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IFI governance

News

Wolfowitz to face trials over Bank fundraising drive

2 April 2007

versión en español

Reeling from a bruising fight with his board over his plans to tackle corruption, Bank president Paul Wolfowitz now must go hat in hand to donor countries asking them to cough up more for poor country financing just as it has been revealed that the Bank has not been able to get the money it already has earmarked for Africa out the door.

The first meeting of the latest round of the replenishment process for the World Bank’s unit which deals with the poorest countries, the International Development Association (IDA), kicked off in March in Paris (see Inside). Discussions will focus on financial contributions for the three-year period starting July 2008.

To maintain its present funding level, the Bank will need to raise about $25 billion from donors. This is up from $18 billion in the last IDA round due to a ‘structural gap’ caused by debt cancellation commitments made last year (see Update 50). If donor commitments fall short of this level it will mean that poor countries will be paying for their own debt relief.

The US will be under pressure to increase its contribution. Those who looked for a silver lining in Wolfowitz’s appointment in 2005 hoped that his position as a US administration insider would swing the US towards more support for the Bank. He has said that he hopes that “some of the donors whose shares have been slipping, including the United States, would do more.” US generosity will be tested by both the declining value of the US dollar and pressure on treasury finances caused by the war in Iraq.

Making the fundraising drive all the more difficult will be revelations that Bank lending to Africa is down $1 billion on the previous year. Speculation is that Bank country directors have been keeping their heads down and their hands on their wallets in the wake of their president’s crusade against corruption (see page 8). US NGO Government Accountability Project revealed in March that the Bank will have to commit an additional $3 billion for African projects before July to meet targets for the year. Both Bank staff and outside observers have serious concerns that this can not be accomplished without compromising on project quality.

Put your money where your mouth is

Alongside more strictly financial concerns, donors have prioritised three areas for discussion of IDA reform. These so-called ‘special themes’ are:

  • aid architecture – will address how IDA should respond to increased competition from regional development banks, EU programmes, new sovereign lenders such as China, and single-issue funds such as the Global Fund to fight AIDS, Tuberculosis and Malaria;
  • aid effectiveness – will cover how scarce IDA resources are allocated (see below), recipient country ownership, donor harmonisation and Bank use of conditionality; and
  • Bank role in ‘fragile’ states – will look at both how aid volumes to post-conflict countries are decided, as well as the role of the Bank vis á vis the UN agencies.

European NGOs have launched a campaign – under the heading ‘put your money where your mouth is’ – to get their governments to take greater responsibility for the direction of an institution for which they foot the lion’s share of the bill. Their call, signed by over 70 organisations from across Europe, was launched at the Paris IDA meeting. It demands that the Bank stop using economic policy conditions and end its subsidies and policy support to fossil fuels. If the Bank does not change its practices, “European governments should consider permanently redirecting funding away from the Bank through other mechanisms which respect country ownership and take the necessary leadership in addressing climate change.”

On the question of the allocation of resources, Bank staff have authored two background papers for the IDA replenishment process. The formula by which IDA funds are currently divided amongst recipient countries factors in population and economic wealth, but is heavily weighted towards a ‘country performance’ rating based on the controversial scores that the Bank gives to the quality of the country’s policies. One paper tinkers with the allocation formulation but ignores more important questions of what is being measured and why. The other paper addresses some of the bigger questions, but comes up with a disappointing endorsement of the status quo. The question of replacing indicators which pass judgement on ‘good’ policies with those that measure outcomes is brushed aside. The outcomes issue was to be the central discussion point at a conference held at Columbia University’s Initiative for Policy Dialogue in early April, with a paper to be presented by Cornell University professor Ravi Kanbur.

Frustration with Paul

Concerns have been raised that the IDA replenishment may become a proxy battleground between president Wolfowitz and his board. A senior Bank official quoted in the Financial Times 5 March said: “I am worried that frustration with Paul becomes an excuse for donors not to make contributions they might not have been prepared to make anyway.” Wolfowitz responded that he hoped that “everyone will keep their eyes on the fact that this is not about me or any other individual.”

Over the past months Wolfowitz has been lurching from one debacle to the next. After the embarrassing public spat over his anti-corruption plan at the annual meetings in Singapore (see Update 53, updated page 8), Wolfowitz started the new year with leaked coverage of boardroom sparring over budget priorities. A Fox news article quoted board members describing Wolfowitz’s work plan as a “lost opportunity”. The day after the leak, Wolfowitz launched an investigation into its source. An anonymous post on a Bank staff bulletin board captured the sentiment of many outside observers: “Why does the World Bank persist in thinking that its governance should be shielded from scrutiny, and that the world will come to an end if someone knows what is said in the board room?”

Board members may want to consider a proper evaluation of Wolfowitz’s performance in office. While the Bank’s articles of agreement are silent on the matter of evaluation, they are clear that “the president shall cease to hold office when the executive directors so decide.” In the absence of a proper job profile against which Wolfowitz’s performance could be judged, his commitments to European executive directors before his appointment in March 2005 could serve as a surrogate. While many of the commitments were woolly, two years into his term it’s not clear that he would get a passing grade on others such as “scaling up resources to Africa”, “maintaining the financial viability of the Bank”, and providing “sound corporate governance” and “effective leadership”.