In Defence of the Bank

An interview with Armeane Choksi

Armeane Choksi is vice-president for human resources development and operations policy at the World Bank.

Multinational Monitor: What are the responsibilities of the office on human resources development and operations policy?

 Choksi: Human resources development at the Bank, unlike in the American corporate culture, is not about personnel policies. Human resources development is directed towards the social sectors (health, education, nutrition and population) - issues concerning the quality of life of people in developing countries.

The operations policy side sets the Bank's policies in different areas. We are responsible for implementing the recommendations of the famous Wapenhans Report.

 We are also responsible for overseeing the Bank's visioning document, "Learning from the Past, Embracing the Future," which defines the direction the Bank will take in the coming years.

MM: What are the lessons from the past, and what changes are you looking to make in the future? What's going to be different about the World Bank?

 Choksi: We are trying to articulate a vision of where the Bank should be going over the next 10 to 15 years and highlight the unfinished development agenda that the world will need to focus on.

The vision document defines five of these areas:

 The first deals with issues of economic reform - macroeconomic policy changes and structural adjustment policy changes to stimulate economic growth.

 The second is the investment in people - the importance of basic education, health care, population policies and early childhood development.

The third area is protecting the environment. We believe this is absolutely crucial. We believe that you cannot have sustainable economic growth without due concern for natural resources.

 The fourth area is stimulating private sector development. Many governments in the developing world are freeing up their economies to stimulate private sector growth, and this is an area on which the Bank will be placing a lot of emphasis, both in its operations and through the International Finance Corporation and the Multilateral Investment Guarantee Agency.

 The final area is reorienting government - how to make governments more efficient, more focused. We are arguing for slimmer governments in many countries, focusing on those areas that the government can best place in the private sector, but not areas such as resource development and environment. The Bank will be emphasizing issues of transparency and accountability.

 These are what we think are the five crucial unfinished development agendas that the Bank needs to follow up on. We will continue working in these fields and have a dialogue with governments in these areas.

 To this end, we have articulated six guiding principles for the future:

 The first is selectivity. Not every one of these five major development issues will be important in every country. We will have to have a unique focus in each country.

 The second principle is partnership - partnership with the UN family, the International Monetary Fund (IMF) and the regional development banks. We believe that the Bank cannot and should not be getting into every area. The Bank has certain strengths. There are limits to institutions such as the World Bank; we need to work together with all the different agencies in order to maximize our impact.

 The third guiding principle is client orientation. The Bank will become increasingly more client-oriented, listening more to the needs of the client and responding more efficiently to the client's concerns.

 Fourth is results orientation. After the Wapenhans Report that he initiated, [World Bank President Lewis] Preston articulated very strongly that the Bank has to pay much more attention to results on the ground, not just to lending levels and commitments.

Cost effectiveness is the fifth principle. The Bank itself must demonstrate that it too is a cost-effective institution.

 Finally, there is the issue of financial integrity. The World Bank borrows on the capital markets of the world. We have a very high credit rating on the capital market, and our operations and our policies must be such that that high credit rating is intact, because that high credit rating permits us to borrow at probably the cheapest rates, which we can, in turn, pass on to our member countries.

MM: What's the lesson to be drawn from the Wapenhans Report? Is it enough to say that you're going to be "results oriented" when one-third of the loans are failing?

 Choksi: Let's put the Wapenhans report in some perspective. We've had a lot of criticisms on the Wapenhans Report.

 The first thing to keep in mind is that President Preston initiated the Wapenhans Report. It was an internal review of the Bank's portfolio, a complete, open and clear state of affairs of the Bank's situation. I think every institution needs to do this periodically, to take a good overall look at how its policies are functioning. In fact, this model has now been adopted by other regional development banks.

 But it is not enough, I agree with you, simply to say "results orientation." The Wapenhans Report recommended specific actions. So, about a year ago, the Bank went back to its board, laying out what actions it would undertake over what time period.

