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IFI governance

News

Bank, Fund annual meetings: the ‘Mallaby effect’

22 November 2004

The annual meetings drew to a close with little or no progress made on any of the substantive issues on the agenda. Long-time IFI watchers warned of a resurgence of the old ways of doing business at the Bank. Falling loan volumes are motivating a return to large-scale infrastructure lending, putting social and environmental safeguards under pressure, and threatening accountability to civil society. This larger trend has been nicknamed the ‘Mallaby effect’, after a Washington Post columnist who has just published a biography of Bank president James Wolfensohn.

In a September Foreign Policy article, Mallaby attacked NGOs for a lack of accountability and for driving up the costs of World Bank lending. If lending volumes fall as a result, the cost, he says, “comes out of the hides of the world’s poor”. The author reserves particular scorn for the work of the International Rivers Network (IRN) – the “Berkeley mafia” as he describes them – for their work against the planned Bujagali dam in Uganda: “by forcing the World Bank to pull out of sensitive projects, they cause these schemes to go ahead without the environmental safeguards that the Bank would have imposed on them.”

Peter Bosshard of IRN has fired back that “as a result of his sloppy research and ideological bias”, Mallaby’s accusations are ill-informed. According to Bosshard, Mallaby overstates the financial costs of environmental and social safeguards, misleads readers on the implications of multistakeholder reviews of infrastructure lending, and neglects the fact that safeguards are the only mechanism that gives the poor a voice in Bank projects. On the Bujagali dam in Uganda, Bosshard says that Mallaby ignores the fact that “parliamentarians, civil society groups and academics opposed the dam because it was corrupt and excessively expensive”.

The Mallaby arguments have resonated with many at the Bank who would like to see more money being pushed out the door with less hassle. During the annual meetings, pressure was placed on the Bank by middle-income countries to ramp up lending for infrastructure. The Development Committee stressed the need for the Bank and Fund to “increase the fiscal space for public infrastructure investment” and encouraged engagement at the regional and sub-national levels.

While the Mallaby camp has used the argument that environmental and social safeguards drive up the costs of doing business, there has been reluctance to address the failed economic policy conditions which many borrowing countries cite as the real reason for the unattractiveness of the Bank as a lender. In response to civil society lobbying and a new UK position paper, the Bank has committed to review its “policy and practice on conditionality” and report back at the annual meetings in 2005 (see page 2).

Debt relief was the issue attracting most of the attention in the run-up to the meetings. Both the US and the UK had tabled proposals for 100 per cent multilateral debt cancellation. There was much discussion over a new framework to determine debt sustainability. But the meeting of the board of the IMF ended with the now-familiar commitment to “further consideration of outstanding issues in the proposed framework for debt sustainability and of further debt relief”. There was no indication that any progress had been made on discussions surrounding the use of IMF gold to support debt cancellation.

The issue of increasing southern country participation in the structures and operations at the Bank and Fund continues to languish in the political hinterland. G-24 nations demanded revision of the current board composition and voting system which understates the global importance of developing countries at the Bank and Fund. South African finance minister Trevor Manuel’s ‘roadmap’ on these issues indicated that there was little consensus. The Development Committee “looks forward to receiving a report regarding the feasibility of these options” for the third year running.

Conjecture is intensifying over who will be the next World Bank president. Current president James Wolfensohn’s second term expires in June 2005. He has committed to make his mind up in December whether he will seek a third term. Leading names in the list of potential alternate candidates are Colin Powell, current US secretary of state, and Robert Zoellick, US trade representative. Civil society groups are urging that any replacement be chosen by an open and meritocratic selection process regardless of nationality.

Some progress was made in October on the selection of senior staff, with the adoption of open selection processes for the managing director posts. Like the heads of the Bank and Fund, these posts have traditionally been filled through appointments made by the rich countries. Wolfensohn has formed a search committee to fill the posts on a competitive basis. The first tests of the new process will come with the departures of chief financial officer Jeffrey Goldstein and IFC head Peter Woicke.