i

News &Notices

#17April 1997

for World Bank Watchers

TABLE OF CONTENTS

Quotes p. 1 I. World Bank’s Strategic Compact p. 2 A. Costs And Downsizing p. 2 B. New Initiatives p. 4 1. Social Action Plans p. 5 2. Rural Development p. 5 3. Financial Sector Development p. 5 4. Africa Capacity-Building p. 5 5. Anti-Corruption p. 5 6. Private Sector Partnerships p. 6 7. Product Development p. 6 8. Lending Modalities p. 6 C. Partnerships: Hallmark Of The Restructuring p. 7

D. Jekyll And Hyde:The Bank’s Double Identity p. 9 II. A “Jury” Looks At Adjustment In Africa p. 13 A. The Evaluation p. 13 B. The Philosophy p. 14

C. Background: The Last Plenary Of The Special Program Of Assistance To Africa (SPA) p. 15

III. Assorted Publications p. 17 Attachment A: Categories Of Country Assistance Strategies p. 20

Contact: Globalization Challenge Initiative 7000-B Carroll Avenue Suite 101 Takoma Park, MD 20912 Phone: (301) 270-1000 FAX (301) 270-3600 E-mail: ncalexander@igc.org Bread for the World Institute 50 F Street, NW Suite 500 Washington, DC 20001 Phone: (202) 639-9400 FAX: (202) 639-9401

Note: This publication is prepared collaboratively by Nancy Alexander of the Globalization Challenge Initiative and the Bank Watchers’ Project at Bread for the World Institute with assistance from Ford Foundation and John D. & Catherine T. MacArthur Foundation.

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Quotes Ideological reductionism has cost the world too much: that of race brought us nazism; that of the state, fascism; and that of social class, communism. The economic reductionism of recent years has led us to very serious situations of social inequality even in the rich countries. —Julio Maria San Guinetti, President of the Republic of Uruguay, “Globalization as a cultural phenomenon with economic impacts.”

—Latin American Economic System (SELA), Capitulos: Globalization. Trade and Integration, SELA, Caracas, Venezuela,1996

The main enemy of the open society is no longer the communist but the capitalist threat: too much competition and too little cooperation can cause intolerable inequities and instability. Insofar as there is a dominant belief in our society today, it is a belief in the magic of the marketplace. The doctrine of laissez-faire capitalism holds that the Common good is best sewed by the uninhibited pursuit of self-interest Unless it is tempered by the recognition of a common interest that ought to take precedence over particular interests, our present system — which, however impeded, qualifies as an open society — is liable to break down.

—Soros, George, ‘The Capitalist Threat,” Atlantic Monthly, 2/97 as summarized by the World Bank’s Transition, 2/97

If there is a conflict between the sun and the asteroids that revolve around the sun, who is going to win?

——John R. Bolton, former Assistant Secretary of State, speaking about the relationship between the U.S. (the “sun”) and other nations (the “asteroids”) in

the United Nations No matter what anyone else says, the United Nations will not get a dime more than what Congress says it is willing to pay Unless that is acknowledged, the United States will be in arrears from now until the second coming [of Christ].

--Senate staffer, The Washington Post, 3/10/97, p. 14. The recognition that trade restraints and environmental degradation are equally costly (both usually reduce GDP by about two percent), and therefore equally worth controlling, has been unable to pierce a parochial world view that sees free trade not as a means to the end of greater growth but as the end itself Trade negotiators operate a priesthood using a language none but they can penetrate in meetings none but they may attend.

— Jessica Mathews, “Environmentally Challenged,” The Washington Post, October 14,1996

The competitive situation in the world has changed more in the last five years with new technologies and open borders than in the previous four decades. Before, there was an eastern barrier next to Germany, but today there are emerging or developing countries right next door It’s not in Asia or Latin American, but right on our border with Poland and the Czech Republic, just like Mexico with the United States.

—Hans Tietmeyer, “German Central Banker Presses for EU Discipline,” The Washington Post, December 2,1996

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I. World Bank’s Strategic Compact

The aim [of the restructuring] is to make the Bank ‘the best in the business.’ Many will wonder however, whether it needed a more fundamental rethink of what precisely its business was. In effect, Mr. Wolfensohn is arguing that, to be up to the challenge, the Bank needs to continue to be all things to (nearly) all countries. —Financial Times, (UK), 2/24/97 I became convinced that the primary issue was our relationship with our client countries, that they are in fact the major actors, and that what we needed to do was to support them so that we can achieve our goal of poverty alleviation. —Wolfensohn’s speech to informal Board meeting on compact, 3/13/97 …through a combination of new in vestment and redeployment, we are planning to strengthen our approach to the broader development agenda that now faces our clients and which requires, for example, greater attention to social and environmental sustainability and to the changing roles of the private and public sectors. We will place particular emphasis over the next few years on rural development, local capacity building, and financial sector strengthening. — Wolfensohn speech to the Development Committee, April 29,1997. (Emphasis added.) The Bank management has made a deal, or compact, with its Board. The deal is that the Board will provide more resources and, in exchange, the management will enhance the development effectiveness of the institution. No one can quibble with the need for greater effectiveness, but the compact may be over-ambitious. It strives for more lending and faster loan preparation with better development results and fewer people.

This article looks at the costs and staffing aspects of the compact, new initiatives and partnerships, and long-term implications of the Bank restructuring. The major implication is that the Bank’s dual identity — as both a bank and a development institution — could take on a schizoid character if social development goals are in conflict with the private sector and infrastructure development agenda (see page 10: “Promoting the Private Sector — At What Cost?”). A. Costs and Downsizing In 1996, the Bank earned $7.9 billion in interest on its loan portfolio and $700 million from investments. Net income (after deducting interest payments on borrowing, administrative expenses and the cost of special programs) was $1.2 billion.1 In his speech to the April 29 Development Committee, Wolfensohn emphasized that

the compact will leverage how the Bank’s entire administrative budget ($1.2 billion)2 is spent; beyond this, it will have a major impact in helping to improve all our operational work.

