HPAVC/HPAVC CD-ROM.iso/pc/HOMEWORK.ZIP/ECOWBANK.TXT

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Since the 1950's the World Bank has had an indifferent, to say the least, affect on the
Third World. The actions of the Bank have always come under severe scrutiny because of the
important role it plays in many lives of Third World peoples.  This paper will outline the
role of the Bank; some of the arguments against its policies, power, and influence; reasons
why the Bank has found it difficult to achieve favourable outcomes in its policies; and
whether it has in fact been beneficial to the people it claims to help. The World Bank was
set up initially as an aid organisation to help "foster the reconstruction of Europe, and
later guarantee loans made by private banks for projects in the poorer, developing
countries"1. The former of the objectives never eventuated  to the extent of its founders'
hopes. The World Bank ( otherwise known as the Bank ) was subjugated to a minor role in the
post war reconstruction of Europe, due to the more robust influence and attraction of the
Marshall Plan. Of the $41.8 billion in loans, made in the decade after the end of the war,
only $497 million was disbursed from the Bank. This was a result of the war-torn countries
needing "rapidly disbursed grants and concessional loans for balance of payments support and
imports necessary to meet basic needs."2 The Bank, on the other hand, provided loans for
specific projects that required lengthy preparation. Thus, the Banks diminished role in
Europe, lead it to focus its lending to Third World countries, and this became the core of
its operations from the 1950's. The World Bank's goal to "reduce poverty and improve living
standards by promoting sustainable growth and investments in people",3 has been challenged
by many, who all see the role of the Bank being either detrimental to the economy's of the
countries it is supposed to help, or the social cost being too high for the economic
programs being put in place. A number of arguments, have been developed that make light of
the Banks preponderant shortcomings and its many social inequities. It must be said that a
full analysis of the Bank short comings could include thousands of pages. This paper will,
however, take only a representative few, which it is hoped can suffice a fair and broad
analysis. These are described below.  The World Bank, in the opinion of Yunus4, has
single-mindedly pursued growth until it is distracted by other issues such as hunger, women,
health, the environment, etc. The Bank then tries to adapt itself to these considerations
without giving up its basic goal and adopting these issues as rhetoric, but they are seldom
put into action. This ineffective action may be explained by two factors. Firstly, the
theoretical framework within which the Bank operates does not assign any urgency or primacy
to poverty reduction, thus its pronouncements only get prescribed through humanitarian
add-ons, such as safety-net programs. Secondly, Bank staff were not employed to eliminate
poverty, but for qualities that may not have immediate relevance for poverty reduction;
meaning they are not the right people to undertake such sensitive social projects as the
World Bank does. Susan George, a long time critic of the World Bank, sees the role of the
Bank being purely to make sure the debt of Third World countries is being serviced5. She
claims that the Bank presides over a net outflow of capital from the Third World, which will
continue to further drive their economy's into ruin and poverty. At the same time the Bank
has enforced structural adjustment programs that have cured very little at all. George
believes that these economic policies have caused "untold human suffering and widespread
environmental destruction," emptying debtor countries of their resources and rendering them
less able each year to service their debts, let alone invest in human capital. The policies
inherent in creating such harmful effects are, according to George, the result of a capital
intensive, energy-intensive, unsustainable Western model of development, which is only
favourable to Third World elites, Northern banks and multinational corporations. Susan
George, believes that the World Bank has induced social and economic outcomes which
ultimately affect the Western world in adverse ways. These outcomes she describes as debt
boomerangs,6 and are described below. The first "boomerang" is debt induced poverty. This
causes Third World people to exploit natural resources  in the most profitable and least
sustainable way, causing an increase in global warming and a depletion of genetic
bio-diversity, thus affecting all citizens of the world. Secondly, the illegal drug trade
for heavily indebted countries, like Peru, Bolivia, and Colombia, is their major export
earner. Thus giving them little alternative, but to condone such activities. The social and
economic costs of drug consumption in the US alone, has cost $60 billion. Thirdly, Western
governments have allowed their banks tax concessions so they may write off so-called "bad
debts" from Third World countries. However this has not reduced the real debts of poor
countries, and in the case of the UK has cost the government $8.5 billion. Fourthly, there
have been lost exports to Western countries from the Third World due to the burden of high
debt servicing costs. It has been estimated that this accounts for one fifth of total US
unemployment. Fifthly, legal and illegal immigration from the Third World has resulted in
100 million economic refugees, resulting in enormously high economic costs to Western
nations. Lastly, conflict is often an effect of the strain put on debt burdened Third World
countries, this may be seen as possibly an influence for Iraq's invasion of Kuwait. The
World Bank is often seen as being party to disbursing funds to malicious and repressive
regimes, that often use these loans to further entrench their power. An ardent critic of
this aspect of the Banks operations is Patricia Adams. Adams argues that there are large
amounts of debt owing to the Bank that are very odious in nature.7 Odious debts may be
defined as any "debt that has been incurred by a government without the informed consent of
its people, and one that is not used in the legitimate interest of the State."8 Many of the
activities that Third World governments undertake are often not in the interest of the
