What role for the over-fifties?: Peter Torday questions the value of the World Bank and the IMF as they plan their golden jubilee celebrations

WHEN the European Bank came under fire last year, other international financial institutions began to fret they might be next. They were right to be worried.

Fifty years since they were founded, the World Bank and the International Monetary Fund face growing calls for their reform.

But while the EBRD's shareholding governments were angered by cavalier overspending on outfitting its lavish headquarters which earnt it the epithet 'the glistening bank', broader criticisms are levelled at the World Bank and the IMF.

Overspending and perks for officials are not the only focus of attack. The issue is the roles these institutions should play in a world that is radically different from the post-war climate in which they were established.

The relevance of the Bank and the IMF in the post-cold war world is being questioned. The Bank's 'patronising' top-down approach to development, for instance, looks increasingly outdated, after the revival of Asia and Latin America on a wave of private investment.

The IMF, which was originally supposed to provide an anchor for the world's monetary system and to lend to industrial countries with short-term balance of payments crises, now finds its activities in the industrialised world confined to annual economic reviews. There has been no instance of an industrial country going cap in hand to the IMF since the late 1970s. Instead, it now finds itself playing a quasi-development role in the former Soviet Union and the Third World.

The Fund's monetary role - which has been in doubt since the collapse of the Bretton Woods fixed exchange rate regime in the early 1970s - was decisively supplanted by the Group of Seven leading industrial countries in the 1980s.

A combination of outlived roles and the inevitable bad habits of entrenched bureaucracies has fuelled the debate over the future of both institutions. But the main target, so far, has been the Bank.

The US, Britain and France are proposing radical reforms for the Bank while its president, Lewis Preston, has warned employees that unless the institution reforms itself, the shareholders will do it for them.

Some aid agencies, angered by policies which they say ignore local people and the environment, are even running a campaign under the slogan '50 years is enough'.

Justin Forsyth of Oxfam says: 'There's a lot of difference between the Bank's rhetoric about alleviating poverty and the reality. In Zambia, Zimbabwe and Uganda they are making economic changes which do nothing to help the poor.'

He says the old development model neither boosts growth nor alleviates poverty. Forcing such countries to develop cash crops for exports has led to surpluses, which depressed commodity prices for years and impoverished farmers.

The Bank's loans for big projects such as dams also encounter charges of environmental damage, rather than praise for boosting development. It also finds itself under attack for promoting policies that result in lower spending on health and education.

Aid agencies are not alone in describing the Bank's approach to development as old-fashioned. The main shareholding governments want to see greater stress on lending to, or investing in, the Third World's private sector. This would ultimately give a much greater role to the International Finance Corporation, the successful Bank agency responsible for fostering private sector investment in developing countries.

There have even been suggestions that the Bank, with a potential surplus of dollars 60bn, should be privatised and no longer present a financing burden to the rich industrial countries.

The IMF has also taken flak for failing in developing countries. The Brettons Woods Institute, a Washington-based think-tank headed by former financial luminaries such as Paul Volcker, wants a greater monetary role for the IMF in overseeing a system of target zones for the world's main currencies.

There is little political enthusiasm for the scheme, but it illustrates the quest for a new IMF role. That is also reflected in a recent series of speeches by Michel Camdessus, the IMF's managing director.

Yet for both institutions, some of the criticism is unfair. The investment boom under way in Latin America comes only 12 years after the IMF and the Bank stepped in to defuse what threatened to be a global monetary crisis and a development failure when the Latin debt crisis broke.

A senior US Treasury official says: 'The Bank should support, not supplant, the private sector' - using financial guarantees to attract private investment.

He urges the Bank to pay more attention to the education of women in the Third World and adopt a bottom-up approach to lending policies, consulting more closely with aid agencies, environmental lobby groups and local people when drawing up economic reform programmes.

The IMF, meanwhile, seems likely to view with unease calls for it to have closer links with G7. The Fund believes G7 is essentially an agent for US policies.

But it knows that the economic importance of Asian countries will be increasingly matched by their political clout. With the rise of Asia and Russia, G7 - the US, Japan, Germany, France, Britain, Italy and Canada - looks an unrepresentative world economic directorate.

Some IMF officials predict that G7 will eventually be transformed to reflect the changing global economic picture. Under this scenario, they foresee a revived global role for the Fund.

Meanwhile, G7 has a more immediate use for the IMF and the Bank. They are needed to aid the transformation of the former Soviet Union and Eastern Europe into market economies. That requires risky lending policies linked to socially harsh economic reforms.

Some G7 finance ministers say privately these are the highest-risk loans in the 50-year history of the two institutions. It is a big gamble, but integrating the former Soviet Union into the world economy is a large prize - and failure would carry equally high costs. If they can pull it off, the two institutions will have again proved their worth.