1 Financial Times, April 18,1997, page 6. 2 Coincidentally, the size of the administrative budget ($1.2 billion) is the same as the net income

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The compact budget is modest. The media and certain big shareholders have blown the costs of the compact out of proportion. Without any media hoopla, the Bank increased its administrative budget by 30% in 1992-94 primarily in order to do business in the former Soviet Union. Although the administrative budget subsequently declined3, the net cost of the strategic compact — $250 million over two and a half years4— is not a big deal for an organization, such as the Bank, with an operating budget larger than the federal budget of some of its borrowers. The average size of a structural adjustment loan is $150 million; thus, the compact costs the equivalent of less than two adjustment loans. However, for the modest increment that the compact budget represents to have a strong impact, it would need to focus on fewer strategic goals. Bank President Wolfensohn has emphasized that, to achieve development results, the Bank needs to shift its approach to the development paradigm. But only 24% of the compact budget is devoted to refocusing the development agenda (see p. 3 for breakdown)! The lion’s share of costs will underwrite improvement and expansion of current business activities and the revamping of personnel, training and information technology systems. The social development “family” of the Bank has had several unfunded mandates related to, for instance, participation and gender action plans. These mandates are now underfunded. The cost (over two-and-a-half years) of the social development initiatives which we champion will be $52 million. By the time the annual installment of these resources trickle down through the bureaucracy, important initiatives are short-changed. For instance, only $12 million is allotted for the Social Action Plans which all six of the Bank’s regional departments are putting in place. These Plans will fund regional initiatives relating to:

�� resettlement and rehabilitation �� economy-wide social issues (e.g., privatization, labor migration, urban migration) �� natural resources management (e.g., biodiversity, water, land tenure, livestock

management, forestry) �� diversity and access (e.g., indigenous people, ethnicity, gender, age) �� state and society (e.g., decentralization, governance, civil society, NGO liaison

integration, social capital �� participation and public involvement �� post-conflict reconstruction

Downsizing: Cynics say that the compact is a “con trick;” that is, it is primarily an institutional downsizing wrapped in hortatory goals. The major cost of the compact relates to staff separations, or lay-offs, of 500 to 700 people from its 10,100 staff. Initially, the cost of separations was estimated at $181,000 per person. Because of Board pressure to keep costs down, the final cost is likely to be closer to $100,000 per person.

3 by 10% from 1994 to 1997 to 1997 4 The gross cost of the compact (excluding staff separation costs) is $423 million.

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The Bank plans to hire and retrain staff to strengthen its capacity in areas relating to social development, banking, procurement and financial management and infrastructure development. In his speech to the Development Committee, Wolfensohn said that the Bank is “doubling resources for training and all staff are being encouraged to improve their skill levels.” Training and redeployment is expected to cost $26 million over two-and-a-half years. In addition, the cost of decentralizing operations is being ascertained. Estimates put the two-and-a-half year incremental cost at $35 million. Decentralization of operations is already occurring for Mexico, Kenya, Cote d’lvoire, Sri Lanka, India, Vietnam, Bangladesh and the Philippines. Last year, all the jobs in the Africa Region were up for grabs during that region’s reorganization. Now, all the managerial jobs in the Latin America/Caribbean (LAC) Region are up for grabs. That is, all LAC officials are re-applying for their current or new jobs. Some are watching to see whether women will be admitted to the nearly exclusively mare-dominated management team. Part of the cost of the compact will be covered by cost savings. A firm, KPMG, will complete a cost-effectiveness review by June, 1997 and make recommendations about how to cut and shift Bank resources from back-line functions to front-line functions that directly serve client governments. B. New Initiatives As stated above, only 24%, or $135 million, of the gross, two-and-a-half year compact budget is devoted to refocusing the development agenda through the initiatives described below. Seventy-seven percent (76%) of the budget is devoted to other institutional priorities.

Gross and net costs of compact over 3 fiscal years (FY98, 99 & 2000) to be expended in 21/2 calendar years

Development initiatives: Other priorities: • refueling current business activity • retooling the Bank’s knowledge base • revamping institutional’ capacities

