Courtesy Reuters

Broken Bank

By Joel Bergsman and Peter Richardson

To the Editor:

Jessica Einhorn notes correctly that the World Bank has taken on too many objectives and tasks, and that it must scale back its activities ("The World Bank's Mission Creep," September/October 2001). But she does not offer a guide to that effort. The bank should use its competitive advantage to pursue two policies: a near-exclusive emphasis on activities that the private sector cannot do sufficiently, and a reduction of the extensive duplication among the bank and other institutions, especially the International Monetary Fund (IMF), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA).

The bank should focus on financing education, large or risky infrastructure projects, preventive health care, and environmental protection. (Its recent foray into reforestation is a praiseworthy instance of this approach.) Guarantees and insurance available from the IFC, MIGA, national agencies, and the bank need to be rationalized; the bank's institutional requirement of a guarantee from the recipient government suggests that it should leave this business to others. Much "wholesale" lending aimed at private-sector borrowers should similarly be left to the IFC and the private sector to avoid requiring a guarantee from the recipient government. What is not an appropriate strategy is the bank's retreat from sectors such as hydroelectric projects: a regrettable concession to self-appointed rich-country nongovernmental organizations. Responsible lending in this and other now politically incorrect fields would be a valuable service the bank could render.

The bank could also leave much of the work of policy advice to the IMF -- which does it already (albeit imperfectly) -- and concentrate on a narrower agenda of project and program finance. Learning, organizing, and effectively diffusing the lessons of the last 50 years of economic development efforts is another obvious potential strength of the bank. It talks about being a "knowledge institution" but usually falls far short of the adequate funding or organization necessary to fulfill this role.

Joel Bergsman

Former Manager, International Finance Corporation (World Bank Group)

To the Editor:

In detailing the World Bank's "mission creep," Jessica Einhorn has confused inputs with outputs. The bank's overarching mission has long been and remains poverty reduction. Experience has taught that, to reduce poverty, attention must be paid to environmental concerns, the role of women, corruption, postconflict rehabilitation, institution building, and development policies -- all of which cut across the traditional sectors of bank work. Like health, education, and infrastructure, these additional aspects, together with structural adjustment and debt relief, are essential to reducing poverty.

One key to the bank's effectiveness has been its ability to help each recipient country set priorities among the many possible development activities. If, as Einhorn suggests, the bank were to devolve important aspects of its work to other international agencies, this ability would be lost; the essential aim of helping countries balance competing demands would become close to impossible. That is one area in which the bank's hierarchy of decision-makers would help.

The other agencies that might pick up selected bank functions would be poorly positioned to advise countries credibly about setting priorities among their competing needs -- even if such agencies were well run and even if they had the bank's money and influence, which would be unlikely. Moreover, unless these other agencies all had financing functions, they would have little ability to get a good hearing and then exert the necessary influence. To support financing, the international specialized agencies would have to obtain loanable funds from the bond markets on terms comparable to those the bank receives, which would be unlikely. For increased grant financing, they would have to surmount the already great difficulties of prying adequate appropriations from national legislatures. In short, devolving selected bank functions to the regional development banks rather than to specialized agencies would simply transfer the problem to organizations less able than the bank to handle it.

A sector-based division of labor among the World Bank, the relevant regional development banks, and other donors might make sense within a given country, but a global division of responsibilities would not. To solve the bank's internal management problems by transferring its functions elsewhere would harm the international effort to reduce poverty.

Peter Richardson

Former Adviser, Institutional Change and Strategy Department, World Bank

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