The Multinational Monitor

JUNE 15, 1985 - VOLUME 6 - NUMBER 7

B A N K I N G   O N   D I S A S T E R

Debunking the World Bank

an interview with Cathy Watson

Cathy Watson, co-author of Aid: Rhetoric and Reality, former researcher at the World Bank's Office of Environmental Affairs and one-time editor of the Multinational Monitor, talks with the Monitor about why projects the World Bank funds so often end in failure.

Multinational Monitor: Your recent book, Aid: Rhetoric and Reality, is highly critical of the World Bank's involvement in Third World development Why are (he funds of the World Bank failing to produce real development'?

Cathy Watson: The biggest problem with World Bank loans is the pressure and the pace with which they are put together and carried Out. Usually Third World countries come to the World Bank to ask I-or funding for projects that are fairly well advanced. The bank then sends people down to look at the projects, these staffers are under a lot of pressure to commit money. They have targets for lending which they want to reach. So what invariable happens is that they will overestimate the need for a project and ignore a lot of factors that will stand in the way of the project's success.

Monitor: Does the World Bank have an adequate infrastructure to appraise and carry out these projects'?

Watson: One of the problems with the Bank, as I said before, is that they have these targeted amounts of money that they want to lend and that amount of' money has to increase each year. All institutions have to grow and the World Bank isn't spared from that kind of pressure. When a World Bank staffer goes from Washington to a Third World country he or she has got to appraise new projects as well as supervise old projects. The pressure to lend is such that they tend to focus almost entirely on appraising the new projects and don't supervise the old projects. The statistic used in World Bank documents is that four times as many person hours are spent appraising new projects than are spent supervising old projects.

Monitor: But it is not just that the World Bank does not properly oversee its projects. often the projects they fund are inappropriate, if not economically and environmentall_y destructive. Why are such projects pushed through by the World Bank and then approved by participating countries'?

Watson: When I was working at the World Bank we had a project that was clearly going to be unsuccessful agriculturally and very unsound environmentally - the El Retorno project in Colombia. It was quite clear from our point of view in Washington the environrnenlalist and agriculturalist point of view-- that this was a very unsound project and vet the project stall were pushing for it very hard and we were hearing from them that the Colombians were strong advocates of this project. It transpired later that the Colombians were also having to fight o(( this project, sections of ill(, Colombian government were trying very hard to get other sections not to Lake on [his pro jcct.

What you see is (hat once file bank has gone a certain number of person-hours and hundreds of thousands of dollars down the road in appraising a project they extremely loathe to turn around and say 'right that was a dead end, we aren't going to fund that project.' In the El Relorno project, a World Bank member impressed upon the Colombian government that lie had done a considerable amount of work on this project and didn't want to stop now, even though evidence was coming in from all sides including internal evidence from the Bank that it wasn't a sound project. You can actually get situations in which a country doesn't want a project and the Bank is thrusting it upon them.

Monitor: In your book the World Bank is charged with undermining land reform, particularly in Latin America. Despite stated Bank policy supporting such reforms, how have specific loans affected land reform`?

Watson: The Bank's program on land reform has really been neglected by critics and it is something that needs to be looked at. In the mid 1970s the World Bank produced a policy paper on land reform and in many ways it was quite a synthetic document, stressing the centrality of land reform in improving conditions for people in the Third World and in halting the exodus from rural areas to cities.

In Honduras and El Salvador World Bank staff actually lobbied governments to alter legislation raising the amount of land _you could own before you would be considered for expropriation.

Latin American governments were never committed to land reform as you can see by the way that they have encouraged multinationals to acquire large tracts of land and have stood by while multinationals forced people off the land, as Carnation did in Colombia. The World Bank has really colluded with governments' reluctance to implement land reform. The Bank has always hidden behind the argument that land reform is basically a sovereign issue and that you can't pressure a country to carry out land reform. There are various holes to that argument. The World Bank in fact pressures countries do a whole lot of things and it is inconsistent to single out land reform for noninterference.

Monitor: What is the World Bank's current position on land reform?

Watson: The World Bank can't lend to the large landowners because of distributeional concerns but Iending to small farmers is very difficult particularly in countries where the governments don't have the extension workers and the infrastructure that is needed it you arc going to reach a lot of small farmers. What the World Bank has ended up doing in a lot of Latin American countries in particular is lending for settlement schemes in tropical forest areas, in other words opening up new lands. Land that is not particularly well suited for agriculture, that's ill(, reason why no one is living there at the moment. In fact its extremely hard to eek out any kind of living in these areas. 'I'll(, Bank has been involved in large settlement schemes in Colombia, Brazil, Ecuador and Peru. These settlement schemes are usually extremely Unsuccessful for the people who are file actual settlers, they have to exist in extremely adverse and isolated conditions often with rainfall that extends most of the year round and soils arc very bad. Environmentally they are very unsound.

Monitor: Some critics charge that the World Bank is less interested in the specific projects it funds than it is in ensuring that certain conditions attached to these loans are fulfilled, do you think this criticism is accurate?

Watson: The World Bank obviously prefers countries that deal very leniently with multinationals. The Bank won't for example loan to countries if they expropriate and do not recompense for the assets of companies. In a general way the Bank has always pushed for Third World countries to be lenient and to create very good investment climates for multinationals. And certainly. for example, in Brazil and Ecuador and many other Latin American countries one of the conditions o( the livestock loans would be that the country remove controls on exports. Often these countries actually limited the amount of beef that can be exported because they wanted to maintain domestic beef consumption. In order to qualify for the loans the beef export controls have to be removed and what results is that beef floods out of the country. People within the country. because of higher prices and shorter supplies, are forced to cut their consumption of beef. That sort of thing certainly would benefit multinationals who own beef ranches in Latin America like Armour Swift and McDonalds.

In the long run, when one evaluates World Bank projects and the Bank's reports on such projects, it seems that the Bank is more concerned with the conditions that are attached to the projects then they are about the success of the projects themselves.

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