The World Bank adrift

In the World Bank, the bank’s permanent staff won the power struggle and defeated Paul Wolfowitz. This is neither a case of the good guys defeating the bad, nor of the bad defeating the good.

Paul Wolfowitz was by all accounts an incompetent manager, with a track record of being an incompetent manager. By training and personality he was a back-office weapon systems analyst. That is not an obvious qualification for a management position.

The World Bank lifers operate a racket, lending money to middle income countries, making money on these loans, and using the money to sustain World Bank operations, i.e. themselves. It boggles the mind that the Bank lends money to China and Mexico.

You get absurd statements such as this,

Developing Nations Lured to Private Lenders

IPS, 30 May 2007 – Developing nations, their corporations and banks are turning en masse to volatile but enticing commercial debt markets to replace official loans and stalling foreign aid, the World Bank said Tuesday.

“Lured”? What we have here are functioning capital markets. The World Bank was set up after World War 2 in a situation where countries could not obtain commercial loans. Now most countries can.

The incoming Word Bank president, Bob Zoellick said about the World Bank that it was “one of the cornerstones of the architecture designed by the founders of the international marketplace and system of security after world war two” and remained “just as important today as it was then”.

Well, no. The Bank is, fortunately, a lot less important now that it was then. In terms of investments in poor countries, since about 1990 private capital flows have greatly outpaced public loans and aid. That is progress. Since 1990 millions of people, mainly in China and India, have been lifted out of poverty. Foreign aid had very little to do with it.

There probably is and should be a role for the World Bank, e.g. in delivering grants to the poorest of the poor countries.

It is absurd that the U.S. can appoint its president without looking worldwide for the most qualified person, and that the Europeans can appoint the president of the IMF. But the World Bank urgently needs a complete overhaul, going way beyond this narrow governance issue.

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