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Bhuwan Thapaliya

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World Bank: Time to ponder over its fallacies.
by Bhuwan Thapaliya   
Rated "G" by the Author.
Last edited: Tuesday, January 22, 2008
Posted: Tuesday, January 22, 2008

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The bank must fight poverty with passion.

I have not been to the United States of America, so there is no question of me visiting the World Bank’s Washington DC office. But those who were fortunate enough to visit the World Bank’s office told me that there is this slogan, “The purpose of the World Bank is to fight poverty with passion,” displayed in its Washington DC office.

Fighting poverty with passion is a compelling slogan. In fact, such has been the World Bank’s effort (according to the World Bank’s slogan), to eliminate poverty and resulting hunger but despite their claim and every international agreement swearing in the name of poor and the Third World, the number of absolute poor continues to grow and quite regrettably, the world have not emerged itself from the abysmal poverty, glaring inequalities, diseases and illiteracy.

This in itself is a major paradox and even a blind man discerns that until and unless paradoxes such as these are addressed properly, the future of the development game played by the First World and its institutions in the name of alleviating the harsh conditions of the Third World looks gloomier as ever in the era of globalization and free trade.


Hence, considering this grave reality, the bank must put its hand on its heart and answer few of the major questions with honesty before preaching further in the name of the poor.  Here are some of the questions.


a) The number of people living in poverty is growing at a faster rate than the world’s population.  Why is this happening and where does this lead? b) Since its beginning , The World Bank has lent or given more than $400 billion to those countries in need but despise these loans and grants poverty has increased, and what are we to make of this? c) Why is the aid given to Third World governments comes with strings attached. d) Why a poor country that borrows from the World Bank to build it economy, should it be unable to pay back the heavy interest, must borrow again, this time from the IMF, and e) Why is it that even after the Bank’s aid, throughout the Third World, real wages have declined, and national debts have soared to the point where debt payments absorb almost all of the poorer countries’ export earnings.

Having raised the various questions above, I am not trying to say that World Bank is a hopeless organization run by the first world corporate leeches, my objective is not so given the fact that I too am strong advocate of the World Bank. World needs World Bank and the IMF, and their role in solving financial crisis of various nations cannot be redeemed.  But I think time has come for the World Bank to remodel their policies because time and again World Bank has been accused of being pro- urban with pro- industrial in their policies.

Critics of the World Bank thrash the World Bank by stating that the World Bank’s shortsighted policies has devastating effect on the livelihood of small and landless farmers in the developing world. For instance, ill-conceived agricultural projects in South Asia and Africa served as further evidence to critics that the World Bank did not adequately consider the impact of its plans before its initiation.

Furthermore, critics accuse the World Bank of being pro- market. Being pro- market is good in the era of free trade and globalization but it is not always the best option when the very survival of you and your family members are in stake. For instance, in various parts of the developing world the World Bank projects encouraged small farmers to substitute food production for cash crops, often in areas that were not suitable for cash crop farming.

The farmers did just that misguided by the World Bank. But to the dismay of these farmers, this lopsided policy of the World Bank reduced the amount of food available for consumption, led to soil exhaustion, and increased use of fertilizers and pesticides raised their cost of cultivation, and gave them a financial burden.

However, I am not with the critics when they say the World Bank is making the lives of the poor people miserable by thrashing them knowingly. The bank is trying hard to change the life style of the poor masses, but due to some of its myopic policy the bank is losing its credibility. Why would a body that claims to help the poor actually thrash them and what would the World Bank gain by for making their life further miserable?


But having said so, however, I also at times feel that World Bank’s mission to end poverty has always been mythical. Their strategies look profound in papers but in reality they are fragile and myopic.


Critics condemn the action of World Bank and IMF on various other grounds too. For instance, take the example of development. The World Bank and IMF are supposed to assist nations in their development but according to Michael Pareni, what actually happens is another story.


“A poor country borrows from the World Bank to build up some aspect of its economy. Should it be unable to pay back the heavy interest because of declining export sales or some other reason, it must borrow again, this time from the IMF. But the IMF imposes a “structural adjustment program” (SAP), requiring debtor countries to grant tax breaks to the transnational corporations, reduce wages, and make no attempt to protect local enterprises from foreign imports and foreign takeovers. The debtor nations are pressured to privatize their economies; selling at scandalously low prices their state-owned mines, railroads, and utilities to private corporations,” argued Michael Parenti in his article. 


Critics conclude that IMF and World Bank’s structural adjustments policy do not work because the end result is less self-sufficiency and more poverty for the recipient nations. If that is the case as pointed out by the critics why then does the World Bank and IMF continue to give aid to the poor nations? And critics have answer to this question too. According to them, they pursue their aid and foreign loan programs because such programs do work. The question is, work for whom?


According to the critics, the purpose behind their investments, loans, and aid programs is not to uplift the masses in other countries.


“The purpose is to serve the interests of global capital accumulation, to take over the lands and local economies of Third World peoples, monopolize their markets, depress their wages, indenture their labor with enormous debts, privatize their public service sector, and prevent these nations from emerging as trade competitors by not allowing them a normal development. In these respects, investments, foreign loans, and structural adjustments work very well indeed,” according to Michael Parenti.

Furthermore, some critics say that World Bank is a preacher’s organization.  But I think they are crossing their boundaries by going this far because World Bank has indeed helped nations all over the world during their crisis. But I agree, even World Bank is finding it hard to translate its slogans into action against poverty and hunger.

It has its own drawbacks, and statements and slogans simply couldn’t solve the world’s poverty problem. Had it been the case, then World Bank’s slogan would have easily eclipsed the face of poverty from this world.   But that has not been the case but yet James Wolfensohn, president of the World Bank, however continues to paint a rosy picture of the Bank. James Wolfensohn needs to understand that the passion that the World Bank preaches about is completely missing from its methodologies.