people that they represent, this can be seen by the treatment of the Penan people of
Sarawak, whose forests are being traded away for the benefit of others. Much of the above
debate has been structured around the effectiveness of the World Bank's structural
adjustment programs which were developed to force the borrowing countries into macroeconomic
discipline. These policies have resulted in huge social and economic changes, which has
caused much hardship to many of the countries' citizens. For example, Oxfam, a British
charity, released a study9 recently on Latin America, that suggests that after a decade of
structural adjustment, and despite economic growth, more people than ever are living in
poverty. These studies, however, are often very subjective as there is no way to easily
measure welfare of the poor, especially in countries where statistics are sparse. The World
Bank has just issued a report10 that suggests that Third World nations may find it very
difficult to grow at a rate that will create enough wealth to lead to sustainable
development if they rely on commodities as their major export. This, the Bank, suggests may
be so as many Third World countries export mainly commodities. Countries where manufactured
exports accounted for at least 50% of total exports enjoyed average annual GDP growth of
6.8% between 1980 and 1992. While those that exported mainly non-oil commodities grew by
only 1.4% - so slowly, that real income per head declined. The countries that the World Bank
categorises as low-income commodity producers have an average annual income of $420 per
head, and their commodity exports make up over 50% of their total exports. Average commodity
prices have dropped by more than half in real terms since 1980, representing an annual loss
to low-income commodity producers of $100 billion - almost twice they received in foreign
aid. Another factor which has contributed to their low growth has been that world trade in
commodities has grown far slower than trade in manufactured goods and services. African
countries, in particular, have adopted policies that have stunted growth in non-commodity
industries, such as agriculture. These policies are ones similar to import barriers on
manufactured goods such as tractors, which are used to increase the efficiency of
agricultural sector, and export taxes on farm produce. As a result not only has Africa
remained heavily dependent on primary commodities, but its market share has also dwindled.
The continent's share of world coffee production, for example, has shrunk from 29% to 15%
over the past two decades. Shocks to supply, such as bad harvests, make the prices of
commodities twice as volatile as those of manufactures. This is a particularly serious
problem for countries such as Zambia, Rwanda, and Uganda, where a single commodity makes up
more than three quarters of total exports11. A possible way to stabilise prices and
therefore incomes would be the use of derivative - financial instruments such as futures
contracts, swaps and options. These are a better way for developing countries to hedge their
price risk, so that their incomes can be more consistent and permanent. Much of the
ineffectiveness of the World Bank's policies have been explained by inadequate and
inefficient use of the Banks funded projects. These Bank projects have been plundered in
four ways according to the Bank12: Firstly, facilities have not been maintained properly.
Approximately 40% of the power generating capacity in poor countries is out of action at any
one time; this results in costs being burdened on the user, for example, electric generators
are a needed extra cost to make up for when their are power shortages. Assets that are badly
maintained also deteriorate rapidly: a third of the roads built in sub-Saharan Africa in the
past twenty years have been eroded for want of upkeep. Secondly, infrastructure building has
often been developed using the wrong technology and in the wrong place. The problem with
this occurrence is that the cost of big capital projects are sunk: once built, power
stations and roads cannot be moved or put to other uses. For instance governments have built
wide roads, where narrower ones would of sufficed. Thirdly, major inefficiencies have been
detected in the running of infrastructure services. Railways, in particular have been
overmanned - one estimate suggests that at times two-thirds of the railway staff in Tanzania
and Zaire have been surplus  to service requirements.13 Fourthly, prices have been held
below costs. Much of the utilities (power, water, gas, etc.) have been heavily subsidised,
and lead to increased pressure on state resources - leading to lower spending in more
important area's such as eduction and health. Only half of the marginal costs of electricity
were covered by revenues in developing countries in the 1980's, and rail subsidies in these
countries often amounted to 1% of GDP, which is  course about 10 times that of most
developed nations. A recent study by Elliot Berg14, an American development economist, gives
an analysis on both economic and social indicators, which has come up with some interesting
results. Judging by income indicators ( how much money people have ) both Latin America and
sub-Saharan Africa have suffered badly over the past twenty years where income per head has
declined, with only a gradual improvement in the last few years. Economic decline also took
a toll on the poor: household consumption decreased; real wages fell; and the number of
"poor" people ( defined by a minimum income required for basic consumption ) increased. If
one looks at social indicators, on the other hand, the picture looks very different. It
appears from Berg's study that people in Latin America and most of Africa are living for
longer and in better conditions. In Latin America infant mortality decreased during the
1980's; illiteracy rates fell or stayed the same; and life expectancy increased or stayed
constant. Child malnutrition scored no rise, and vaccination rates increased in 19 of the 22
countries that track them. Africa has seen similar results: life expectancy has increased in
33 out of 42 countries; illiteracy has declined; fewer children are dying as infants as did
15 years ago; and more people are vaccinated. These conflicting outcomes can only suggest
that, at the very least, some of the World Bank's policies are being useful to some extent.
