CSIS Study Critical Of World Bank, Other Development Banks For Failing to Carry Out Reforms

(18 September, 1997 — Washington) A report released today by the Center for Strategic and International Studies criticizes the World Bank and other Multilateral Development Banks (MDBs) for lack of progress in carrying out long overdue reforms and for emphasizing loan approval rather than the quality of projects carried out in developing countries. The Environmental Defense Fund (EDF) served as a member of the eighteen month long task force study of MDBs, chaired by U.S. Representative John Kasich and former U.S. Senator Bill Bradley.

“Nowhere is the failure of long overdue reform more troubling than in the World Bank,” said EDF attorney Bruce Rich. “Recent internal Bank studies indicate that the problem is not with most Bank staff, but with top management, many of the very people who are carrying out the current Bank reorganization. The studies observe that the higher up in the organization one goes, the more loan approval becomes a proxy for development success.”

“Corporate boards have ousted the chief executives of major U.S. corporations —one of the management models that some MDBs now look to — after a little more than a year if they cannot reverse institutional decline,” said Rich. “There is growing evidence that rhetoric notwithstanding, the MDBs are not taking credible actions to create incentives for effectiveness on the ground rather than judging success by loan volume.”

A comprehensive internal World Bank portfolio review over the past year concludes that “the lessons of past experience are well known, yet they are generally ignored in the design of new operations, and that “institutional amnesia is the corollary of institutional optimism.” The most recent Bank internal audits (March, 1997) estimate that the percentage of projects of “likely sustainability” is 46%, a figure that plunges to only 27% for Sub-Saharan Africa. These figures have not changed appreciably over the past six years. Two other recent internal studies conclude that the Bank’s environmental and poverty assessments have little impact on influencing project design.

The Bank’s ongoing reorganization is reinforcing this much criticized “culture of loan approval.” It is concentrating more power, with less countervailing quality controls in Bank country managers, who are under the most pressure to approve loans rapidly. The current Bank administration has changed the Bank’s business procedures to accelerate loan preparation and approval, and is undertaking a systematic simplification of Bank policies, which in practice has led to the weakening of critical environmental and poverty alleviation mandates.

“The problem is the World Bank makes contradictory promises to different constituencies. To borrowers it cites the need to simplify and speed up Bank lending procedures in spite of the conclusions of earlier Bank studies that disbursing loans of dubious quality to please its clients has led to its current crisis. To national legislatures that fund the Bank and to non-governmental organizations, it promises more attention to project preparation and implementation of its social, economic and environmental policies,” said Rich. “The Bank asserts there is no contradiction here at all, but the evidence is overwhelming that its crisis of project quality continues, with disastrous implications for the world’s poor and the global environment.”