World Bank investment lending reform: pro-poor?

17 June 2010

In May, the Heinrich Böll Foundation released a critique of the World Bank’s investment lending reforms (see Update 70). Consultation on the reforms is expected to begin shortly, though many are already being implemented. One element of the reforms is a shift away from project-specific lending towards ‘results-based investment loans’. These loans will support government spending in particular sectors and be disbursed in tranches as outcomes are achieved. They are intended to increase country ownership and better coordinate aid by pooling funds from different donors. However, the Heinrich Böll report warns that in doing so this approach also “pools a myriad of donor and creditor policy conditions in ways that can sometimes cripple real ownership”, while “country-level administration of pooled funds by finance ministries significantly centralises power and authority over the development process, often to the detriment of local communities and particularly the poor, whose political voice to command resources remains weak in many countries.”

The Bank is yet to decide to what extent its fiduciary, social and environmental safeguards will apply to these loans. According to the Heinrich Böll report, the Bank claims that the safeguards are unpopular with developing country governments and hamper the Bank’s capacity to compete with other financiers, such as China. The Heinrich Böll critique responds that, “the World Bank is a public institution and its job is not to compete with some of its member countries, but rather to be a trend-setter in responsible lending.” It argues that the full range of safeguards should apply, especially given that its standards are a key part of the Bank’s rationale for its management of pooled funds such as the Climate Investment Funds.