Almost 16 years ago, Robert McNamara visited Upper Volta (presently Burkina Faso) as President of the World Bank. In his report to the Directors of the Bank upon his return, McNamara suggested that, since the people living along the Volta River suffered from river blindness, the Bank´s priority should be to rid the region of the disease before making economic investments there. This realistic assessment of problem in Upper Volta prompted the Bank bureaucracy to turn its attention to the health sector as well.
McNamara´s tenure brought to the World Bank a leadership which was sensitive to the problems of the least developed countries. Today, the World Bank is quite distanced from McNamara´s vision. It has slowly reverted back to its old pattern of investment, interest and profit earning. This is clear from the conditionalities being imposed by the Bank on Nepal and other developing countries.
The World Bank is not a commercial bank. It is supposed to be an investment bank to provide relief to the poor. Unfortunately, it has evolved as an intermediate between “investors and recipients, borrowing from one and lending to the other,” So Jong as there is the motive of profit through interest, the Bank will remain unconcerned about the result of its investment in developing countries.
The Bank´s August 1990 report on Nepal, Relieving Poverty in a Resource Poor Economy, states: “Nepal is a very poor country in which the Bank and the donor community have made substantial investment [presumably with the objective of raising living standards] but with little understanding of how our programmes affect the incomes of the poor.” While this statement is certainly honest in its self-indictment, it also indicates that an institution on which Nepal´s Government and people have laid so much trust has really been groping in the dark.
Instead of helping developing countries control their galloping inflation, the Bank has made the situation more agonizing. It pressurised the Nepali Government to increase the electricity tariff by a whopping 61 per cent (as announced, but actually the hike was much higher for many consumers). If inflation´s concrete reality is price-rise, then by its action the Bank forced Nepal to raise prices so that it would automatically face inflation, thereby obliging it to go a begging to the International Monetary Fund.
This brings us to the connection between the IMF and the Bank. There exists a lot of confusion as to whether the Bank and the Fund are the same or different. John Maynard Keynes, a founding father of the two institutions had thought that the Fund should be called a bank, and the Bank a fund. Although the two institutions are distinct entities, according to a brochure of the Fund, the two appear complimentary. The brochure says: ´The Bank´s activities have increasingly reflected the realisation that the pace of economic and social development accelerates only when sound underlying financial and economic policies are in place. The Fund has also recognised that unsound financial policies are´ often deeply rooted in long-term inefficient use of resources that resists eradication through short-term adaptations of financial policies,”
Neither the Bank nor the Fund has been able to contribute to the stability of the international monetary and financial system, nor to the fostering of balanced economic growth among its members. Therefore, the Bank and the Fund should review their entire policy towards developing countries and cease supervising the economic policies of those countries as such supervisions have not led to positive results. The colonial era is long past, but today the former colonies and other Third World countries have come under the thumb of another power, the IMF, with the World Bank in the role of supportive actor.
DEBT SERVICE DIVINE
The arm-twisting which resulted in the raised electricity tariff rates in Nepal was a classic example of bad advice in which the Bank ignored the fundamental principles of wage-price indexing. In the country where the Bank is headquartered, a four hours´ wage of an ordinary labourer is enough to meet a month´s electricity bill. In Nepal, for the same amount of electricity, a senior civil servant would have to divest .himself of more than 21 days´ salary. How do the Bank bureaucrats expect such a situation to lead to development of the country?
The Bank should, no doubt, work towards its stated objective of promoting economic well-being in the developing countries. And this should take the form of periodic advice. However, the advice should always be for the good of the recipient developing country.
The Bank itself maintains that the per capita commercial energy consumption in Nepal is among the lowest worldwide and almost one-tenth of the per capita commercial energy consumption of India. So what should the Bank do it in this regard? Obviously, help raise the energy consumption of Nepal to the level of its neighbours, if not to that of the developed . countries. Instead, while pleading that it is devising programmes to benefit the poor, the Bank imposes conditionalities which make the already-poor even poorer. The Batik and the Fund themselves have not been able to grapple with the challenges that arose due to the collapse of the par value system. How can the Barik´ s advice on structural adjustment help developing countries extricate themselves from the quagmire of underdevelopment? Comparisons with the United States, where access to electricity is 100 per cent, that to safe public drinking water 98.6 per cent, and public sewage collection 99.2 per cent, might not serve our purpose. But should not the Bank´s assistance be directed towards helping the Nepali people have greater access to basic services rather than to restrict their consumption through exorbitant rises in utility charges and slicing their earnings, all in. the name of higher debt service to the Bank?