CONCLUSION The world bank has been, no doubt, less that perfect in achieving its objectives.
What one must take into account, however, is what would of been achieved without the World
Bank? This question is, of course, impossible to answer, but by contemplating what might
have been without the World Bank it does allow for a more appreciative view of its track
record. The social costs of imposing western style economic theory and organisation on Third
World nations has brought about alot of hardship and distress. This, however, has not been
to no avail. As described above, in some important indicators there has been substantial
improvement in the Third World. The criticisms have far outweighed those in support of the
World Bank, and many of these criticisms are rightly justified. One outcome that continues
to crop up is the insensitivities to the needs of the indigenous peoples and the lack of
regard to the environment. The Banks new role from the 1950's onwards, was to bridge the gap
between world financial markets and creditworthy borrowers in poor countries. In the 1950's
world financial markets were barely developed and there were no suitable means for many
Third World countries to raise capital without the help of multilateral aid organisations
such as the World Bank. It was in the next twenty years that the Bank became most active in
targeting specific infrastructure projects and dispersing massive amounts of capital to
Third World countries. Last year, however, the Bank lent around $24 billion to them; net
private capital flows to developing nations reached $88 billion15. Suggesting, perhaps, that
financial markets are starting to play a large enough role to do without the Bank, except of
course, in those countries who do not have adequate access to world financial markets.
Finally, many believe16 that the World Bank will not become an effective organisation until
many of the debts of the Third World nations are forgiven. This question itself deserves
many pages of writing, and is far beyond the scope of this paper, but a late development in
the running of the World Bank has given hope to some of those espousing this idea. The new
president of the World Bank, an Australian interestingly, has suggested that a new relief
fund17 may be set up to forgive some of the more heavily indebted nations. This is a
significant step in the direction of the Bank and could possibly see a new era of Third
World development.


BIBLIOGRAPHY

Adams, P. "Odious Debts" Routledge, London, 1994.
Author Unknown., "How Poor Are The Poor." The Economist , October 1st, 1994.
Author Unknown, "Fit at Fifty" The Economist, July 23rd 1994.
Author Unknown "Investing In Development" The Economist, June 25, 1995
Berg, E., "Poverty and Structural Adjustment in the 1980's: Trends in Welfare Indicators in
Latin America and Africa." Development Alternatives, Inc, Washington, DC, 1995 George, S.,
"The Debt Boomerang", South End Press, 1992. Holman, M. "World Bank Relents: About-Face On
Africa" The Australian, Sept 20, 1995 Rich, B., "World Bank/IMF 50 Years Is Enough", South
End Press, Boston, 1994. The World Bank, "A Global Partnership", World Bank, Washington,
1995. The World Bank., "Global Economic Prospects and the Developing Countries ",
Washington, DC, 1994 The World Bank., "World Development Report", Washington, DC, 1995
Walters, Sir Alan., "Do We Need the IMF and World Bank?", Current Controversies, Institute
of Economic Affairs, London, 1994. Yunnus, M., "Redefining Development", Zed Books,
Washington, 1994.



1  Walters, Sir Alan., "Do We Need the IMF and World Bank?", Current Controversies,
Institute of Economic Affairs, London, 1994. 2  Rich, B., "World Bank/IMF 50 Years Is
Enough", South End Press, Boston, 1994. 3 The World Bank, "A Global Partnership", World
Bank, Washington, 1995. 4 Yunnus, M., "Redefining Development", Zed Books, Washington, 1994.
5 George, S., "The Debt Boomerang", South End Press, 1992. 6 Ibid. 7 Adams, P. "Odious
Debts" Routledge, London, 1994. 8 Ibid. 9Author Unknown., "How Poor Are The Poor." The
Economist , October 1st, 1994. 10 The World Bank., "Global Economic Prospects and the
Developing Countries ", Washington, DC, 1994 11 The World Bank., "Global Economic Prospects
and the Developing Countries ", Washington, DC, 1994 12 The World Bank., "World Development
Report", Washington, DC, 1995 13 Author Unknown "Investing In Development" The Economist,
June 25, 1995 14 Berg, E., "Poverty and Structural Adjustment in the 1980's: Trends in
Welfare Indicators in Latin America and Africa." Development Alternatives, Inc, Washington,
DC, 1995 15 Author Unknown, "Fit at Fifty" The Economist, July 23rd 1994. 16 Rich, B.,
"World Bank/IMF 50 Years Is Enough", South End Press, Boston, 1994. 17 Holman, M. "World
Bank Relents: About-Face On Africa" The Australian, Sept 20, 1995