Thursday, September 21, 2006 Vincent Lingga, The Jakarta Post, Jakarta
The World Bank is an easy target for attacks from all sides given the conflicting demands of its 184 member countries. The bank is mostly active in developing countries, which make up the majority of its members, but its decision and policy-making is controlled by the few developed countries who make up the majority of shareholders.
The perception that the bank merely purveys the policies of developed countries, especially the United States, is therefore unavoidable. This notion is reinforced by the fact that it, together with the International Monetary Fund, is headquartered in Washington and that the U.S. has the privilege of appointing the bank's president.
The bank is under tremendous pressure. Most civil society organizations assail it for what they see as its failure to reduce poverty in the poor countries.
Developed countries criticize the bank for not using its leverage as a lender forcefully enough to obtain meaningful reform in the developing world.
The internal reforms the bank started making in the early 1990s by decentralizing, relocating its decision-making process to the country level, were apparently not fast enough to satisfy developing countries.
Indonesian Finance Minister Sri Mulyani Indrawati expressed the view of most other developing countries when she criticized the World Bank for often acting as a preacher, rather than a partner for developing countries.
Indeed, with annual lending resources of US$20 billion and the largest pool of development thinkers any single organization in the world has ever possessed, the bank's executives, many of whom are from developed countries, often face a strong temptation to act as arrogant advisers.
The bank, with over 10,000 well-paid professionals, commands a brain trust with a huge pool of broad-ranging knowledge and experience on the full range of technical and economic issues of development. Its experts possess the wealth of real-life development experience that the bank's lending operations have generated.
The bank started decentralizing its decision-making by appointing country directors who had the kind of power over budgets and projects that used to exist only at headquarters. But the results were seemingly far below expectations.
It was this slow-paced decentralization Sri Mulyani appeared to refer to when she noted at the World Bank-International Monetary Fund Meetings in Singapore on Tuesday that the World Bank should change the way it works on the front line.
The bank needs to strengthen its decentralization policy because it needs country-specific knowledge and expertise to help develop local institutions tailored to local political and social realities.
The country director in each member country therefore must have political savvy and be sensitive to a country's political constraints and to the opportunities of responsible leaders to push reform. That implies a premium on systematic analysis of local politics and institutions.
Under the rubric of country ownership, the bank has tried to tailor its lending policies so that clients have more say in their design.
The emphasis on local politics and institutions is crucial because institutional capacity, the quality of governance and the commitment to development differ widely from one country to another in the developing world. The bank's approach should take these differences into account.
The emphasis on local institutions and local ownership of policies, which was reasserted by the World Bank-IMF Development Committee (the highest policy-making body) in Singapore, was aimed at building respect for and partnership with local efforts by the bank staff.
As a Washington-based independent think tank, the Center for Global Development, suggested in a recent report, "the Bank should become less of a nanny bank, preoccupied with detailed conditionality and structural reforms. It should instead concentrate more on supporting healthy local economic and political institutions."
However, local political ownership is not necessarily conducive to equitable growth, as can clearly be seen in Indonesia under the authoritarian Soeharto administration. The World Bank, instead of forcing reform on Indonesia, fully supported the economic policies of the Soeharto government for more than 30 years and condoned its corrupt system.
The bank's effectiveness then depends on how it manages its lending operations in order to support policy reforms and development result.
