[stop-imf] Breaking Ranks at the World Bank

[Robert Weissman]

From: Neil Watkins, Jubilee USA

A new report at the World Bank turns decades of policy advice on its head. =
THis article correctly identifies the real question: will this analysis act=
ually change lending practices? This an opening for us to use as we campaig=
n to challenges harmful strings attached to loans and debt relief from the =
WB / IMF...

http://www.washingtonpost.com/wp-dyn/content/article/2006/02/16/AR200602160=
1663.html

Breaking Ranks at the World Bank

By Marcela Sanchez
Special to washingtonpost.com
Friday, February 17, 2006; 12:00 AM



The World Bank announced this week that Latin America needs to cut poverty =
to boost growth -- a conclusion that may be "descubriendo el agua tibia," o=
r, stating the obvious. But this is a big deal for the international lendin=
g institution.

Since its inception, the Bank has talked about reducing poverty. But for mo=
re than 15 years it has focused on market reform policies, offering loans t=
o countries that promised to lift trade barriers, deregulate and privatize =
industry and adopt austerity plans to stop deficit spending and reduce infl=
ation. These reforms, which became known as the Washington Consensus, were =
supposed to unleash the economic potential of developing countries and spur=
 growth. Growth, in turn, was to create opportunity for the destitute and l=
ift them out of poverty.

Many Latin American countries took the loans and adopted the reforms. But t=
he reforms themselves did not bring about the intended consequences. Latin =
America's performance has been disappointing, particularly in comparison to=
 the dynamic economic growth and poverty reduction in Asian countries. The =
region now has "the highest measures of inequality in the world," with one-=
quarter of the population living on less than $2 a day, according to the Wo=
rld Bank.

The authors of the World Bank report, "Poverty Reduction and Growth: Virtuo=
us and Vicious Circle," recognize that a country can't necessarily grow its=
 way out of poverty, and that poverty can be a huge drag on economies and o=
n growth. Poor regions lacking in infrastructure fail to attract investment=
. Poor families, faced with substandard schools and high costs, are less li=
kely to invest in the education of their children. And, as has been particu=
larly clear in recent years, countries unable to moderate income disparitie=
s face social tensions that jeopardize business. As the authors quantify it=
, when poverty levels increase by 10 percent, growth decreases by 1 percent=
 and investment is reduced by up to 8 percent of a country's GDP.

Two of their main conclusions are a breakthrough for the Bank: that private=
 sector growth is not a panacea for the poor and that inequality must be ta=
rgeted directly. A third conclusion is almost heretical for the Bank: that =
the state needs to take on more economic responsibility than less. "Convert=
ing the state into an agent that promotes equality of opportunities and pra=
ctices efficient redistribution is, perhaps, the most critical challenge La=
tin America faces in implementing better policies that simultaneously stimu=
late growth and reduce inequality and poverty," the report says.

The Bank is recognizing political as well as economic reality. By advocatin=
g greater state responsibility, particularly for redistribution of wealth, =
the World Bank seems to be aligning with other multilateral institutions an=
d governments in the region. Jose Antonio Ocampo, U.N. undersecretary-gener=
al for economic and social affairs, said in an interview after a U.N.-spons=
ored event on Latin America early this month that "today the majority (of l=
eaders in Latin America) recognizes that the state has a function more impo=
rtant than ever in confronting the issue of inequality."

The great surge to the left in recent Latin American elections reflects pop=
ular dissatisfaction with the Washington Consensus. Even in Chile, the big =
economic success in the region, center-left President-elect Michelle Bachel=
et stressed the need to put an end to the "trade-off" between growth and eq=
uality. (To be fair, her conservative rival did not disagree; in fact he pr=
omised to make the reduction of economic inequality through government subs=
idies his top objective.)

The authors of the World Bank report point out that there are specific "int=
ervention" programs already in place in Brazil, Colombia and Mexico that ma=
nage to be "both pro-poor and pro-growth." These programs provide cash to v=
ery poor families under the condition that their children stay in school an=
d that they take steps to improve their health. Rather than creating depend=
ency or increasing birth rates, as some critics feared, the programs have "=
successfully increased human capital" in high-poverty regions.

Whether the World Bank will back up its new thinking with a change in proce=
ss remains to be seen. After all, the report is not a repudiation of the Wa=
shington Consensus, but an admission that it has been insufficient. In an a=
nalysis published last fall, the London-based World Development Movement fo=
und that of the 450 conditions the World Bank and the IMF imposed on agreem=
ents with 50 countries, only 11 were not based on the orthodox Washington C=
onsensus formula.

If the World Bank were to make poverty reductions measures a condition for =
assistance, it would be a big change in the way it helps Latin America. It =
would be shifting from an approach that helped weaken governments to one th=
at seeks to strengthen them.

Marcela Sanchez's e-mail address is desdewash@washpost.com.