 If my memory serves me right, there were something like 84 actions we were going to undertake through the last fiscal year in order to implement the recommendations of the Wapenhans Report. Of those 84, 80 have been fully completed or substantially completed. With all these steps, we were trying to improve the quality of our portfolio, to have country portfolio performance reviews, to increase the quality of entry of the projects ahead of time, to have regular discussions and dialogues with governments, and to allocate greater resources to the supervision and the monitoring of the projects.

What we are trying to do is not just take these steps by themselves, but to change the culture of this institution. The culture of this institution has been, by and large over the last 20 years, very lending-oriented. Lending levels have been an important criteria for the Bank's success, both internally and in the outside world.

 What we're trying to do with the follow-up to the Wapenhans Report, with the Next Steps action program that we have put in place, is to change the culture of this institution.

We want to first change the incentives. Staff are no longer rewarded simply for making loans. Staff are also being rewarded for not making loans when the conditions aren't right. Secondly, we want to ensure that staff pay greater attention to, and they are rewarded for, following up on projects that are currently under implementation.

MM: What do you view as the biggest institutional weakness of the Bank?

 Choksi: I think that the institution has had failings. Like others, we've made our share of mistakes. We've had them in projects that have been publicly criticized - the Polonoroeste project in Brazil, the Narmada project, and there are others.

 One thing that I want you to be alerted to is that these projects were done 10 to 15 years ago. But we've made our mistakes known publicly. The Morse Commission that looked at the Narmada Project was a Bank exercise. The Wapenhans Report was a Bank exercise.

 In particular, we have not focused enough on issues of implementation, particularly. The Wapenhans Report stated this very clearly. In some cases we had some design problems. In some cases, as the Narmada Project indicated, we did not follow some of our own procedures. In the Polonoroeste roadbuilding project, we did not fully appreciate or recognize the importance of environmental implications. Keeping in mind, of course, that at the time, the whole issue of environment was not high on the consciousness of the world. But that is not an excuse. The World Bank should have been more aware of it, and we've learned from our mistakes.

 But development is risky. When we undertake a project, it has economic, social and political dimensions. We are getting into areas that are more complicated. It's no longer "clean" engineering, to build a dam or a bridge. We are getting into issues of primary education, gender policies, issues of transparency, and government accountability. These have tremendous social and political ramifications, and we don't have all the answers. We don't know if any single individual or institution has all the answers. That is why we are emphasizing partnerships. Different groups will bring different issues to bear.

 If we had a track record that was 100 percent successful in everything we did, I would criticize the institution for not taking enough risks.

MM: Do you think that there are any specific areas where the Bank evidences institutional weaknesses?

 Choksi: One area that I think we have an institutional weaknesses in is the tremendous attention we placed on lending commitment levels. Since President Preston has come in, he has given a loud and clear signal to all management that staff will not be rewarded simply for pushing out loans.

Things have changed. There is, no doubt, room for improvement, but I can tell you if you look at our lending levels for last year, I think they're around $14.5 billion, which is the lowest [International Bank for Reconstruction and Development] lending in a very long time.

 The lending levels change for a variety of reasons. There is no longer the "go-go," lend-at-any- cost philosophy. It is wrong to lend to countries if the conditions aren't right, or if the projects aren't right, just to make a loan, because in the end, that loan has to be repaid back to us. I think that message is getting through, but it will take some time.

 If something has been in this institutional culture for 20 years, you do not eradicate it overnight. It will take some time.

MM: How do you respond to the characterization of the 1980s as a "lost decade?"

 Choksi: I think the 1980s, in some sense, was a lost decade; very much in Latin America, and certainly to some extent in Africa. But certainly not in East Asia. I think when the critics make these sort of comments, they tend to generalize, and in generalization, we tend to lose the specifics.

 In Latin America, starting in the 1980s, there was a debt crisis. And that crisis led to a major economic overhaul of these countries. And that overhaul process was a lengthy and difficult one. GDP per capita fell, but eventually, toward the end of the 1980s, and starting in the early 1990s, things started turning around in most of Latin America. So, the 1980s was a lost decade for Latin America.

It was a lost decade in another sense as well. With all this tremendous focus on debt stabilization adjustment, they neglected investing in human resources; they neglected environmental problems; and they neglected basic infrastructure.