Here at this juncture, it is important to remember that as George Monbiot explains in his book, The Age of Consent, the World Bank was created in the 1940s by US economist Henry Dexter White to be a further projection of US power.  And Mr. George’s explanations are convincing because at times, it seems that the World Bank is created only to exploit the World’s resources in the name of helping the poor and needy.

Another prime accusation against World Bank is that it pursues the interests of the US corporations over the poor, every time. Why the World Bank’s head is regularly American, Why it is based in Washington and not in Africa or some parts of Asia. And why do US always have a permanent veto on its policies. Questions such as these justify the critics claim.

World Bank is not new to criticisms. Both Leftists and Rightists condemn its action. Leftists all over the world claim that the Bank and IMF are representatives of western imperialism, and whereas the right wing in the USA and its cross Atlantic neighbors in Europe has always criticized the Bank and IMF for financing socialism in the Third World. Both of these criticisms are debatable as they hold no concrete truth.


The Cato Institute, a right-wing think-tank, has accused the World Bank in its book, "Perpetuating Poverty: The World Bank, the IMF and Developing World" written by Bandow and Vazquez. The book accused these agencies of financing defective socialist policies and stated that successful Asian countries succeeded despite and not because of aid agencies.


The book made some accurate judgments and revealed the crude economic facts of the developing world. The book, however, was harsh on aid, and it says that aid is likely to postpone the adoption of necessary reforms. But their analysis, however concrete they may be at the time of the Book’s inauguration, is debatable now because underdeveloped countries and the developing countries need aid because they lack capital and in economic terms capital is the main factor of production.


These nations cannot produce capital on their own, so a capital injection is needed as most nations do not have private capital lender. These nations need the World Bank to break their vicious circle. But I am also a firm believer of the fact that Foreign aid only on its own does not always produces results. What developing counties need is a, better targeted funds because in the long run these funds may produce better outcomes.


Furthermore, the World Bank and IMF are criticized for contributing to environmental devastation (in the economically-poor but resource-rich countries that received their aid, according to the media report), and for funding projects that resulted in massive environmental damage. But whatever its flaws supporters observed that these institutions, despite their imperfections, have increased global prosperity through liberalized economies and have given hope to the millions of hopeless.

Everybody is talking about the World Bank now, after the scandal involving former bank president Paul Wolfowitz came into the public eye.  Critics want IMF and the World Bank abolished.  But no matter how much the critics advocate for the abolition of the World Bank and IMF citing some relevant reasons, I think the world sill needs these institutions and the World Bank  together with IMF has a larger role to play in raising the living standard of the poor and needy.

For instance, Sebastian Mallaby, a senior fellow at the Council on Foreign Relations and author of The World’s Banker in his interview to Eric Weiner of supported the need for World Bank though he himself has criticized some of the methodologies of the World Bank.

When asked, “Critics of the World Bank argue that it is a vestige from another era and it is no longer needed. Do you agree?”

He said, “No. I think that's wrong. The reason you need a World Bank is twofold. First of all, there are poor countries that still don't have much access to private capital markets, and these countries benefit from the World Bank. Secondly, there are projects that support global public goods. Take the concern over global warming. If China is building a coal plant, the whole world has an interest in making sure it is a clean coal plant. The Chinese could borrow money themselves and make a clean coal plant, but they are more likely to do that if they are offered subsidized lending from the World Bank. Otherwise, the borrowing countries will say 'Why should we pay extra for a cleaner coal plant?' The benefits are shared globally, so shouldn't the cost be shared globally? That's where the World Bank can help.”

As in previous years, a lot is being asked of World Bank and its policies of late. Critics have lamented the World Bank of being a corrupt organization that has outlived its usefulness. Those criticisms have gotten a boost from the scandal involving former bank president Paul Wolfowitz and the banks horrific past of funding large projects, projects that these developing countries didn't necessarily want but were, in a way, imposed upon them by hook or by crook. 

But it is worth noting here that the Bank responded to these criticisms, and today most critics are saying that the World Bank is the most dependable institution in the world when it comes to the preservation of environment in the midst of development. And yes, the Bank has a new president too.  

Meanwhile, the Bank has its own trials to face and its own mountain to climb. Critics are critics and they will forever criticize. Even God is not free from criticism so what the heck this World Bank is. Hence, if the World Bank is to prove its critics wrong then it must do a better job and talk in social effects than talk in numbers and intentions. It is being asked to be more pro-poor, pro- rural, pro- environmental friendly, and be much more efficient, and focused solely on credit delivery, all in the interests of raising the standard of the poor.

The bank must fight poverty with passion. The time is fast approaching when it needs to take collective responsibility for its own security.  That’s not to say it must transform its policies overnight. But by alarming itself with ground realities of the under developed world and the right policy measures, it can definitely make the process more efficient. Even better, if the Bank is prepared to dive in with the poor, putting their capital, technological assistance, back up plans, and knowledge into action. Whether it’s done by World Bank, IMF or anyone else. The goal is to design a policy that can alleviate poverty, hunger, diseases, illiteracy and lift the status of the poor masses before development stands still and scarcity leaps. 

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Reviewed by Tarek Hassan 8/4/2008
You are making a wonderful and important diagnosis. Who represents the interests of the southern hemisphere and of the poor and the underdog in the World Bank decision-making and vision? If in their own country the poor and underprivileged are excluded from political dynamics and from the process of decision making! Ways and means for more just and fair representation on a national and international scale have to be explored by all people of goodwill
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