ADVICE WHEN NEEDED
The Bank has been advising developing countries that privatisation, ending of farm subsidies, and non-hoarding of gold are some of the solutions to their economic ills.
Privatisation is essential to modernise a command economy. But the concept of a command economy has practically ended with the collapse of communism in Eastern Europe. Privatisation does promote individual initiative but such initiative existed in many developing countries long before the command economy stepped in. Even after the collapse of communism, command economies still exist in some democratic countries in the guise of central planning. It might be better on the part of the Bank to advise those democracies which have not yet dissloved central planning to do so, as its underlying concept goes contrary to the values of pluralism and democracy.
If disposing of state-owned sick industries is part of privatisation, who would be prepared to invest in such infirm industries? In 1986, the Philippines Government decided to privatise 3% industries worth about seven billion dollars. But despite the huge and continuous inflow of American and Japanese capital into the country, not one party came forward to buy even a single industry.
As for the question of ending farm subsidies in developing countries, if this is the basic criteria of development, why are the American and European Community farmers getting annual subsidies to the tune of more than U$ 49 billion.
Regarding the gold holdings of developing countries, one has to look to the most significant politico-economic decision made by U.S. President Richard M. Nixon about two decades ago, when he de-linked the dollar from gold. In these 20 years, the international price of gold has jumped twelve-fold and in countries like Nepal and India, where the import of gold is banned, the price has jumped by more than 30 times. During this period, the real value of the dollar in terms of gold has gone down to eight cents, excluding the downward slip of the dollar through inflation. If hoarding of gold were so anti-development, then the most developed country in the world, the United States, would not have a gold holding of 262,060 million fine troy oz., which is 27.71 per cent of the world reserve, leaving aside the enormous gold reserves with the government of other developed countries and their central banks. If Nepal had not been advised to put a ban on gold import, it -would have been richer by 30 times over the course of two decades.
1818 H STREET
The World Bank is an association of economists and bankers. At their headquarters at 1818 H Street in Washington DC, they prepare economic sermons for the developing countries. Off and on they visit these countries on luxury trips and Tely on the advice of research groups they themselves have funded, which mostly include former bureaucratic elites. As a result, opaque reports are produced which are then forced upon the developing country concerned, with conditionalities the Bank bureaucrats consider to be in their own best interest.
Economists are famous for having differing views. When the likes of Milton Friedman, Paul Samuelson and Simon Kuznets, all Nobel Prize recipients, met, they rarely reached a common solution to the economic problems facing the United States and the World. It is, therefore, rather difficult to consider the advice of World Bank bureaucrats as sacrosanct for the development of developing countries.
At least, if bad advice was corrected later, one would have some faith. But Bank officials seldom change their decisions. Two decades ago, when the opinion of Nippon Koei was submitted on the Karnali hydroelectric project, the author, in his capacity as Nepal´s representative to the United Nations, visited Sir Robert Jackson in New York, where he was serving as an advisor to UNDP. A request was made through him to the World Bank for the funding of the Karnali Project. Sir Robert checked with the Bank, who advised him that Nepal should seek a second opinion. That was how the Snowy Mountain consultancy of Australia got involved. Since then, opinion after opinion has been sought by the Bank without any funding forthcoming for implementation of the project itself. And whatever loans have been approved of for Kamali has been for the upkeep of Western consultancy firms, who have made millions of dollars through the “project”. It would seem that the Bank will not approve any funding for Kamali unless there is, in its view, a severe energy crisis in the region. Ofcourse, such as crisis already exists, but the Bank bureaucrats are not prepared to accept it as such.
Through its system of weighted voting, the Bank is controlled by the developed countries. These countries do no t need to borrow from the Bank. The borrowers are the poor developing countries whose total external debt has crossed the 1.4 trillion dollar mark. During the 1980s, the Bank concentrated its lending on Latin America. Today, these countries are up to their necks in debt, so the Bank is searching for new pastures — which is why the countries of South Asia have become the target of additional lending. Meanwhile, the collapse of communism in Eastern Europe and the death of the Soviet Union have presented the Bank with additional fertile ground for investment. If tnese countries, too, decide to blindly accept each and every advice emanating from l8l8 High Street, the odds are that they, too, like their third world counterparts, will lead themselves into the quagmire of debt and decadence in the name of- development.