World Bank weary

November 1, 2007

Free Market Foundation

As globalisation transforms the world economy, the World Bank’s comparative advantage for lending to poor countries is gone and its role diminished, says Adam Lerrick, professor of economics at Carnegie Mellon University.

There are new competitors without the bank’s social wish list:

China, Brazil, India and Russia are funding infrastructure and industry for even the poorest countries, to lock in access to raw materials and export markets.

China alone will send $25 billion to Africa over the next three years, 50 per cent more than the funds coming from the bank.

Sovereign wealth funds from Singapore to Abu Dhabi are searching for profit in remote places; a groundswell of private giving is taking on the task of aid basics.

Further, private capital now channels 300-times bank funding to the emerging world.

The increase in competition is welcome given the bank’s track record, says Lerrick:

After 60 years and $600 billion, almost all of the 500 million people who have risen above the poverty line in the past 25 years can be found in China, India and Indonesia, whose impressive economic gains have little to do with bank aid.

For two decades, the bank poured money into poor countries clearly unable to repay; worthless loans were repeatedly rolled over until a public outcry for debt relief forced G-7 governments to make the bank whole in 2005.

By the bank’s own numbers over the 1990-99 decade, 59 per cent of investment programs worldwide and 80 per cent in Africa failed to achieve satisfactory long-term results.

The rubber stamp from rich donor nations that the bank considers its birthright should not be forthcoming without conditions that prevent more multi-billion dollar failures in the same poor places, says Lerrick.

Source: Adam Lerrick, World Bank Weary, Wall Street Journal, October 19, 2007.

For text: http://online.wsj.com/article/SB119275978380264493.html

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

FMF Policy Bulletin/ 23 October 2007