World Bank Fails to Reduce Poverty in Poorest Nations
Bloomberg, - The World Bank, the largest financer of projects in developing nations, is failing in its mission to reduce poverty in the poorest countries by paying too little attention to boosting economic growth, an internal audit found.
In the past 15 years, the bank put too much emphasis on social development and cut spending on bridges, dams, pipelines and other projects that have a more dramatic impact on economic growth, according to the report, obtained by Bloomberg News.
The World Bank's model to fight poverty in the poorest of nations has, in practice, paid insufficient attention to issues of growth,'' the 115-page report said. Without growth, no sustainable poverty reduction is likely.''
World Bank President James Wolfensohn, who is retiring at the end of May, cut by 40 percent financing for infrastructure projects since 1995 and shifted money to programs focused on climate change and faith-based initiatives, annual reports show.
While infrastructure spending has begun to rise in the past 18 months, some economists say World Bank President-elect Paul Wolfowitz would still scale back some of Wolfensohn's projects and overhaul the bank's $20 billion annual lending operation.
Somehow in the last few years it became kind of politically incorrect to talk about growth in the bank, and one could only talk about poverty reduction,'' New York University professor and former World Bank economist William Easterly said. Only about one-third of the developing economies have expanded more than 2 percent per capita in the past decade, the auditor found. In roughly the same period, the number of people living on less than $1 dollar a day increased in more than 40 of 100 developing countries for which there is data, the bank said. `Mission Creep' The study comes less than two weeks before the reins of the bank are passed to Wolfowitz, who was President George W. Bush's hand-picked nominee to succeed Wolfensohn. Since 2001, the Bush administration has sought to reduce what it calls a mission creep and make the bank focus on infrastructure projects. It would also like the bank to be more transparent when providing assistance and to justify future aid by showing past results. The report underscores the need for the World Bank to focus on economic growth as the most effective way to raise people out of poverty, and that we need to measure results at every level to understand and improve the effectiveness of programs,'' Deputy Assistant U.S. Treasury Secretary Tony Fratto said in an e-mail to Bloomberg. The U.S. is the largest shareholder at the World Bank.
Fratto said that while improving health and education is important, creating growth through the private sector is the only way to permanently raise living standards.'' A 1 percent increase in per capita income reduces the proportion of people living on less than $1 a day by an average of 2 percent, the report said. Responsibility Excluding China, the percentage of people living on less than $1 a day decreased to 23 percent in 2001 from 32 percent in 1980, though the absolute number rose to 880 million from 850 million because of population growth, the report said. Most of the gains came in Eastern Europe, East Asia and India. In contrast, the percentage of people living in poverty in sub-Saharan Africa increased in both percentage and absolute terms. The report acknowledges that the World Bank doesn't bear the sole responsibility for poor growth in regions such as sub-Saharan Africa and places some blame on corruption for impeding growth. Ajay Chhibber, an author of the report, also said that putting more emphasis on social spending was the prevailing view among development experts during the 1990s. `Poor Countries' In the World Bank's defense, even an outspoken critic of the bank can recognize that many things beyond its control determine poverty and growth in poor countries,'' said Adam Lerrick, an economist at Carnegie Mellon University in Pittsburgh and a member a 2000 congressional panel that evaluated World Bank policies.
However, no one outside the bank, and few people inside, know how effective the bank is,'' Lerrick said. The bank should develop better ways to determine whether aid is actually being used for its intended purpose, the report said. Jim Adams, the bank's vice president for operational policy and country services, said a separate World Bank report finds that the success rate of its projects has increased by 15 percentage points to 78 percent today from 63 percent in 1993. Adams said the bank has also recognized the need to increase spending on bridges, dams, ports and roads and will spend $1 billion more on those projects this year. As for Africa's failure to grow, Adams said the region has been plagued by conflict and countries that do have good policies in place, such as Uganda and Mozambique, are able to grow. Monitoring and Evaluation Still, the internal audit stressed that the emphasis on poverty reduction in the poorest countries has shown few proven results and there is a need for greater assessment and accountability. The bank has conflated increased expenditures in education and health with reducing poverty, often without adequate consideration of the actual impact of those expenditures,'' the report said.
Those programs have fallen short of bringing about qualitative and sustainable improvements in human development outcomes such as better learning achievement and improved heath status,'' the report said. Increasing expenditures alone hasn't ensured that the poorest are being reached, the report said. Easterly, who in 2001 wrote The Elusive Quest for Growth'' about how to improve economic development programs in poor nations, said that many of the programs the bank has chosen to focus on in recent years are difficult to monitor.
``Something that would enhance growth but is not directly linked to poverty reduction, like making sure roads are in good condition, was de-emphasized in favor of fuzzy schemes like `empowering the poor,' which nobody knows how to implement or to evaluate afterwards,'' Easterly said.