$ 99 million $ 168 million $ 64 million $ 92 million

Gross cost

Less Savings and Redeployments

Net Cost

$ 423 million $ 173 million $ 250 million

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Development Initiatives

1. Social Action Plans (SAPs) — (Cost: $51.9 million over three fiscal years) Each of six regions is allotted between $1 million and $2 million to carry out social action plans involving economic and sector work (ESW): social assessments; development of Country Assistance Strategies (CASs) and partnerships. The Bank draws up a Country Assistance Strategy for each of its borrowers which describes and justifies its investment priorities for the country. (See Attachment “A” for Categories of Country Assistance Strategies.) Each regional department of the Bank will design about three Country Assistance Strategies with a social development focus. These CASs may also be participatory and involve organizations of civil society, including NGOs. As described above, Social Action Plans will integrate action clans related to participation and gender. NGOs will monitor whether the Plans are adequately funded and canied out in an effective, country-specific way. 2. Rural Development — (Cost: $30.1 million over three fiscal years) The goals of this initiative are to improve the quality of loan portfolio by improving analytical work, expanding research, and hiring staff with relevant expertise. In addition, the Bank will focus its efforts on 14 countries (see below, “partnerships”). It will also work with NGOs in the Global Coalition to Reduce Hunger and Poverty, which was created by the International Fund for Agricultural Development (IFAD) with support from the World Bank in November, 1995. The Coalition has just opened a new grant facility to fund NGO capacity building in rural development and agrarian reform. 3. Financial Sector Development — (Cost: $19.1 million over three fiscal years) With the IMF, the Bank will improve crisis management and its monitoring and analysis of financial systems and banking crises. A pilot program in selected countries will seek to strengthen regulatory and institutional structures and processes. The Bank’s indicators of success might include: an increase in the number of banks privatized, Stronger supervision and enactment of key legal reforms. 4. Africa Capacity Building — (Cost: $4.6 million over three fiscal years) This initiative established a multi-donor Consultative Group for African Capacity-Building chaired by Mr. Wolfensohn which had its initial meeting in Paris in early 1997. Donors, including corporations, are contributing to a Trust Fund to support the initiative. The initiative 's establishing Secretariats for capacity-building in 12 or more countries. In addition, it is conducting capacity assessments in 36 countries; developing working plans for at least four Regional Centers of Excellence and twenty National Policy Institutes; setting up 8 computer centers for distance learning; and developing plans for enhancing the capacity of civil society, including the private sector. The Bank is reviewing its entire African loan portfolio with a view to assessing its effects on local capacity. In his speech to the Spring meeting of the Development Committee, President Wolfensohn pledged the Bank to retrofitting the portfolio, as necessary, to support capacity-building. 5. Anti-Corruption — (Cost: $91 million over three fiscal years) Integrity will be promoted in four areas: a) Bank-supported operations (e.g. through an

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ethics outreach program; a fraud hotline; auditing controls; and support for borrower processes which are accountable and transparent); b) public institutions in borrower countries through promotion of the rule of law and improved public sector management practices; c) companies doing business with foreign officials, especially by foreswearing bribery; and d) economic reform programs [e.g., Economic & Sector Work (ESW) will focus on corruption]. The Bank’s Economic Development Institute (EDI) will conduct workshops in investigatory journalism which can improve public sector management and cut corruption. 6. Private Sector Partnership — (Cost: $3.4.million over three fiscal years) A new World Bank Group guarantee facility of $500 million will provide guarantees for projects not requiring sovereign counter-guarantees. The Bank is considering establishing a new trust fund to support government preparation of privately-funded infrastructure projects. Work with businesses and NGOs will develop social and environmental guidelines acceptable to a range of stakeholders. Collaboration with the private sector will expand through joint work with chambers of commerce and various industry groups. The Government of Japan has taken a special interest in identifying ways that the Bank can support the improvement of infrastructure in borrowing countries. A review of such modalities will be presented to the Board in the summer and to the Development Committee meeting in Hong Kong in the fall. 7. Product Development — (Cost: $17.1 million over three fiscal years) The Bank will catalyze private sector financing, and expand its own financing for information technology and telecommunications projects. In addition, the Information for Development Program (lnfoDev) will expand its support for demonstration projects and workshops. Long distance delivery of education and health instruction will be expanded and an information clearinghouse will be established to transfer knowledge and learning about these issues. The Bank will also expand support for implementing international environment agreements, such as the Climate Change Convention. It also expects investors to underwrite a Carbon Investment Fund to fund carbon abatement technologies. Finally, a Forest Market Transformation Initiative will bring together a variety of stakeholders to affect sustainable forest management. 8. Lending Modalities The alternative project cycle: Throughout the Bank’s history, the project cycle (which proceeds in an orderly way from identification and conception of an operation through implementation to completion) has guided project development. The rigidities and pace of the cycle preclude flexibility, participation and corrections. Therefore, the Bank is promoting the new flexible project cycle especially for small projects (in the $5 million to $20 million range) to encourage piloting and, where appropriate, scaling up of operations. Adaptable lending program: Under some circumstances, the Bank will not only abandon the traditional project cycle, but also abandon lending for discrete operations. Especially in South Asia, the Bank is experimenting with providing governments with lines of credit

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in a sector (e.g., health or agriculture) for a general purpose. The government is at liberty to draw down its credit on an “as needed” basis to achieve specified purposes. C. Partnerships: Hallmarks of the Restructured Bank NGO Grants The Bank management is testing the idea of opening an NGO grant window, or “development grants facility,” with its Board in mid-May. Some examples of what the facility might fund include: transboundary development efforts (e.g., girls’ education); NGO capacity-building: or reconstruction efforts.

In addition, the Bank may support the Civil Society Empowerment Facility which is being spearheaded by the International Fund for Agricultural Development (IFAD). The CSEF was created in response to the Program of Action adopted at the IFAD Conference on Hunger and Poverty held in Brussels in November 1995. An Interim Committee comprised of representatives from NGOs and official donors have designed the CSEF. Grants from the OSEF will enhance the ability of poor people and their own organizations to gain and protect their access to land, water and common property resources and to the tools and processes that would enable them to manage such resources in a sustainable manner. The CSEF will pool the financial resources, knowledge, institutional capacity and outreach of participating institutions both from the multilateral and civil society sectors. Education of Civil Society The compact would increase the Banks Economic Development Institute (EDI) budget by $17.4 million. EDI will be actively engaged in building a variety of partnerships. For instance, it is launching a program to build understanding of economic and social issues among organizations of civil society -- NGOs, labor unions and the media -- as well as among parliamentarians and other government officials. Corporate Citizenship Initiative (CCI) On May 21-22, the Bank is calling together corporations and NGOs which have worked in partnership to examine the roles and contributions of business as a partner with government and civil society. IFC-Business Links The International Finance Corporation is creating a new Business Advisory Council and Banking Advisory Panel. Bank-Foundation Dialogues Wolfensohn has built relationships with the heads of major U.S. pnvate foundations and tested arenas for partnership.

