IFI governance


Success or failure? Wolfensohn’s reforms at the World Bank

5 April 2001 | Briefings


In April 1997 World Bank President James Wolfensohn secured agreement from his Board for a major reform initiative, the Strategic Compact. By investing an extra $400 million over three years Wolfensohn aimed to deliver “a fundamentally transformed institution – quicker, less bureaucratic, more able to respond continuously to changing client demands and global development opportunities, and more effective and efficient in achieving its main mission-reducing poverty”. This was to be done via four main programs: reviving demand for Bank business, refocusing the development agenda, retooling its knowledge base and revamping institutional capabilities.

Two recent World Bank reports have examined progress on these issues. These are the Strategic Compact Assessment [CA], carried out by an internal Bank team, dated 15 March 2001 and the Annual Review of Development Effectiveness [ARDE], carried out by the Bank’s Operations Evaluation Department, dated 9 January, 2001.

Wolfensohn has clearly failed on his pledge that the Compact would be a one off investment programme over three years, with the Bank returning to 1997 administrative budget levels by 2001. He recently requested the Bank’s Board to approve a budget increase of up to $120 million over the next two years to relieve “stress and overload” on its staff. Discussions are continuing, likely to be decided in June. These problems cannot be solved by more money, however. As argued in Overstretched and Underloved: the World Bank Faces Strategic Decisions (Bretton Woods Project, 2001), the Bank needs to make tough choices about what not to do.

Overall conclusions

The Bank’s reviews conclude that the fundamental objectives of Wolfensohn’s reform programme were right, but that some have not been achieved and some key dilemmas left unaddressed. The Compact Assessment concludes that “the quality of the Bank’s work has improved significantly and the institution is much more adept in dealing with a world where client demand has changed”. It reports that the Bank has improved the quality of its projects, analytical work and Country Assistance Strategies. The Bank has increased its attention to social dimensions of development, financial sector development, Africa capacity building and anti-corruption work. The Bank has also improved its capability to respond to and help prevent crises and expanded into new areas such as post-conflict lending, debt relief and HIV/AIDS.

However: “efficiency gains have been difficult to realize, and concerns remain about underinvestment in some core activities, the complexity of some business procedures, and the levels of staff morale and overload”. (CA, p.i) The Assessment found problems in a number of areas:

  • the Bank’s budgeting and internal market management systems;
  • lack of selectivity when adopting new corporate priorities;
  • Decentralization of staff decisions and matrix management;
  • Need to improve staff morale;
  • Failure to reduce fixed costs and overall staff size.

In sum the Assessment found: “It is clear that, while progress has been made, there is still much to do to turn the Bank into the highly aligned, efficient and performance-based institution that the Compact envisioned”. (CA, p.8)

Results on the ground

Wolfensohn constantly talked of the need to focus on “results on the ground”, echoing the findings of various Bank reviews in the early 1990s. Some headline results have been improving, but management and staff focus on results has not been sufficient.

The Bank has failed to implement a ‘scorecard’ results measurement system promised under the Compact, Performance evaluations in the Bank have recently found that “only 54% of staff were using a result focused approach”. and that: “both managers and staff need to be held accountable for their behaviour” (CA, p.v).

Client views

Surveys of borrower government views of the Bank show that the Bank was praised for supporting social development programs, attracting investment and establishing infrastructure. But “while the Bank is relatively effective in assisting countries in strengthening their policies and structures for economic growth, the Bank is not perceived as being strong in its main mission of poverty reduction.” (CA, p.10).

Social development

“Compact funds and a strong sector board were instrumental in moving the Bank’s social development agenda forward. However, current budgetary constraints at the regional level may impact on the continued funding of these initiatives, particularly those that are not mandatory. The Compact did not focus on issues of social safeguard policies, including their important developmental benefit and the reputational risks that any non-compliance with such policies might pose for the Bank.” (CA, p.18)

Country Assistance Strategies

“Improved in participation and governance and of the social and political underpinnings of reform. Treatment of poverty reduction and human development also improved, but the treatment of gender, the environment and the financial and private sectors has shown less progress.” (CA, p.9)

Financial sector

The Bank responded to the financial crisis by providing 19 loans: worth a total of $15 billion. The Board approved an additional $50m in January 1998 for Bank work in this area. But “there are now concerns about the mainstreaming and sustainability of important aspects of the Bank’s work in the financial sector”. (CA, p19)


Governance issues are now being addressed in CASs. The Bank is now helping almost 100 countries strengthen their governance environment. The Bank has established a toll-free hotline on corruption and an Anti-Corruption and Fraud Investigative Unit.


