Throwing money at a problem to solve it is pretty much like giving alms to beggars to lift them out of poverty: the effort does little to produce intended results, except to create publicity stunts and assuage guilty consciences.
Without addressing the root causes of global and local economic crises and poverty, any entity, however wealthy, well-connected, or well-intentioned, will be rendered ineffective.
While this may sound trite, obvious, and old-hat, it bears repetition, especially in Asia.
Fortunately, Sebastian Mallaby, Washington Post columnist, has taken it upon himself to emphasize this point more than once while writing about the triumphs and tribulations of Australian-born James Wolfensohn, the first non-American to become president of the World Bank.
In The World’s Banker, Mallaby has dished out a dramatic narrative combined with substantial research to illustrate what even non-economists presumably know all along: that good politics is inextricably linked with economic development and that poor governance can introduce or exacerbate a crisis.
In 1996, just a year before the Asian crisis struck, the World Bank and its Bretton Woods sister, the International Monetary Fund, pumped in billions of dollars to strengthen the balance sheets of Indonesia’s state-owned banks.
Unfortunately, most of these funds went to undeserving borrowers, including those close to the Suharto regime.
As a result, when the contagion hit, the banks remained on the verge of collapse, the very situation that the Bank and the IMF wanted to avoid when they released the funds in the first place.
The banks, in the end, barely had anything to show for except bad assets, soured loans, and poor corporate governance.
In turn, the volatile mix of financial instability and the effects of a regional crisis culminated in the resignation of president Mohamed Suharto in May 1998.
“The [World] Bank has been engaged for years in Indonesia but its economists’ worldview had left no room for the idea that if you don’t get the politics roughly right a lot of development progress may be wiped out in a few weeks,” Mallaby says in a chapter about Indonesia, the Bank’s poster country for its poverty reduction strategies (or at least before 1997).
Mallaby’s assertion could very well apply to the Philippines, a heretofore willing subject of IMF-inflicted structural adjustment programs.
With a yawning fiscal deficit, the current [Arroyo] administration has ignored calls for an independent, no-nonsense audit of the power purchase agreements* made between the government-owned National Power Corporation (Napocor) and independent power plants (IPPs).
While the justice, finance, and energy departments have said that most of the contracts are on the level, various independent studies indicate exactly the opposite.
Like the huge, fraudulent debt incurred from the construction of the Bataan Nuclear Power Plant, the government continues to honor these deals, which binds Napocor and consumers to pay the IPPs for unused and even ungenerated power, which, incidentally, is one of the reasons for the country’s current fiscal mess.
Although the administration remains optimistic that the new value added tax as well as a slew of other measures will address the fiscal deficit, it nevertheless remains politically fragile, especially with unresolved allegations of election fraud.
How then is development ever going to proceed when it appears that the country can’t even get its politics right?
Despite its reputation for swallowing every bitter economic pill that both the IMF and the Bank have prescribed, the Philippines in the 21st century is a stark contrast to Uganda five years before the millennium.
Burdened by a series of dictatorships and erstwhile anti-free-market policies, Uganda significantly reduced poverty incidence with the help of the hard-hitting yet sensible Emmanuel Tumusiime-Mutebile, a technocrat whom Mallaby refers to as a “hammer.”
As overall financial adviser to President Yoweri Musuveni, Tumusiime made it possible for the former British protectorate to hold its poverty conference in its very own territory, perhaps the very first country in Africa to do so.
Combined with the efforts of Wolfensohn and Jim Adams, then the Bank’s director for East Africa, Uganda’s poverty reduction initiatives — previously held in Paris — were discussed by donor country representatives, nongovernment organizations, and Bank officials right at the heart of Kampala, the country’s capital.
But it was more than a change of venue.
It was also a paradigm shift, the very instance when the World Bank — or at least under Wolfenson’s term — began to re-examine its ideas about development.
Nowhere was this transformation more dramatic than in the Bank’s engagement with Uganda.
The Bank, for instance, gave Musuveni money to build more roads even though it believed that these funds could be best used for education.
But then again, Wolfensohn’s Bank — as Mallaby sometimes called it — was now more open to other ideas.
“There was a good case to be made for rural road building, which would link poor farmers to markets, boosting their incomes and therefore their ability to pay for school fees,” Mallaby writes. “If the Ugandans did not want money for education, was it wise to jam it down their throats?”
As Mallaby shows, this kind of pragmatism could only have happened under Wolfenson’s term, whose early years were marked by swift, decisive, and positive action, especially when its dedicated executives intervened in Bosnia.
Although brash and impulsive, Wolfensohn — reportedly an Olympic swimmer — was able to transform the World Bank from a centralized and stodgy institution into a flexible agency which, more or less, willingly worked with nongovernment organizations to help lift millions out of poverty.
However, Wolfensohn was not always on target, a fact well-documented by Mallaby who took the extra effort to ensure that the portrait he has painted is accurate and balanced.
Aside from firing old hands or forcing their resignations, Wolfensohn, for better or for worse, created unnecessary tension in the Bank’s board by deliberately withholding discussions about policy shifts.
Due to Wolfensohn’s single-mindedness and a mania for doing things his way, one G7 country representative recited a poem during a meeting, comparing him to Narcissus.
These anecdotes, peppered with policy framework documents and strategy papers, only underscores that The World’s Banker remains a compelling read.
Its quick narrative pace, together with its intention to avoid development jargon, has made the book accessible, especially to regular readers, giving them an inside look at the workings of what may well be the only bank in history directly participating in programs which help the world’s poor.
*Power purchase agreements include foreign exchange and fuel price covers.
Besides being required to buy electricity from power plants, Napocor, the Philippines’ largest power producer, is also required to protect these same power plants from volatility of fuel prices and foreign exchange.
Some power plants use either diesel or bunker fuel to produce electricity.
This means every time oil prices (including prices of bunker fuel and diesel) go up, Napocor is required to fill in the difference in the price gap.
With every increase in global oil prices, the Philippines also pays more pesos for the same amount of fuel imports. Napocor is also expected to cover the difference in foreign exchange costs for independent power producers.
From the Fine Print Dept. This piece is an edited version of a previously published book review in the Manila Times in September 2005. World Bank icon is from http://mt.educarchile.cl/MT/jjbrunner/archives/2010/01/gestion_basada.html.