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Rural Development The Bank will coordinate with the World Trade Organization (WTO), the Food and Agriculture Organization (FAQ), the International Fund for Agricultural Development (IFAD), and the UN Development Program (UNDP) in its rural development initiative. This initiative will focus on Guinea, Malawi, Mali, Uganda, Ukraine, Morocco, Bangladesh, India, southern Mexico, northeast Brazil, Guatemala, Vietnam, Philippines and China. It will also focus on water management in the Middle East and agriculture issues in countries seeking admission to the European Community. World Bank — UNDP Cooperation The UNDP has revised its agreements with the World Bank covering the Consultative Group (CO) and Roundtable (RT) processes and role of the Special Program of Assistance to Africa. CGs and RTs are events (often in Paris) in which all the donors/lenders for a given recipient country pledge resources to close the financing gap of the recipient. General Assembly Action The United Nations General Assembly has requested the UN, World Bank and IMF to perform a joint review of their cooperation. This may be yet another futile attempt to remind the Bank and IMF that they are specialized agencies of the United Nations system and, as such, should be accountable to that system. The Consultative Group on Capacity-Building in Africa This group chaired by Wolfensohn, brings together official and private donors with African ministers to implement the African-World Bank Partnership initiative. Reportedly, the United Nations Special Initiative on Africa is also implemented in the context of the Partnership initiative. Bank/IMP Cooperation in Finance Sector This cooperation will foster improved crisis management and monitoring as well as capacity-building by recipient governments. Indicators of success could include: the extent to which banks are privatized, stronger supervisory agencies, and enactment of legal reforms. World Bank and Japan Bank co-financing with the Export-Import Bank of Japan and the Japanese Overseas Economic Cooperation Fund will expand. Post Conflict Work The Bank’s new post-conflict unit will coordinate with other members of the international community involved in post-conflict reconstruction. The World Bank and European Union These partners are boosting joint aid programs to the former Yugoslavia and to Central and Eastern Europe. The Bank and the European Commission plan to enlist donors in meeting a $5.1 billion target for Bosnia’s multi-year reconstruction program.

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D. Jekyll and Hyde: The Bank’s Double Identity As a development bank, the Bank has a dual identity — that of a development institution which gets results on the ground and that of a bank with a concern for moving money to clients which are sufficiently creditworthy. The tensions implicit in this double identity can never be perfectly reconciled. However, we hope that the new bank does not pit one identity against the other. How might this happen? 1. Is quantity of lending at odds with quality? The strategic compact makes an important advance by eliminating explicit lending targets for individual countries. However, we wonder whether the Bank will accomplish the desired expansion of its loan portfolio with implicit targets. There is considerable evidence that there are trade-offs between the quantity of lending and its guality. According to the Bank’s definition, the best-performing governments are those of Chad, Mauritania, China, Thailand, Vietnam, Albania, Chile, Ecuador, Nicaragua, Panama and Lebanon. These countries tend to have small loan portfolios. In contrast, the problem countries tend to have huge portfolios. Notwithstanding this connection, the Bank is promoting an expansion of lending to some of its poorly performing countries, such as Russia. Russia (which borrowed about $6 billion this year from the Bank) is the Bank’s third largest borrower. The Bank claims that Russia has boosted the proportion of satisfactorily performing projects from 39% to 65% in one year and that this improvement justifies increasing lending by another $2 to $3 billion per year! The Bank should NOT push more loans in Russia and it should not punish the country director for a drop in the size of the loan portfolio. 2. How is “quality” defined? Country ratings: The Bank is increasingly attentive to the quality of each country’s loan portfolio.However, the Bank tends to give more weight to a government’s efficiency than to its commitment to poverty reduction. Operational ratings: The compact pledges to increase the success rate from two-thirds to three quarters of its portfolio. This goal could have a perverse effect if it makes the institution shirk certain risks. The Bank should guard against mimicking the market and lending the most to countries able to attract capital from other sources. Rating the quality of projects and adjustment lending is problematic. The most recent evaluation of loans rates operations which were initiated several years ago against their stated goals, which seldom included poverty reduction. It shows that two-thirds of Bank-supported projects and programs had successful near-term outcomes, but only 46% were likely to sustain long-term benefits.5 Now the Bank is routinely attaching poverty components (e.g. safety nets) to its operations- We urge the Bank to assess the overall impact of each operation on poverty rates, not just the impact of components. (For instance, evaluators should measure whether a project succeeds in creating jobs, not just whether the safety net component of

5 Evaluation Resuits for 1995,” OED Precis No. 131, World Bank Operations Evaluation Department. December, 1996.

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the same project functioned.) Also, we urge the Bank to retrofit its lending portfolio so that the impact of operations on poverty and equity can be assessed within the next two to three years 3. Which “client” matters? Our primary interest is in seeing the communities affected by Bank operations — especially poor communities — served. Bank responsiveness to its client governments is the priority of the restructured Bank- At the same ‘ time, the Bank has pledged to be more selective in terms of the governments to which it lends. What will the basis for selectivity be? The primary basis of selectivity will be whether a country has the “right” policies. Whether or not a country is committed to poverty reduction and environmentally sustainable development is a subsidiary (some say ‘trivial”) factor. 4. Who does the power structure reward? It is too early to say whether the new power structure will militate for or against loan quality. As earlier issues of this bulletin have described in detail, the reorganization places lots of money and power in the hands of Country Directors of the six regional departments who demand services from the Bank’s four Technical Networks (see box below) or from non-Bank sources (academics, NGOs, indigenous contractors, UN agencies, etc). Some staff say that there are some cases in which too many Country Directors report to a

What Are Technical Networks? There are four Networks, each of which is divided into multiple “sector families.” Across all Networks, there are about 15 to 20 families. Network staff work “on demand” or as called upon by country departments. Staff who are not in demand are retrained or fired. The Network “anchors” manage the centralized functions of the Network, such as:

• knowledge management relating to: global programs; sector strategy development and evaluation; partnerships; learning and dissemination • professional development, including standards for recruiting and promotion

The Four Networks: #1: Poverty Reduction and Economic Management (PREM)* (headed by Masood Ahmed) #2: Human Develooment (headed by David DeFerranti) #3: Finance. Private Sector and Infrastructure (headed by Jean Francois Rischard) #4: Environmentally and Socially Sustainable Development (headed by Ismail Serageldin)

The governing bodies of the Networks are called “Councils.” Each Network is comprised of several “families” which are governed by “Sector Boards.” Councils are responsible for the quality of the lending operations while the Country and Regional Departments will be held accountable for the volume as well as the quality of lending.