The Heavily Indebted Poor Countries initiative has resulted in 22 countries being allocated $20.3 billion in debt relief.

Innovation and flexibility

Some new initiatives supported, ie Global Carbon Initiative. Also through Learning and Innovation Loans, Development Marketplace competition. But “their experience demonstrates that fostering innovation at the micro level remains a challenge for the Bank”. (CA, p.22)

Competition with other international agencies

The Bank has taken on new corporate-level objectives and developed partnerships on themes such as HIV/AIDs and on forestry. These aim to move public opinion and increase funding for tackling these issues. The Assessment concludes that the Bank should “exercise greater selectivity” in such work and that “there needs to be an increased desire to cede responsibilities to other players if they have greater comparative advantage”. (CA, p.23)

The Compact “did not indicate what programs or activities would be given less priority”. (CA, p.5)

Knowledge Bank

The Bank has formed networks of staff working on similar issues, and set up helpdesks and sections of its intranet for many of them. The Bank’s external website now has at least 332,000 unique visitors per month. But the “knowledge management system is fragmented and insufficiently integrated with operational processes. It is also supply rather than demand driven, and insufficiently orientated towards the needs of clients”. (CA, p27) “There is no shared understanding of what the knowledge bank is, nor how its various elements fit together”. (CA, p.51) “There is a fairly widespread (but as yet unmeasured) perception that the Bank’s ‘internal market’ is a significant disincentive to knowledge sharing, as it places staff working on similar issues in competition with each other” (CA, p 11).

Decentralisation and accountability for results

More staff are now in the field. However there are “difficulties in integrating country and sector strategies and a lack of an effective alignment between corporate priorities and regional programs and implementation capacity”. (CA, p.32)

26% of Bank staff thought the Matrix structure has improved the Bank’s ability to deliver high quality services to clients (CA, Annex 4, p 5)

How is the Bank doing? Selected Statistics from Client Surveys

Percentage of borrower government officials finding Bank “effective”

Helping to reduce poverty – 33%

Helping improve governance – 53%

Helping attract investment – 81%

Helping to safeguard the environment – 52%

Helping strengthen civic participation in national development efforts – 14%

Helping strengthen and maintain sound macroeconomic and trade policies – 82%

Source: CA, Annex 1, p 8.

Other statistics

Bank country offices with satellite communication links – 84

Cost of the Strategic Compact – $724 million (18% over budget)

Page views per month www.worldbank.org – 5 million

Source: CA, various pages

Dilemmas for the Bank

Extracts from the Annual Review of Development Effectiveness, Operations Evaluation Department, January 9, 2001 (www.worldbank.org/oed)

“[There are] four tensions in the Bank’s work with its clients-balancing global prescription and local adaptation, reconciling client ownership and corporate priorities, balancing country performance and poverty in resource allocation decisions, and achieving selectivity through partnerships.” p.ix

“institutional and risk analysis are typically the weakest part of diagnostic work, and Bank projects and policy recommendations frequently are still too complex and demanding.”, p. vi

“few Bank strategies and policies provide explicit guidance on what instruments to use and what posture to take in the country dialogue if governments do not want to address an issue of global interest-for example, gender equity or forest conservation.” p.vi-vii

“Chronic weakness observed in monitoring and evaluation arrangements-essential for adapting and updating strategies.” P. vii

“Staff incentives should be linked to results and performance, not inputs and processes.”, p.vii

“The World Development Report 2000/01: Attacking Poverty has proposed a comprehensive approach to poverty reduction, based on opportunity, empowerment, and security (World Bank 2000a). It has yet to be translated into operational guidelines.”, p.viii

“For most adjustment operations, the focus on public expenditures outweighs that of addressing economic distortions or safety nets, and the impact of reforms on the poorest is rarely considered. This partly reflects difficulties in assessing tradeoffs among the macro and micro implications of adjustment programs and highlights the importance of enhanced poverty focus in the evaluation of both adjustment and investment lending.” P. xix

“In the water, gender, and forestry sectors, basic disagreements-both inside and outside the Bank-were “papered over” rather than explicitly resolved. This hindered implementation of strategy and also affected the rigorous implementation of safeguard policies.” p.xlv

Alex Wilks, Bretton Woods Project, April 2001