Now there is a realization within Latin American countries of these issues, and we are working with them on precisely these issues. If you were to speak with the regional vice president for Latin America, he will tell you that the big emphasis with Latin America now, since the debt problem is behind us, is on human resources, environment and basic infrastructure.

East Asia is the example where the "lost decade" characterization is not true. If you look at the growth rates of Malaysia, Indonesia (Indonesia has achieved a tremendous amount in poverty reduction as well as economic growth.), Thailand, not to mention Korea. I would not classify it as a lost decade for East Asia.

 So, you have a mixed picture around the world.

MM: What do you think the development prospects are for Africa in the 1990s?

 Choksi: There is no question that Africa will require perseverance and patience. Africa needs tremendous investment in human resources, basic health and education. The institutions are weak. Institutional development takes a very long time. It cannot be done overnight. As long as the human capital base remains weak, the implementation of policies and programs will also be weak.

 We've done a study recently on [structural] adjustment in Africa indicating that those countries that have adjusted have done better than others that have not adjusted. But I think it's still important to recognize that unless you tackle the fundamental problems of human capital and institutional weaknesses, the long-term prospects remain weak. This is where the attention of the African governments is going to be in the future.

It will take a long time. All the evidence we have seen, in every country, whether it's in the prospering countries of East Asia or otherwise, show investments in human capital take a long time to pay off. You educate children today, and benefits come when they go to college, when they become counted as members of society. Institutions take a very long time to develop, strengthen and function effectively.

 Africa probably has the weakest human capital and institutional base. To strengthen all of that will take some time. Clearly, the countries have to pursue economic reforms, but to maintain those reforms, to consolidate those reforms, to build on those reforms, the areas of human capital and institutional development will need to be put in place. And for that, the world needs patience and perseverance.

MM: The findings of the independent review of the Narmada project found that the resettlement problems in Narmada were "more the rule than the exception to resettlement operations supported by the Bank." How do you respond to this assessment?

Choksi: We've just done a full review of resettlement operations at the Bank. As a result of Narmada, we told our Board we would review every single resettlement operation. Not a sample, but every single one. This report was made public in June.

Yes, we do have some problems in resettlement. We have policies on resettlement that are difficult, but we are trying to implement them.

 But the Bank's involvement on resettlement accounts for only 2 to 3 percent of the total population that is displaced involuntarily as a result of all projects in the world - government projects, bilateral projects and Bank projects.

 Secondly, in those cases where countries have followed the Bank's policies effectively, the resettlement projects have been successful. Where they have not, they have not been successful.

Many countries, and many regional development banks and bilateral agencies, are following the Bank's approach to resettlement. And I think this says something about the Bank. There are difficult issues when you are talking about resettling people; their livelihood gets taken away, but on the other hand, there are tremendous benefits to society. How do you compensate these people? These are very tough issues; and we have had successes and we have had failures. I think that report highlights, at one extreme, the Narmada situation, where we're not successful; and at the other end, there's China, where the Chinese are putting in place a national program for resettlement, and they have implemented it very effectively. The record is a mixed one, there is no question about it.

MM: One of the things that seems to link the projects on which the Bank is criticized is that they are pushed forward too fast. Do you think that is a fair criticism of how the Bank has operated in the past?

 Choksi: I think it is, and I think that we could do a lot more than what we are doing at the moment. For example, we are consciously taking into account and making a special effort to bring in NGOs into Bank operations. To date, something like 30 percent of Bank projects have NGO involvement.

We are about to go to the president with a report which spells out how the Bank can be a more participatory Bank. Some of these points have been articulated in the vision paper.

We now do poverty assessments in individual countries, many of which are more participatory in nature. Our projects also seem to be more participatory in nature, but there is a hell of a lot of room for improvement.

MM: What is your response to Bruce Rich's book, Mortgaging the Earth?