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single vice president. As a result, some Directors are virtually unsupervised. Will Country Directors hire the services of those who can do the job the fastest and at the least cost? So far, the accelerated lending has reduced the cost of project preparation to $354000 per project. The Bank also reduced the average time between the departure of an appraisal mission and Board approval of a project from nine to eight months. 5. Whose knowledge matters? The “global knowledge partnership,” is expected to cost $64 million over three years. The Bank’s P.R. represents the knowledge problem6 this way:

...the Bank’s knowledge is not readily available to those who need it — inside or outside the Bank.

The larger problem is that the Bank’s knowledge system is not attuned to, or enriched by, indigenous knowledge. The Bank will set up live, on-line information-sharing Internet communities. However, the overall thrust of the program is toward investing substantial resources in gathering, interpreting and disseminating its knowledge through a very top-down system. This is the wrong way to go. 6. Promoting the private sector — at what cost? There is a risk that the Banks dual identity could take on a schizoid character if social development goals are at odds with the ways in which the private sector and infrastructure development will be promoted. It appears that, to some extent, the World Bank Group is developing double standards: one standard that applies to public sector investment; another applying to private sector investment. Already, different rules apply to information disclosure and to the ability of aggrieved communities to appeal to the Inspection Panel in instances when the Bank has allegedly violated its own policies. Furthermore, it appears that the Board is considering approval of new lending instruments and facilities which could reduce Bank accountability for environmental protection and development standards. What standards might be promoted by the new trust fund which will finance government preparation of infrastructure projects?

6 This information is derived from the Bank’s External Relations publication entitled, “Guidance for Communicating the Compact.” * Joseph Stiglitz, Senior Vice President, chief Economist

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What standards will govern the to-be-created World Bank Group Guarantee Facility? Any day now, the Bank’s Board will decide whether guarantee documents can even be made public!

To what extent might IDA funds be diverted to support guarantees? Is it appropriate for the Bank to be considering the use of net income of the IBRD be used to provide guarantees in IDA countries? Is it appropriate for the Bank to use IBRD guarantees for enclave projects in IDA countries? This unfortunate proposal was analyzed in “News & Notices” #16 (January, 1997). What standards will guide the development of new loan and guarantee instruments? For instance, the Bank is considering a new product, sub-sovereign (state, municipal) guarantees, to private sector investors without the requirement for a government counter-guarantee. Apparently, there is interest in such guarantees, particularly to cover non-commercial risks of infrastructure (especially water, power and transportation) development. The compact commits the Bank to working with the private sector and NGOs to identify social and environmental guidelines for investment in each sector. No doubt, such guidelines will draw from and build upon the Bank’s own operational policies. However, the Bank should be a pace-setter in its operational practices as well as its policies.

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II. A “Jury” Looks at Adjustment in Africa The African donor community’s “club” is called the Special Program of Assistance to Africa (SPA). The SPA, which was founded in 1988, is comprised of 17 bilateral donors and five multilateral donors. It coordinates all non-project, economic adjustment grants and loans to Africa (as opposed to conventional co-financing of project investments). Adjustment loans are fast-disbursing monies which are intended to support policy reforms to spur broad-based growth. The SPA donors believe that African countries would have experienced deeper financial crises in the late 1980s without the financing they have leveraged. Last year, the SPA launched its fourth three-year funding cycle (SPA-4). SPA-2 coordinated $7 billion in adjustment monies; SPA-3 coordinated $6.6 billion. Donors/lenders have Pledged $5 billion in to SPA-4 for adjustment, which is $1 billion short of the SPA target of $6 billion. Donor pledges seek to provide foreign exchange to close financing gaps for sub-Saharan Africa countries and are revisited over time. For instance, the depth of debt relief provided by the Highly Indebted Poor Countries (HIPO) initiative will affect the demand for SPA resources. A. The Evaluation The SPA has just launched an evaluation of its operations which will be managed by the Director-General of the World Bank’s Operations Evaluation Department. The evaluation will be completed by the end of 1997 in order that it can feed into the mid-term evaluation of SPA-4 which begins no later than June 1998. The terms of reference for the evaluation were drawn up by the Swedes and ratified by the entire SPA. The Swedes will chair the Reference Group of SPA donors overseeing the work of the evaluation teams, which were constituted from recommendations made by members of the Reference Group. Of the twenty evaluation team candidates of which we are aware, six are Africans. The evaluation will assess the relevance, efficacy, and efficiency of the SPA with respect to its six functions, which are:

1) mobilizing resources for adjustment; 2) providing a forum for policy debate on development issues; 3) monitoring and peer review of donor practices in supporting reform and in the

implementation of SPA guidelines; 4) negotiating improved donor procedures; 5) developing improved approaches to economic reform; and

6) monitoring the results.7

Field missions will visit ten African countries which are among the 31 SPA countries with the largest resource requirements. These ten also represent the spectrum of responses (success to failure) to adjustment. The missions will visit primarily with government officials. Private sector and NGO representatives may also be sought out. 7 Inception Report “SPA: Independent Evaluation of the SPA Mechanism and its Contribution to the Adjustment and Development of African Countries,” World Bank Operations Evaluation Department, February 27,1997

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East Africa: Kenya, Tanzania, Uganda Southern Africa: Malawi, Mozambique, Zambia West Africa: Burkina Faso, Ghana, Mali, Senegal Missions will also visit with donors: Bilateral donors: Canada, France, Japan, Netherlands, Sweden, Switzerland, United Kingdom, United States. Multilateral organizations: IMF, African Development Bank, the European Union, World Bank. Evaluation teams are analyzing: (1) resource mobilization; (2) donor procedures, monitoring and coordination; (3) African government views on SPA as a coordination mechanism; and (4) the impact of policy reform on growth, financial sustainability and poverty reduction (literature review). As suggested below, we do not expect that African views on the SPA as a coordination mechanism (#3, above) will prove very interesting. African officials have little direct knowledge or experience with the SPA. A more valuable approach would involve soliciting African views on whether the process for formulating adjustment policies supports (or undermines) indigenous capacity for analysis and for building a broad constituency base committed to a reform agenda. The evaluation of the impact of policy reform (#4, above) is, arguably, the most important aspect of this exercise. But it is only a literature review. B. The Philosophy The SPA wants to assess the nature of the exchange between donors and recipients, but it is unclear how their analytical framework can accomplish this. For instance, the SPA evaluators will ask what impact the SPA has on “downstream” processes: donor instruments [e.g., the IMF’s Policy Framework Paper (PFP)] and donor-run, country-level fora [e.g., Consultative Groups (CGs) and [Roundtables (RTs)]. They will also ask what “upward” influence the CGs and RTs exert.8 But, CGs and RTs are dominated almost exclusively by donors; civil society has no involvement. Thus, the SPA is basically asking whether donors who direct policy at the continent-wide level are taking their own advice on the country-specific level. For instance, the “Inception Report” (see footnote 6) says:

…the evaluation will assess the extent to which the SPA helped to forge a policy consensus of the participating donors and have been accepted by SPA recipient countries. (page 8)

Government participation is welcome, but as a subsidiary value. Capacity-building We suggest the following question for the evaluation team: Is it more important for African

8 Each recipient country has a Consultative Group of donors. It usually meets in Paris and is usually chaired by the World Bank. Countries with smaller resource flows sometimes have a Roundtable, chaired by the UN Development Program. The OGs and RTs seek to dose the external financing gap for a country and coordinate donor roles in the country.

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government to adopt the policies advocated by the SPA or to develop the capacity for formulating policies? We recommend the Report of the Working Party (chaired by Harris Mule) on “The impact of Bank Policies, Instruments and Operational Practices on Capacity Building in Africa," Partnership for Capacity Building in Africa, October, 1996. The Working Party was comprised of six Africans and three Northerners. Key observations follow:

After more than a decade and a half of structural adjustment, government agencies still seem unable to take the initiative in defining government macroeconomic policy or to participate in negotiations with donors on an equal footing. The Bank has missed an opportunity to develop capacity in Africa and, in fact, has tended to undermine capacity because of the way it has introduced SAPs.” — p. xi

…the Bank only considers it has achieved success in its SAPs when the loan conditions result in policies that would not otherwise have occurred. This hinders the use and development of local capacity and results in a paradoxical outcome: key decisions are made by donors who at the same time emphasize the importance of policies being locally “owned.” — p. x

The record shows there is a considerable amount of inertia among donors, including the World Bank, in assimilating the evidence of failures in their programs, and even more paralysis is apparent when it comes to responding to lessons learnt. There is also a risk that a mere verbal commitment to capacity building may be used as a way to gloss over a continuation of old ways. — p. xvi

C. Background: the Last Plenary of the Special Program of Assistance for Africa (SPA) The last SPA plenary was held December 17-19, 1996 in Paris. In addition to the multilateral and bilateral donors in attendance were guest speakers: Ambassador Ahmedou Ould-Abdallah, Executive Secretary of the Global Coalition for Africa (GCA) and Dr. Benno Ndulu, Executive Director, African Economic Research Consortium (AERO). Ambassador Ahmedou Ould-Abdalish spoke on the importance of communication and cooperation between the Global Coalition for Africa and the SPA. Dr. Ndulu spoke on the origins of the African crisis and approaches to renewal. World Bank speakers briefed the donors on the economic performance and financing outcomes of SPA 3. Donors also heard about the following topics:

• Alan GeIb, Chief Economist for the Bank’s Africa Region of the Bank, reported on the way in which the Public Expenditure Review process is being shaped. A meeting in Cote d’Ivoire last month on this topic pulled together observations on four pilot projects.

• Kevin Cleaver, head of the Africa Region’s Knowledge Network, reported on the recommendations of the Poverty and Social Policy Working Group (chaired by the World Bank and the UK) for improving the impact of adjustment on poverty reduction and gender disparities. The group has also taken an initiative to develop statistics on capacity-building in Africa.

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The following topics were discussed: Annual Report: The Poverty and Social Policy Working Group (chaired by the U.K. and the World Bank) prepares an annual report on poverty in Africa. It was decided that the next annual report should focus on the gender dimension of poverty issues and the results of participatory poverty assessments. Sector Investment Programs (SIPs): SIPs are supplanting the traditional approach to project investments. In essence, the sector, itself 1 becomes the project with the donors working collectively with the government to serve the overall sector goals. Potential investments by NGOs or by the private sector would need to meet the test of complementarity with the SIP. Kevin Cleaver reported on a seminar (which preceded the plenary) in which four African officials made presentations regarding Sector Investment Programs (Zambia Hearth: Mozambique Health; Tanzania Roads; Zambia Agriculture). In addition, the Oxford Policy Management Institute presented the findings of a study of these four programs. Alternative Conditionality: The SPA Working Group with the catchy title “Economic Reform in the Context of Political Liberalization” discussed a proposal by the European Commission to reformulate conditionality in a manner which is being tested in a pilot in Burkino Paso. Eight donors are monitoring the pilot, including the IMF and World Bank. The EC proposal indicates that the donors would significantly determine the goals and the indicators of progress toward goals, but the recipients would have greater latitude in managing the sequence and timing of reforms. The proposal would categorize adjustment measures as relating to: (a) macroeconomic fundamentals; (b) budget management issues; and (c) equitable growth policies which might enhance the supply response, invest in people, or remove market distortions. Different donors could link disbursement of their loans or grants to different categories of adjustment measures. For instance, the IMF might link its support to progress in category a: macroeconomic fundamentals; the Nordics might link their disbursements to increased spending on primary health and basic education, which would fall into category b: budget management. Or, donors could link disbursements to progress in multiple areas. The EC proposal seeks an adjustment reform regime which is more performance based and, therefore, it would promote far more rigorous monitoring of performance. It would also tightly link the release of resource flows with progress toward pre-specified objectives. The EC initiative will have merit if it helps break the IMF monopoly on the evaluation of adjustment performance. As it is now, the IMF’s signals determine the size of official resource flows. Recipient countries deserve a more sensible signaling system than the IMP provides.

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III. Assorted Publications

Fernandez, Aloysius Prakash, The MYRADA Experience: Working with the Government in Multilateral and Bilateral Proiects, October, 1996. Available from: MYRADA, No. 2, Service Road, Domlur Layout, Bangalore - 560 071, INDIA. This extremely valuable contribution to case study literature on donor-government-NGO collaboration includes detailed descriptions of a variety of projects: agro forestry; integrated watershed management; management of environment and development by women; and rural water supply and sanitation. In each case, MYRADA partnered with a large donor: the U.K., IFAD, Canada, Switzerland, the World Bank. Fernandez, who speaks from a wealth of experience, does an outstanding job of outlining the goals, strategies and outcomes of NGO-donor collaboration in each project. The last chapter of this 160 page booklet describes interrelationships between: donors/lenders and the government; donors/lenders and the NGOs; and the government and NGOs. Raffer, Kunibert and Singer, H.W., The Foreign Aid Business, Edward Elgar Publishing, 1996. Available from EE Publishing, 8 Lansdown P1., Cheltenham, Glos GL5O 2HU, UK or EE Publishing, Old Post Road, Brookfield, VT 05036, USA. Anyone who knows the authors (Singer was Keynes’s Ph.D.) won’t be disappointed with the wealth of data, interpretation, and unconventional thinking in this volume. It covers various sources and kinds of aid (food aid, the Lome agreement, Japanese aid, South-South aid, aid and NGOs) as well as new trends in aid (including a great section on double standards in political conditionality). Although some of the volume’s proposals for change are presented almost as afterthoughts, they are, nonetheless, worth a lock. They include recommendations for:

(a) Combining emergency and development aid, (b) Copying the success of the Marshall Plan by means, such as promoting regional

cooperation among recipients by joint assessments of needs and joint requests, and the principle of self-monitoring by recipients;

(c) Designing structural adjustment programmes which promote regional economic cooperation in Africa. In this intriguing section, the authors describe how SAPs are antagonistic to regional cooperation and steps that could be taken toward regional SAPs (which might, for instance, advance joint industrial policies or help insure more rational export expansion plans).

(d) Allocating aid according to the Human Development Index; (e) Instituting international Chapter 9 proceedings for debt relief; (f) Advancing the financial accountability of donors by establishing mechanisms to

help insure accountability; (g) Financing institutional reforms and social agenda by grants.

Abugre, Charles, An NGO Vision of the Role of the African Develooment Bank in AfricasDevelopment Process, Third World Network, Africa Secretariat. Available from: Development Bank Watchers’ Project, Bread for the World Institute, 1100 Wayne Avenue, Silver Spring, MD 20910. Latin American Economic System (SELA), Capitulos: Globalization. Trade and Integration, SELA, 1996. Including views from R. Ricupero (UNCTAD); Camdessus (IMF); Li Peng (China); etc. Available from: SELA, Office of Dissemination and

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Communications, P.O. Box 17035, Caracas 1010-A, Venezuela. Cost: $60. FAX: 951.6953. “Civil Society: The Third Sector In Action,’ Development, Journal of the Society for International Development, Volume 3, September, 1996. Collier, Paul; Guillaumont, Patrick; Guillaumont, Syviane; Gunning, Jan Willem, Redesigning Conditionality, September, 1996. By: Centre for the Study of African Economies, Oxford; Free University, Amsterdam; CERDI, Universite dAuverge. Available from: CSAE, St Cross’ Building, Manor Road, Oxford OXI 3UL, UK. This paper argues that:

“Structural adjustment lending has made bribery the dominant objective of conditionality… The attempt to buy policy changes actually exacerbates the problem of lack of ownership of policies on the part of the government. Without government ownership, the persistence of reform may have insufficient credibility to induce a strong supply response. We have argued that a necessary condition for government ownership is that the design of policy should be done by the government’

Isham, Jonathan; Kaufmann, Daniel; Pritchett, Lant H., Civil Liberties. Democracy and the Performance of Government Projects, December 4, 1996. Isham (with the University of Maryland) and Kaufmann and Pritchett (with the World Bank) usefully document the schools of literature that link governance (what is done; how it is done; and how well it is done) with performance. They hypothesize that: “basic civil liberties — such as freedom of individual expression, a pluralistic and free media, the ability of groups to organize, freedom of dissent and criticism — are conditions that facilitate greater citizen voice and hence more effective governmental action. We also consider whether or not citizen voice requires (or is enhanced by) democracy.” They cite Hirschmann: “ …while markets create managerial discipline and induce efficacy through the exercise of ‘choice,’ governments are principally disciplined through the exercise of ‘voice.”’ The abstract of this paper states: ‘We use a cross-national data set on the performance of government investment projects financed by the World Bank to examine the link between government efficacy and governance. We demonstrate a strong empirical link between civil liberties and government project performance. Even after controlling for other determinants of performance, countries with the best civil liberties have projects with an economic rate of return (ERR) between 8 and 22 percentage points higher than countries with the worst civil liberties (the average rate of return is 16%). The strong effect of civil liberties holds true even controlling for the countries level of ‘democracy.’ We provide some empirical evidence that liberties provide a mechanism for greater citizen voice in establishing a level of accountability which induces better government performance.” Bellmann, Christophe and Gerster, Richard, “Accountability in the World Trade Organization,” Journal of World Trade, Vol. 30, No. 6, December, 1996. Available from the Publisher, Journal of World Trade, P.O. Box 5134, 1211 Geneva 11, Switzerland. The introduction to this important, 74-page article presents the reason why so many NGO movements are gathering force:

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The multilateral system...is gaining ground at the expense of national policy-making. The Uruguay Round was comprised of a multitude of negotiated subjects which had to be accepted or rejected as a whole. Such package deals lead to a deficit in democracy. National parliaments no longer determine legislative language themselves in the areas concerned. The people’s representatives simply approve what the trade diplomats and the governments have negotiated in a complex give-and-take process leading up to the acceptance of a multilateral package. Against this background, the accountability of the WTO and its member governments to civil society, in general, and to democratically elected parliaments, in particular becomes crucial.

The article describes how the WTO system operates and how NGOs can relate to the system at the multilateral and national levels.

InterAction, American Values—National Interests: The New Shape ol International Development Cooperation.

Wilkes, Alex, The World Bank’s Promotion of Privatization and Private Sector Development: Issues and Concerns, Bretton Woods Project, P.O. Box 100, London SEI 7RT, UK; email: bwref@gn.apc.org This publication provides an excellent overview of questions NGOs raise with respect to the private sector emphasis of the Bank group. The project’s monthly newsletter is also highly informative!

Beckmann, David, “Reforming the World Bank: A personal story”, Christian Century, April 16, 1997. The President of Bread for the World and Bread for the World Institute outlines his perspective on World Bank reform, shaped by 15 years as a Bank staffer and five years at Bread for the World. He argues that opening decision-making to grassroots participation is fundamental to improving the poverty impact of the Bank.

Asian Development Bank, Handbook on Resettlement: A Guide to Good Practice: 86 pages. IN DRAFT. The AsDB is to be commended to issuing such a Handbook to the public for comment. It deals with the nitty-gritty of the topic: data collection, land acquisition and resettlement survey, resettlement sites and income restoration, resettlement institutions, consultation and community participation, and monitoring and evaluation.

The World Bank, IDA in Action 1993-1996: The Pursuit of Sustained Poverty Reduction, 1997. This volume includes summaries of the Country Assistance Strategies (CASs) for more than fifty borrowing countries.9

A Attachment A:

Country Assistance Strategies

The Country Assistance Strategy describes and justifies the Bank’s lending priorities for a county. Country Assistance Strategies CASs) are Bank documents, although in recent years the Bank has consulted with client governments. CASs are not public documents. However, after Board approval of a GAS, a derivative of the GAS will be made public. This derivative may be a summary of the “strategic matrix’ for a country, which would name and diagnose development challenges and point to ways in which Bank operations will address them. Frequency of CAS preparation: Category 1: Annual cycle Category 2: Every second year Category 3: Every third year Category 4: Less frequently Criteria for classification: size of the lending program and quality of the portfolio.

CAS CATEGORIES 1997

Category 1

Category 2 Category 3 Category 4

Angola Bangladesh Brazil China India Indonesia Mexico Nepal Russian

Federation Vietnam Republic of Yemen

Algeria Argentina Azerbaijan Bosnia-

Herzegovina Bulgaria Burkina Faso Burundi Cameroon Central African

Republic Colombia Congo Costa Rica Cole D’Ivoire Egypt Equatorial Guinea Ethiopia Gabon Ghana Guinea Haiti Hungary Kenya Lesotho Madagascar Malawi Mozambique Niger Nigeria Pakistan Papua New

Guinea Poland Rwanda Sierra Leone Tanzania Turkey Uganda Ukraine Yugoslavia (former)

Albania Armenia Belarus Ben in Bolivia Cambodia Chad Croatia Djibouti Ecuador Eritrea Fiji The Gambia Guatemala Georgia Honduras Jordan Kazakstan Kyrgyz

Republic Laos PDR Lebanon Macedonia Mali Mauritania Mongolia Morocco Nicaragua Paraguay Peru Philippines Romania Senegal Sri Lanka Tajikistan Thailand Togo Tunisia Uzbekistan Venezuela Zambia Zimbabwe

Belize Bhutan Cape Verde Comoros Dominican

Republic El Salvador Guinea-Bissau Guyana Jamaica Kiribati Latvia Lithuania Maldives Mauritius Moldova CECS

Caribbean Region

Panama Sao Tome and

Principe Seychelles Slovenia Solomon Islands South Africa Swaziland Tonga Trinidad and

Tobago Turkmenistan Uruguay Vanuatu West Bank Gaza Western Samoa

Sub-Totals: 11 (9%) 38 (31%)

41 (31%)

30 (29%)

TOTAL: 120 (100%)