January 11, 2005
South Asia's tsunami death toll is a reminder of how many people remain poor and exposed to nature's whims. This, in turn, triggers questions about what has become of the half a trillion dollars in aid that a World Bank created to assist the poor has spent since 1946. We're not going out on a limb to say that much of it never reached intended beneficiaries. The good news is that President Bush will soon have the chance to put his mark on the World Bank when he names a new president this year to replace James Wolfensohn, who plans to step down in May when his second five-year term expires. The bank needs to be reshaped, with a new leader who shares Mr. Bush's view of development.
The bank's operational weaknesses are no big secret. The Meltzer Commission on international financial institutions in 2000 spoke the politically incorrect truth that "loans to these governments are too often wasted, squandered or stolen." The trouble is that those who pay for this waste are not only rich country taxpayers but also the poor who have to labor under heavily indebted governments. This is why the Meltzer Commission recommended that the bank alter its aid model, creating performance-based grants instead of loans and an independent auditing system. A GAO study found that the cost of switching to grants from loans would be negligible.
For the record, we don't put much faith in foreign aid as a development tool. There is no evidence that the two are connected. Nations develop when local leaders decide to establish and defend a rule of law, property rights and monetary stability. Nevertheless, the bank plays a geopolitical role for the U.S., and as long as it is going to exist it is certainly worth improving its efficacy.
Early in his first term Mr. Bush recognized this, calling on "all multilateral development banks" to not only increase their commitment to education but also to "tie support more directly to clear and measurable results." Mr. Bush also embraced the Meltzer concept of increasing "the share of their funding provided as grants, rather than loans, to the poorest countries." Independent auditing is central to this proposal because, as the commission noted, it would quantify progress by measuring things like "improvements in primary education skills, vaccination rates, miles of passable roads, provision of electricity, delivery of water and sanitation." Grants to private suppliers would be paid "after audited delivery of service." In other words, "No results, no funds expended." Genuine do-gooders, take note: The commission even suggested that "grant funding should be increased if grants are used effectively."
The Bush Administration has made some progress on getting the bank to use grants instead of loans but, not surprisingly, independent auditing remains taboo. And this means that the grant system cannot work effectively. A new bank president could break that taboo, though it will have to be someone willing to ride through the inevitable criticism from the aid bureaucracy. Of the candidates mentioned in the press, none of the above argues for Christine Todd Whitman, the former EPA chief who bends with the prevailing media winds. Colin Powell would bring star quality but not economic experience to the task, while former Michigan State University President Peter McPherson was one of those who helped develop post-Saddam Iraq's pro-growth economic policies. (Mr. McPherson is also on the board of Dow Jones & Co., which owns this newspaper.)
Mr. Bush has pledged a second term of big ideas, and reform of the international financial institutions certainly qualifies. In a battle for the hearts and health of the developing world, the World Bank is a terrible thing to waste.
More Information on the World Bank
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