Ben Chu: The IMF matters, but we should also pay attention to the World Bank

Economic Outlook: Staff at the Bank are under huge pressure to push money out of the door. The emphasis is on quantity rather than quality

Not many people noticed it, but last weekend's International Monetary Fund meeting in Washington DC was jointly hosted by the World Bank. The views of the IMF and its new managing director, Christine Lagarde, were widely reported. The IMF's warning of a sharp slowdown in global growth made headlines around the world, as did the alarm it sounded about the health of European banks. But the research of the World Bank flew pretty much under the global media radar. The words of the World Bank head, Robert Zoellick, were of wider interest only to the extent that they related to the economic crisis in the developed world. When it comes to these two children of the 1944 Bretton Woods conference, there is no doubt as to which is the more high-profile sibling.

There is a clear division of labour between the institutions these days. The IMF's job is to handle financial emergencies, providing assistance to governments that find themselves shut out by the global capital markets. The responsibility of the World Bank, on the other hand, is to plant the seeds that will flower into long-term growth, primarily in the poorer states of the world. One is the world economy's fire brigade, the other is more like a structural engineer. One rushes in, does the job and gets out. The other is supposedly there for the long haul.

Firefighting dominates the news at the moment, with the IMF's mission in Greece grabbing everyone's attention. A vigorous debate is raging over whether the savage austerity being imposed on Athens is curing or killing the Greek economy. Yet it is long-term development that drives the fundamentals of the global growth. Emerging and developing countries will provide the bulk of the 4 per cent global growth the that the IMF's latest World Economic Outlook forecasts for 2012.

While the advanced economies are expected to grow by just 1.9 per cent, on average, the developing nations are forecast to expand by around 6.1 per cent. India's forecast is 7.5 per cent, China's 9 per cent. Brazil and Mexico are expected to put on 3.6 per cent each. Middle and lower income countries are the planet's economic motor. If more poor nations, with their vast potential for expansion, could be plugged into the global economy, in the manner of China and India, the outlook for the world would be considerably less gloomy. More growth from developing nations could even help pull Europe and America out of their present stagnation.

And that is where the World Bank comes in: unlocking the potential of poor, dysfunctional, states. So how is it doing? Not particularly well is the answer. The organisation's prescriptions are often sound. The World Bank released a report at the meeting last week pushing for the legal empowerment of women across the developing world. It argued that equal access to resources for female farmers could increase agricultural output in developing countries by up to 4 per cent and that eliminating the barriers to women in the workplace could have a similarly dramatic effect in output. It is difficult to find fault with any of that.

Yet it is when it comes to the effectiveness of the Bank's lending programmes on the ground that its performance is often disappointing. In 2005, 78 donor countries met in Paris and pledged to make aid more effective. This was dubbed the Paris Declaration. But a report by the Organisation for Economic Co-operation and Development last month found that donors have only met one out of 15 targets set in Paris: hardly satisfactory progress after six years. The World Bank is generally considered to be one of the more effective donors, but the Bank's own watchdog reported this year that its performance has been mixed. And the Bank's healthcare projects in Africa have come in for some severe criticism. Between 1997 and 2008, less than a third of those evaluated were judged to have produced satisfactory outcomes.

So what's going wrong? People working in the development sector tell me that the problem is one of incentives at the Bank. Staff are under huge pressure to push money out of the door. Not much attention is given to monitoring and evaluating how the funds are actually spent. The emphasis is on quantity, rather than quality.

The Bank also tries to do too much. Rather than spending money on everything from health, to food security, to education, the World Bank should focus on areas in which it has a comparative advantage, such as infrastructure. That was, after all, how the Bank started out: funding the physical reconstruction of post-war Europe. The first recipient of World Bank aid was France.

The IMF gets a huge amount of public and media scrutiny. From the South Asian crisis of 1997 to Greece today, its prescriptions are intensely debated. And rightly so: decisions taken by IMF officials affect the living standards of hundreds of thousands of people. But the same is true of the World Bank and the decisions it takes about what projects to fund. There was a time, about a decade ago, when the World Bank was the focus of popular protests. But anti-globalisation activists now target the G20 rather than the Bank.

In a sense this is unfortunate. The organisation remains a huge player in the developing world. It was responsible for $43bn of new lending in 2011, which was spent on 303 different projects. As the chart above shows, its annual spend has been rising considerably in recent years. In some poorer economies, the sums the Bank lends could be transformative – if deployed effectively.

And what the Bank fails to do can be as significant as what it does. Over the past year, global food prices have spiked. Commodities such as wheat and corn are now at the same levels as seen during the food emergency of 2007-2008. World Bank research estimates that some 44 million people were pushed into extreme poverty by rising prices last year. Much of this rise appears to have been driven by financial speculation, rather than the fundamentals of supply and demand. But the World Bank has shied away from recommending measures to curb the activities of those trading in food commodity futures, preferring instead to explore means of helping states deal with price swings through hedging. Why doesn't Mr Zoellick throw his weight behind a campaign against food speculation, pushing for measures such as limits on position taking and for all contracts to be traded on transparent exchanges?

In the end, it is a matter of accountability. The World Bank should have a higher profile because it is an organisation in which our own governments – and by extension all of us – are shareholders. Britain has a particular responsibility here. In 2007 we overtook the US as the largest donor to the World Bank in absolute terms. That gives our Government the authority to push for reform. But to do that, the public needs to understand what the World Bank does and what its flaws are. It is time that we started scrutinising the work of the engineers of the world economy as closely as that of the firefighters.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Client Services Assistant

£18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor