Robert Zoellick is all set to take over the reins of the World Bank at a time when the credibility of the Bretton Woods Institutions is at a low.
This credibility deficit is the result of a mix of issues. The selection procedure for the top jobs at the Bank and the International Monetary Fund (IMF) is rigid and lacks transparency. There are structural issues as well that have evolved over time and which, unless tackled systematically, will only reduce the effectiveness of the World Bank.
First, why must the presidency of the Bank be held by an American only? The circumstances and problems of the 21st century are very different from those that existed in 1946, when it was set up. Why not try an Asian, African or South American for the top job at the World Bank?
For every senior administration job in the US, a nominee has to run a confirmation gauntlet. In the case of the Bank and IMF, the process lacks transparency and, at times, the appointees spend a large part of their time in dousing fires ignited at the time of appointment. In a world where the number of people living with less than $2 (Rs82) a day is huge, the chief executive of the Bank should have many other calls on his time other than firefighting.
The structural issues are difficult to resolve and prevent the movement towards a more prosperous world. For example, the Bank faces a difficult task—that of ensuring credible commitments from the recipients of its advice and aid. Making sure that countries in economic trouble stick to the prescribed medicine has never been easy.
The problem is acute both in democracies and dictatorships. In the former, populist pressures and the inherent nature of democracy make a return to profligacy inevitable. In a dictatorship, how does the Bank ensure the strongman will not simply ignore sound economic advice? These political constraints were ever present but, in a financially seamless world, their effects are felt with much greater intensity.
The mandarins at the Bank have been unable to resolve a conflict of interest that is built into the fabric of its existence. The Bank’s twin jobs as a lender of money and a fount of good advice cannot go hand in hand beyond a point. If it pushes too hard for reforms, its clients, which are sovereign states, will turn elsewhere for aid. There are many others who are willing to lend cheaply today, unlike 20 years ago.
Part of the weakness comes from the lack of coordination between the Bank and its sister institution, IMF. In a typical crisis situation, IMF will bail out the country in trouble. The money it lent is tied to a set of prescriptions the country in question had to follow. These were the much maligned “conditionalities”. In such a situation, the Bank’s advice fell on attentive ears.
In this age, especially after the Latin American disasters earlier this decade, IMF isnot so sure and the odium that accompanies the “conditionalities” has made things much more difficult.
All countries know this. India is a case in point. The so-called second generation reforms, which include agriculture, state finances, labour market flexibility, are rarely talked about. Even reforms initiated at the state level, such as abolition of free power for farmers, have been rolled back. Paul Wolfowitz’s tribulations, in part at least, were attributable to this. His efforts at controlling corruption were deeply unpopular with Third World elites.
Any advice that impinges on the privileges of these leaders is resented by them. There is a chorus of NGOs and academics in the West who pick up the cue, and argue against the Bank’s “undemocratic” ways. Predictably, permissiveness disguised as political correctness is the result. The Bank cannot be tough. Now, it cannot even appear to be tough.
Can Robert Zoellick make the World Bank credible once more? Write to us at email@example.com