(April 14, 2014) A pledge by the World Bank’s new President Jim Yong Kim to increase spending will produce the same bad results that have plagued the Bank for decades.
This article by Patricia Adams and Brady Yauch first appeared on the Huffington Post.
The World Bank wants to add tens of billions of dollars to its annual budget in an effort to eliminate “extreme” poverty by 2030. But decades of mismanagement in which it financed white elephant projects across the developing world that robbed citizens of their property, destroyed the environment and helped government leaders line their pockets, give little hope that more of the same will do more good than harm.
The World Bank’s President, Jim Yong Kim, expects the agency to back $70 billion worth of projects annually — a 40 per cent increase over the amount it currently spends. Along with that increase, Kim says, will be a new focus on what he calls “middle income” countries that include, among others, economic powerhouses such as China, India and Brazil. Despite rapid economic growth, those countries still house a large percentage of the world’s poorest citizens. These middle-income countries are expected to receive about $28 billion a year in support from the World Bank, nearly double the current $15 billion.
Kim’s announcement is part of a larger makeover of the World Bank, which has become increasingly overshadowed in recent years by well-funded aid groups like the Bill & Melinda Gates Foundation. The full details of the new plan are being presented at this week’s spring meeting. Kim is trying to dramatically overhaul the institution by turning it into what he calls a “Solutions Bank.” Part of that transformation includes establishing 14 “global practices,” which are “communities of experts” within the Bank that focus on certain areas of development, like agriculture, energy and water. In the past, the Bank was largely broken down by region.
Yet, Kim’s attempt to transform the World Bank doesn’t undo the moral hazard, corruption,odious lending, and environmental damage that has plagued the bank for years.
In his recent speech to the Council on Foreign Relations, for example, Kim justified the Bank’s approval of funding to the Grand Inga hydroelectric project in the Democratic Republic of Congo on the grounds that it would provide much-needed energy for Africa and propel economic growth and development on the continent. But there is no reason to think that the staggering $80 billion project — involving six phases, producing as much as 40,000 MW (more than Three Gorges, currently the largest hydropower project in the world) – will fare any better than the existing dams.
Inga I and Inga II, completed in 1972 and 1982, respectively, have operated at a mere 30 per cent of their capacity. A four-fold cost overrun in the World Bank’s project to rehabilitate Inga I and II — from $200 million to $883 million — make the much larger investment in Grand Inga look decidedly dodgy. For those who will be resettled to make way for the new dam complex, the future is dim, given that those who were thrown off their land by Inga I and II have yet to be compensated.
Elsewhere in Africa, World Bank promises to fix its lending practices have proved hollow.
In 2000, a multibillion-dollar project to build a pipeline from remote oilfields in Chad through Cameroon’s rainforest — the largest investment on the African continent — was approved after an army of oil companies, financiers and environmental experts were brought in to ensure that the pipeline would sustainably raise living standards of the poor.
Nine years later, according to a new book by long-time Bank critic, Bruce Rich, the pipeline was built, oil flowed, Chad’s military budget grew 20-fold, corruption soared, the benefit-sharing scheme had unraveled, and child and maternal mortality was on the rise. Meanwhile, a World Bank-financed dam is flooding part of the forestry reserve that was to offset the pipeline’s ecological “footprint” in Cameroon.
Environmentalists decry World Bank recidivism and argue that the Bank’s “loan approval culture” is driving staff to shovel money out the door without proper controls.
To be sure, Bank staff confirms that highlighting the social risks of a loan is “career suicide.” In a recent internal survey, Bank staff reported a pervasive “culture of fear” — only 46 per cent believed they could report unethical conduct “without fear of reprisal.”
That fear helps keep a lid on whistle blowing about corruption. Jeffrey Winters of Northwestern University estimated in testimony before a Congressional Committee that at least 30 per cent of the World Bank’s multibillion-dollar annual disbursements leaks into private pockets. Former Federal Reserve Chairman Paul Volker, who was brought in to assess the Bank’s institutional integrity problem, called it massive.
When projects fail to generate the wealth needed to repay their World Bank loans – weighed down by corruption or myriad other technical or environmental problems – the Bank funnels fresh cash in the form of “development policy loans.” These fungible and corruptible loans are then available to indebted governments to keep them in good standing at the World Bank.
Indeed, the Siamese-twin nature of the Bank’s economically challenged loans and malfeasance creates an unmistakable pattern. The primary purpose of World Bank projects is as a vehicle for corruption. Economic feasibility and environmental viability be damned.
This is unsurprising given the Bank’s governance structure in which half of the Board of Executive Directors represents the borrowing countries.
According to Forbes reporter Richard Behar, those borrower-directors consider their job to get as much money for their countries as possible — “supervising a global pork-producing machine, where everybody votes in favor of one another’s projects and nobody abstains from voting for their own.”
Or, as Robert Holland, former CEO of Triton Energy who served as U.S. World Bank Director from 2001 to 2006, puts it, “the inmates are running the asylum.”
Given the conflict of interest and moral hazard that plagues the World Bank, and its above-the-law international status, no one can stop the ruinous lending. Not even President Jim Yong Kim whose attempt to turn his bank into a silk purse will inevitably fail.
Patricia Adams is executive director of Probe International. Brady Yauch is executive director of Consumer Policy Institute.
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