Union was the biggest sinner" in terms of refusing to compromise, "but the United States is [now] making Europe look good...
...The strategic plan aims to 'align diplomacy and development assistance' with the president's National Security Strategy of September 2002—the document that lays out the case for preventive war and for building the capacity for global military intervention...
...an effective veto...
...Clearly, there are several points on which left and right agree...
...They argue that the Bank's role as a lender to middle-income countries is obsolete in a world that, in past decades, has become awash in private capital...
...He argued that the commission's recommendations "would dramatically reduce the total amount of resources that can be brought to bear in [developing] economies and require an unworkable system for delivering such assistance...
...This funding can be precarious, especially if ideological opponents of the Bank hold sway in the parliaments of donor countries...
...It is the most democratic of the international financial institutions, operating on a one-country, one-vote model for member nations...
...In either case, progressives looking for more representative international institutions and effective solutions to poverty must figure out how to express the distinct nature of their criticisms...
...Civil society groups that have examined the programs, however, have consistently found that the programs employ the same macroeconomic framework and enforce 62 n DISSENT / Fall 2006 almost identical policies...
...In the place of the World Bank, IMF, and existing regional banks, they would promote competing structures for development finance, regulation, and technical assistance—including UN agencies, the International Labor Organization, and those regional bodies that open themselves to more participatory decision-making...
...For the poorest countries, grants from the World Bank's IDA would also remain highly conditional...
...DISSENT I Fall 2006 n 61 WORLD BANK Limits of Reform Should progressives, then, focus on reforming the World Bank rather than eliminating it...
...The Meltzer Commission Report contends that 60 n DISSENT / Fall 2006 the World Bank should be "transformed" into something that is hardly a bank at all, "from capital-intensive lenders to sources of technical assistance, providers of regional and global public goods, and facilitators of an increased flow of private sector resources to the emerging countries...
...As an alternative to stalled multilateral trade deals, the Bush administration has pursued bilateral, one-on-one deals with individual countries...
...Early this year, the administration moved to further politicize USAID by ending its formal independence and moving it under the State Department...
...Many European nongovernmental organizations cried foul, arguing that this change would amount to giving to poor countries with one hand while taking with the other...
...As part of their radical reordering of the World Bank, conservatives argue that the IDA should stop making loans, given that poor countries are consistently unable to pay them back...
...Additionally, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MICA) promote privatesector investment...
...They want to drag down the old, multilateral order and replace it with a new, U.S...
...Although few countries ever fully pay off their obligations, the Bank can count on some steady income trickling in from the debtor countries...
...Perhaps the greatest argument for pursuing a left-right alliance against the Bank in the present moment is that the circumstances that endanger the institution might not last...
...But when the institution was unable to control the reviews, and when it became evident that the findings would not be to its liking, it backed out and refused to adopt the recommendations from the "partnerships" it had initiated with such fanfare...
...Surely" he wrote, the appointment illustrates the unacknowledged paradox in neocon thinking...
...foreign policy, and critics' cries of "enough" sounded far fainter than they do today...
...unilateralism relinquish their roles as junior partners in corporate globalization and put new pressure on the hegemonic order of the past, is a start...
...The administration has successfully used the bilateral method to negotiate favorable agreements with countries such as Australia, Morocco, Singapore, and Chile, and it is currently pursuing many others...
...The World Bank boasts that the recipients of its assistance never default on their loans...
...The United States worked for a time to keep the WTO limping along...
...Bank officials publicized their participation as a significant move toward "partnership" and "dialogue" with critics...
...demands in Canelin...
...In late 1998, an unusual coalition of conservatives and liberals in the U.S...
...Losing Its Internationalist Protectors It is not surprising that the WTO would be the first institution to be sidestepped by the Bush administration...
Vol. 53 • September 2006 • No. 4