 Choksi: I've dealt with Bruce Rich in the past on Brazil. He plays a lot of fast and loose with the facts. He has an agenda. It's no longer a hidden agenda, it's a very overt agenda. He is prepared to put out, in a very public form, his approach to what should be done to the Bank, which is essentially, to shut it down. His view is also very anti-development, in the sense that economic growth, the lives and living standards of the people, are put almost secondary to protecting the environment. The Bank has put out a formal response to Bruce Rich's book.

Now, I think in some areas, some of the criticisms that he has made I think are right. But I think he goes much too far. There are other environmental NGOs who have been constructively critical; and, as a result, very helpful to this institution. His work has not been in that same vein.

MM: Rather than saying that he subordinates living standards to environmental protection, isn't it more correct to say he has a different view of development, emphasizing community-building and the strengthening of civil society?

 Choksi: I don't think he understands the tradeoffs you make sometimes. Western Brazil is a classic case. Why was there environmental degradation down there? The main reason was poverty in the South. And people from the South moved to the North and the Northwest to find a better life. The government and the Bank were part of facilitating that process. We all made a mistake by not recognizing the environmental implications. By building that road, we caused complications on the environmental side.

But there were other elements in that project. We put in basic health and education facilities for those people who had moved out there. You cannot forcibly move these people back out again. Those elements were completely ignored in the criticisms that are made about Polonoroeste in Bruce Rich's book. He does not seem to see the complexities of the situation. With him, development is more black and white. For me, they are shades of red.

MM: In late May, the U.S. Congress voted to suspend funding to the IMF, and to reduce funding to the World Bank. How do you respond to the specific criticism voiced in Congress about the secrecy surrounding Bank operations?

 Choksi: Let me put this in a broader context.

 Since Lou Preston took over the presidency in 1991, he has put in place what I call a quiet revolution. Much of it is not known, so let me put this on the table.

 When he came in, he eliminated a layer of bureaucracy. He refocused the Bank on a crucial area of the world that was going to be important both politically and economically, the former Soviet Union and Eastern Europe. He created three new vice-presidencies, focusing on what he thought would be the crucial issues of the nineties and beyond: human resources, private sector development and environmentally sustainable development.

 He put in place the Wapenhans Report and an inspection panel which will be effective August 1, which permits affected parties, as in Narmada, who feel that Bank policies and procedures have not been followed, to appeal directly to a group of experts.

 He also put in place an open public disclosure policy. This policy says that all Bank documents - our appraisal reports, our economic reports, our operational policies, our policy papers, our sector reports - are publicly available after the Board approves them. We've set up a public information center.

There are only two things that we do not make public. One, information provided to us on a confidential basis by governments. We must respect that. We are owned by these governments, who provide us with confidential information affecting their economies and their politics. We can't make that public if the governments don't want us to.

Second, internal decision-making memoranda. These are not final memoranda, but internal parts of the decision-making process. We want to provide a free and open debate within this institution to address complex, difficult issues, to approach them from different angles. We don't want people to feel that anything they write and say is going to be made available and you'll see it in the press the next day. You know what that's going to do. That's going to kill discussion. That's going to inhibit people from being open and honest about situations, and in the long run, it will damage our contribution to developing countries and the development process.

 When critics say they want more, I want them to come and tell me, "What more do you want?" Many of them are going to tell you they want our confidential memoranda, the internal decision-making memoranda. This is unreasonable, because it will genuinely hamper the development process.

 People will simply not be honest anymore. People will write things and say things with a view that this is going to be read outside.

MM: Hasn't much of the criticism been focused on access to information related to the decision-making process as a whole?

 Choksi: That's right. The president said we should open it up. Our decisions are made public. And all the factual and technical analysis underlying those decisions is made available. People can get that documentation and say, "Look, your technical analysis was wrong," or whatever the case might be. That's fine. We can debate that. But sometimes we come up with ideas that are completely off the wall. By opening up the decision-making process, you can inhibit debate and the free flow of ideas. I would not want that. I would want to encourage people to be adventurous and come up with off-the-wall ideas, rather than become stultified bureaucrats.

 So you're absolutely right. These people want our decision-making documents because they want to get involved in the decision-making process. But if they want to get involved in the decision-making process, they should join the World Bank.