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IMF-World Bank group meetings -- Bretton Woods or Birnam forest?

B. S. Raghavan

THE FAR-FLUNG excursions of the IMF and the World Bank Group have not only blurred the nature and scope of the responsibilities of the two institutions, but made them drift farther and farther away from their core competencies. Take just one instance of distortion that has crept in: In 1980, the WBG's involvement in the power sector, most vital for hastening the tempo of economic growth, was 21 per cent of its total lending. Today, it is a measly two per cent, while the lending on the so-called social p rotection and safety nets (education, health and nutrition) has vaulted from five per cent in 1980 to over 22 per cent. It is not that the latter is unimportant, but that attention to it on the part of the Bank should not be at the cost of more immediate priorities pertinent to the Bank's role.

The WBG has been uninhibitedly adding new issues to its portfolios such as gender (in the form of educational support for female child labourers and school dropouts, and for steps against gender-based violence); alleviating the consequences of conflicts in Albania, Bosnia, Kosovo and Cambodia; conversion of military bases to civil uses in South Africa; and even mining (contriving to see in the opportunities for riches by exploitation of mineral resources, the possibility of increased availability of fun ds for poverty reduction). The WBG has plunged whole-heartedly into the preparation of rural development plans which are best left to the individual countries.

Of course, numerous arguments can be found to rationalise entry into these areas, but should the Bank, for instance, get preoccupied with countries in conflict? The suspicion inevitably arises of the Bank succumbing to the hidden agenda of some powers wh ich want to be let off the hook in regard to the consequences of their realpolitik.

In all these unrelated endeavours, the WBG has been working as per a ``strategic compact'' in which the IMF operations too are closely inter-linked. Instead of encouraging the IMF-WBG to overstretch themselves by undertaking fishing expeditions in the do mains of other agencies and national governments, the aim should be to augment the financial, material, technical and manpower resources of those agencies which have the necessary expertise and skills to do a better job of formulating and implementing th e appropriate strategies.

But who is there to bell the cats? When the richest, the most powerful and the most dreaded of all bodies -- the two imposing trees of Bretton Woods -- make a pitch for a hegemonical role, it is, as far as other institutions are concerned, akin to the Bi rnam forest marching on to the castle of Dansinane: Like Macbeth, the rest stand no chance of confronting them and getting away with it. It is time the two institutions got over the craving for oneupmanship which is the bane of international organisation s. The Bank should live up to its own firm declaration in its strategic framework that it ``will explicitly step back (italics Bank's) where other institutions have comparative advantage''.

As it is, the IMF-WBG, within their own charters, have plenty to do, and to give them their due, they have not been wanting in earnestness or purposefulness in discharging their roles. The efficiency of internal management of both institutions is evident from the internal resources they have been able to generate for funding their activities: Of the Bank's total capital of $29 billion, only $10-11 billion has come from member-countries; the balance is from the Bank's own investments. The net income of t he Bank in 2000 was $1,991 million, up from $1,187 million in 1996. Likewise, the Fund's net uncommitted usable resources have touched the special drawing rights (SDR) equivalent of 74.8 billion at the end of 2000 as against SDR 56.7 billion a year earli er, and its liquidity ratio (the ratio of net usable resources to liquid liabilities) has shot up to 153.1 per cent.

Bank's pro-active record

Under the stewardship since 1995 of the pro-active, Mr James Wolfensohn, the World Bank has certainly made its mark in many respects. To him belongs the entire credit for making poverty reduction its unambiguous mission, setting the goal of halving the p opulation in absolute poverty by 2015 and tirelessly reiterating it at every conceivable opportunity. The number of regional and global partnerships among governments, civil society, other world bodies and business and industry launched by the Bank for w aging the war on hunger and poverty jumped from 73 to 185 during his time. He made the World Bank the first ever institution to turn the spotlight on anti-corruption and good governance, by way of not only insisting on safeguards against loans and grants being siphoned off by corrupt elements in member-countries but also by instituting watchdog cells within the Bank itself to prevent fraud and collusion.

It was Mr Wolfensohn's strict monitoring and supervision that led to the rate of completion of projects crossing 72 per cent. His personal efforts were instrumental in encouraging private participation in infrastructure projects, broadening the product b ase and introducing innovations in lending, financial management, advisory services, knowledge sharing and spreading the fruits of infotech. The involvement of the civil society in the formulation and implementation of Bank projects was less than 50 per cent before he took over; it is now more than 75 per cent. Realising the importance of the Bank's presence close to the field of action, he has increased the number of country directors from three (in respect of 24 clients) to 20 (for 53).

He has been instrumental in forging planks of action jointly with the IMF, so as to capitalise on the competencies, complimentarities and synergies of these two resource-rich institutions. It was largely on his persuasion that the rigidities of the dry-a s-dust Enhanced Structural Adjustment Facility of the Fund were softened, transforming it into a more relevant, pragmatic and compassionate Poverty Reduction and Growth Facility.

Indeed, the World Bank has of late commendably been reaching out to world organisations such as the Cindrella among them, the UN, and the stuffy-cum-starchy Organisation for Economic Cooperation and Development (OECD). All of them, along with the IMF, co -authored a report, `Better World For All', last September urging developing and industrialised countries to work toward fostering sustainable growth that led to an improvement in the lot of the poor and provided more resources for health, education, gen der equality and protection of environment. The Bank's public statements and official reports have constantly been nudging the international community to make good the commitments they so grandly embody in the multitudinous declarations emanating from th eir forums from time to time.

Operation Life Line

Of all the contributions the IMF-WBG have made, the one likely to have the most profound impact is the Heavily Indebted Poor Country Initiative. In fact, it was not necessary to give such a grandiose appellation to something meant to save poor countries from the strangulating effects of mounting debts. A better and simpler name would be Operation Life Line, which is what the Initiative is for the 62 poorest countries that are starved of resources because of the debt burden and are spending more on debt service than on health and education combined.

The Bank, acting in conjunction with the IMF, has cancelled more than 65 per cent of the debt of the poor countries and reduced their repayments from about 7 per cent of GDP to 2 per cent. For the 22 countries that have reaped the tangible benefits of th e Initiative, debt service falling due over the next three years will be 30 per cent less than actual payments in 1998-99, will average 8 per cent of exports, less than half of what a typical developing country pays and will average 12 per cent of govern ment revenue -- less than half the 1998-99 share.

These apparently significant results, however, mask the spotty patch-work because of which, according to a debt sustainability analysis circulated to the participants of the committee meetings, several recipient countries would not find it possible getti ng their debts down to sustainable levels even with the relief available to them. A number of NGOs have stridently demanded that the entire debt burden of the poor countries should be taken over by the Bank and the Fund. But Mr Wolfensohn, in his media c onference, threw the onus on rich donor countries, and bluntly declared that there was no way the Bank could undertake total debt cancellation as that would wipe out its capital.

(To be concluded)