The Multinational Monitor

MAY 1987 - VOLUME 8 - NUMBER 5

T H E   C A S E   A G A I N S T   C O R P O R A T E   C R I M E

The World Bank: Austerity Comes Home

by Samantha Sparks

In an unusual public display of discord at the world's largest development agency, 600 World Bank employees took time out from their lunch hour April 23 to voice concern over the Bank's impending reorganization.

A meeting in one of the Bank's central courtyards, ostensibly closed to the press, had been called by the staff association to talk about the imminent overhaul of the Washington-based lender that may cost at least 500 people their jobs by the end of this year.

Most Bank staff are said to agree that the re-organization, the most extensive action of its kind in 15 years, is needed. But with the first round of cuts slated for June 1, anxiety among the Bank's 6,000 international employees has reached a fever pitch.

The lay-offs, proposed to Bank President Barber Conable by an internal review committee, are part of an across the-board restructuring intended to make the Bank more cost-effective and responsive to developing countries' needs.

A high-level panel appointed by Conable to study the re-organization has concluded that, "fundamental changes in Bank structure and procedures are required" to keep the $80 billion institution on the leading edge of development assistance, according to a confidential report obtained by the Monitor.

The World Bank has come under sharp criticism since the 1982 debt crisis from both developing nations and Western analysts who charge that the Bank is too slow to help the Third World adjust to adverse changes in the world economy.

And, although U.S. Treasury Secretary James Baker gave the Bank a central role in his 1984 initiative to resolve the debt crisis, the Reagan administration and other key industrial shareholders at the Bank have at times been critical of the Bank's inefficient bureaucracy.

According to the report to the president, "The Bank's present organization does not measure up to the mission it is expected to cam out. Its current structure contains "an embarrassing amount of hureaucrac~, intlexibility, and lack of timely, pro-a:,u\e response to borrower needs," said the committee.

At the outdoor staff meeting on April 23, a representative of the staff association acknowledged that "there is a feeling [among employees] that it's time for a shake-up."

But he drew broad applause when he criticized some aspects of the committee's report as being too harsh and abrupt.

According to the report, "The Bank's credibility suffers if it is seen to be 'soft' in its own internal management."

"The Bank faces major challenges in adjusting to extensive changes in its environment, its clients, its knowledge base and its mission and role," stated the review panel, composed of a steering committee and three task forces.

The Bank currently faces weighty problems: industrial country governments and banks are giving less money to the developing world and external debt burdens are at an all-time high.

"As the problems faced by developing countries have become more complex, diverse, and intense, overall understanding of effective development strategies and institutional reform has not kept pace," according to the committee's report.

In order to meet these challenges, the committee has recommended changes that will result in the dismissal of 210 high-level officials and 180 support staff in fiscal year 1988 alone.

More cuts are expected to take place, but those numbers will not be known until the initial re-shuffle is complete, the report states.

Most observers here believe that the Reagan administration played a pivotal role in the restructuring exercise.

When Barber Conable, a former U.S. lawmaker, was appointed president of the Bank last July, the Reagan administration reportedly requested that he hold down administrative overhead at the institution, leading in part to Conable's elaborate overhaul.

Bob Levine, a Treasury Department spokesperson, declined to comment, as did the U.S. Executive Director to the Bank Robert Keating.

According to the committee's report, two major themes will provide a framework for the re-organization.

First, the committee said, the Bank needs to offer better financial and policy-oriented advice to borrowers. Many developing nations are hard-pressed to implement economic policy reforms within the context of an increasingly unfavorable global economy. The committee recommended that the Bank continue to emphasize broad, policy-based lending over the more specific, project-oriented program it followed in the 1970s.

Second, the report recommends that the Bank place more emphasis on helping to train people within borrower countries to manage their own economies and institutions."

Sustainable growth is a matter of people more than machines, of human knowledge more than physical plant[s] and equipment that cannot be maintained or operated efficiently for lack of skills," the report states.

Inside the Bank, the committee found a need for more "intellectual leadership" to make the organization more aggressive and less reactive in its approach to changes in the world economy and within the developing countries themselves.

"If there is one criticism of the Bank's past performance on which there is widespread agreement, it is that it has failed to chart a clear institutional strategy through difficult times," the report noted.

Strengthening the role of the Bank president and redistributing responsibility among his senior vice-presidents would help to broaden the institution's overall vision, the report said. That re-shuffle is likely to be politically charged, as key shareholders may find themselves vying for representation at the top.

One major change recommended by the committee is the creation of a new senior vice-president position to oversee "Policy, Planning and Research."

Under the current structure of the Bank, responsibility for policy falls into the domain of the Senior Vice President for Operations Ernest Stem.

His counterpart is the senior vice president for finance, at present Moeen Qureshi.

According to the committee, this structure has created "an inappropriate balance of functions immediately below the President," leading to "a lack of a clear process for integrating plans across the institution and for establishing a greater sense of priorities among the strategic concerns of the Bank."

The new, third senior vice president position would help to bridge the gap between the Bank's financial and operational divisions, while at the same time ensuring "an open and objective consideration of policy and strategy issues."

Debt Takes Center Stage At IMF

As the world's finance ministers prepared for their semiannual meetings at the International Monetary Fund (IMF), the Overseas Development Council (ODC), a Washington-based policy institute, announced some startling facts:

  • Repayments to the IMF from Sub-Saharan African countries are draining funds needed for development efforts. The IMF took about $400 million more out of Africa in 1986 than it put in, not including outstanding interest payments. Most of those interest charges were set in the 1970s at rates much higher than current market rates.
  • Special efforts by the World Bank to boost lending to Africa may end up only increasing repayments to the IMF.
  • The United States stands out among governments that lend money to Africa as almost the only creditor that has not postponed or cancelled its demands upon low-income African countries - those with a per capita income of less than $500.
  • Unless new money is found, economic reforms already underway or soon to be launched throughout half the African continent are "almost certain to fail."

Developing countries have for many years been sounding the same alarm as the ODC. This year, representatives of the "Group of 24" developing nations used their harshest language yet to state that "existing strategy offers no prospect for a lasting solution to the debt problem," particularly where lowincome Africa is concerned.

Fully 28 African countries are currently classified by the World Bank as "low-income," meaning that their per capita income is less than $500.

ODC's announcement was calculated to prod the IMF and the World Bank into action.

And for the first time, major European powers responded. France and Great Britain both came up with specific proposals for debt relief to the poorest countries, calling for longer rescheduling of payments, and on easier terms, as well as the creation of new multilateral accounts to deal specifically with the debt problem.

Once again, however, the United States, through Treasury Secretary James Baker, dug in its heels.

"The debt strategy is working," Baker told the IMF's policy-making Interim Committee in Washington on April 9. "Substantial progress is being made. But more can and should be done."

Baker nevertheless went further than he has gone in the past in chastising commercial banks for not coming up with enough new money to support policy reforms in developing countries.

Urging bankers to "think creatively" when dealing with Third World debtors, Baker said, "Commercial banks need to develop more flexibility in their concerted lending mechanisms to help assure continued participation in new money packages."

He noted that "bank lending last year was clearly disappointing," and called on commercial banks to "develop a menu of alternative new money options" to ensure continued lending.

But in a letter to the Interim Committee, a leading organization of 180 commercial banks warned that bankers do not want to pick up the slack in a debt strategy that drains money out of the developing world.

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