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World Bank faces rising competition, with or without Wolfowitz

World Bank faces rising competition, with or without Wolfowitz
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First Published: Mon, May 14 2007. 10 24 AM IST
Updated: Mon, May 14 2007. 10 24 AM IST
Christopher Swann and Rich Miller, Bloomberg
Washington: The World Bank faces increasing competition for government development money whether president Paul Wolfowitz is able to hold on to his job or not.
The bank must contend with a proliferation of groups vying for public money for causes such as HIV and malaria. Governments are channeling more aid through their own national agencies. And middle-income nations such as China and India can raise money from investors without the help of the World Bank.
“The bank faces big strategic challenges,” said Colin Bradford, a fellow at the Brookings Institution in Washington. “Competition for government cash is increasing and the bank’s most profitable clients are now less dependent.”
Wolfowitz, accused of violating ethics rules when he arranged a promotion for his partner, is fighting for survival. A vote by directors to censure or dismiss him may come this week, just as he gears up for a campaign to raise as much as $28 billion (Rs1,14,817 crore) for the International Development Association, the arm of the bank that dispenses grants and low-interest loans to the poorest nations.
The chances of Wolfowitz quitting by 30 June were 68% as of 6:36 pm yesterday in New York, according to contracts traded on Intrade, an online electronic exchange based in Dublin. Traders put the odds of U.S. Attorney General Alberto Gonzales resigning at 30%.
Dwindling Share
The share of global development money flowing to IDA has fallen to 20% from about 42% in the 1970s, according to a World Bank report.
New competitors include the Global Fund to Fight Aids, Tuberculosis and Malaria, which last year garnered $2.1 billion in government pledges, and the Global Alliance for Vaccines and Immunization, which was started with a grant from the Bill and Melinda Gates Foundation and was given $350 million by the U.S.
These so-called “vertical” funds are grabbing a larger share of government aid money because they focus on issues that capture the imagination of donor nations and the public.
The agencies can also measure their results more easily. For example, the Global Fund for AIDS, Tuberculosis and Malaria said it had distributed 18 million malaria nets and supplied 770,000 people with HIV medication by the end of 2006.
By contrast, the World Bank finances more mundane projects such as roads and training officials.
The group “gives the kind of support that does not immediately tug at the heart strings,” said Dennis de Tray, a fellow at the Center for Global Development in Washington and a former World Bank director.
‘Hard to Deliver’
World Bank projects fund services that are needed to provide other forms of aid, argues Vinod Thomas, head of the bank’s Independent Evaluation Group, which measures the effectiveness of its operations. “It’s hard to deliver HIV medication without roads or fight any number of communicable diseases without clean water and sanitation,” he said.
Governments are increasingly channeling their aid through their own agencies. Bilateral aid rose to 78% of the total in 2005, after holding at about 70% in the prior three decades.
The U.S. contribution to the World Bank didn’t change in the three years through 2005. By contrast, direct U.S. aid to sub-Saharan Africa almost quadrupled in real terms between 2000 and 2006, to more than $4 billion, according to the Center for Global Development.
‘Look Good’
“Nations do not generally allocate aid in order to maximize poverty reduction, but in order to make their country look good and keep the electorate satisfied,” said William Easterly, a former World Bank official who’s now a professor at New York University.
One result has been a proliferation of government-sponsored agencies. The U.S. has some 40 agencies, including two created by President George W. Bush: The Millennium Challenge Account, set up in 2004 to help the best-governed countries, and the President’s Emergency Plan for Aids Relief.
That has put a burden on recipient nations, which have a limited number of officials trained to deal with them. Many of those officials are being poached by the agencies, according to the World Bank.
The bank has tried to attack that problem by stepping up efforts to educate officials and by working with other donors to avoid duplication.
“The World Bank and IDA provide the glue that is holding the system together,” Thomas said. “It is becoming more essential in linking projects together, thereby helping to get better results from the work of the growing number of donors.”
China, Mexico
The bank is also being challenged to justify lending to middle-income countries such as China and Mexico, which came to more than $14 billion last year.
That “makes no sense at all” because these countries can readily tap capital markets, said Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts.
Mexico last year borrowed $1.8 billion from the bank’s main lending arm, the International Bank for Reconstruction and Development. In the same year, Mexico secured $19 billion from banks and investors.
“Whether Wolfowitz stays or goes, the bank faces fundamental problems,” said Manish Bapna, a former World Bank economist and now executive director of the independent Bank Information Center in Washington.
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First Published: Mon, May 14 2007. 10 24 AM IST