World Bank, Wolfowitz and the Fight Against Poverty

Paul Wolfowitz (right) and the president of the European Union Council, Prime Minister Jean-Claude Juncker of Luxembourg, listen to questions during a press conference last month in Brussels. (Photo: Thierry Monasse / AFP-Getty Images)

The executive directors of the World Bank unanimously approved the appointment of Paul Wolfowitz as the next president of the global development institution. Since President Bush nominated Deputy Secretary of Defense Wolfowitz as the next president of the World Bank, a string of negative reactions and commentaries have arisen opposing the appointment. Some cite his hard line posture in the United States-led war against Iraq and others cite his alleged scant credentials in development assistance. What has been largely ignored or lost in the controversy is whether the World Bank is fulfilling its primary mission to fight poverty and improve the living standards of people in the developing world. A change in the leadership is a rare opportunity to revisit the primary mission of the bank.

If a poor man or woman in a resource-challenged part of the world decides to take specific steps to change his or her status, is the World Bank as presently constituted and its policies implemented, a friend or a foe? If a petty trader in Accra, Ghana or an ambitious shoe shiner in Mexico City, Mexico decides to expand his business, can any present World Bank initiative or program provide uncomplicated assistance? If a rickshaw operator in Bangkok, Thailand seeks to expand his business, how relevant are World Bank programs in Thailand to his plans? If a newly widowed housewife in Lima, Peru decides to turn her hobby of baking delicious cakes into a small-scale business to earn extra income, can she benefit from World Bank country level initiatives?

In simple language, are World Bank policies and programs relevant to the immediate and long-term needs of poor families in the developing world? Are the present policies and programs of the World Bank geared to smoothen the rough edges of poverty or to assist poor people permanently escape poverty?

A comprehensive response to these posers goes beyond tactics for fighting poverty. It requires a careful review of the current state of development assistance worldwide. In an earlier essay, I posed a series of questions regarding the effectiveness of development assistance (see These posers include the real (rather than stated) motivations for development assistance, the apparent mismatch between what the target population expects and what donors intend or are willing to do, and, the inherent contradictions between what donor and recipient countries regard as successful outcomes of development assistance programs.

These posers are still relevant as the World Bank appears set to receive a new leader in June 2005. As long as humanity is saddled with 1.2 billion individuals living in absolute poverty, which according to experts is less than one dollar a day, the World Bank will be a focus of global attention and a lightning rod for social activists.

The situation in Africa is almost desperate. According to World Bank figures, at least 45 percent of Sub-Saharan Africans (314 million people) live in absolute poverty. Recent reports from the United Nations suggest Africa is on a pace to miss most of the year 2015 numerical targets for development set forth in the UN Millennium Development Goals. For example, Africa is unlikely to halve its current poverty levels by 2015, and highly unlikely to meet the rather modest goal of 50 percent of its population having access to decent water and sanitation services in urban areas.

As Wolfowitz assumes the leadership of the World Bank, he faces critical unresolved issues regarding the relevance of the primary mission of the organization and the appropriateness of current strategies, policies and programs. These unresolved issues include:

Who speaks for the poor?

What are specific, verifiable, independent mechanisms for obtaining the input of the poor in developing countries? A serious response to this question goes beyond the usual “listening tours” or “stakeholder” forums, meetings or consultations.

What do poor people want or need to permanently escape poverty and improve their standard of living?

After more than 50 years of development assistance, this question should not even arise. However, if more than 1.2 billion people live in absolute poverty, then either their needs and concerns are not reflected in current anti-poverty programs of the World Bank and other development institutions, or in the most unlikely scenario, they are unwilling to escape poverty.

Should the World Bank be about poverty alleviation or wealth creation for the poor?

This is a fundamental institutional dilemma. Should the focus of World Bank initiatives be on social programs that help the poor ameliorate the burden of their suffering or should the bank emphasize strategies that permanently graduate the poor out of poverty? A more likely short-term scenario is that the World Bank will continue to support critical social and economic programs in the areas of healthcare, education, human rights and community mobilization.

However, a new president of the bank cannot ignore the long-term advantages of implementing wealth-creating opportunities for the poor. For instance, the best way to assist poor rural women end gender inequities in resource-challenged environments may be to provide uncomplicated, rural-based micro-credit revolving loans to establish new businesses or expand an existing enterprise. In most parts of Africa, millions of African women rise at dawn, often strapping sleepy babies on their backs to head for open markets and roadside petty business centers to sell small quantities of produce and finished goods. These women eke out a living to send their children to school and provide food and modest shelter for their families.

A comprehensive World Bank micro-credit program for these rural women can dramatically expand their petty businesses, earn them more discretionary income, and uplift their economic and social status in the society. Mohammad Yunus’s famous Grameen Bank in Bangladesh is well known for its pioneering effort in micro-credits to poor, rural women. Hernando De Soto is promoting a simple idea of converting tiny land holdings of the poor into assets-for-collaterals in private and business transactions. A large-scale implementation of de Soto’s proposal with local banks and financial institutions in developing countries can dramatically improve the economic possibilities available to the poor.

Should the World Bank scrap very low interest loans for outright grants to poorest countries?

A new president of the World Bank must examine the relevance of very low interest loans to impoverished nations already over-stretched economically by huge external debt burden and undermined by H.I.V./AIDS, malaria and tuberculosis. A critical issue is whether the International Development Assistance arm of the bank that provides highly concessionnal loans and some grants should become a sole grant-making vehicle for the poorest nations. Since the Bush administration strongly supports grant-making opportunities by the World Bank, this issue is likely to be an early focus of Wolfowitz’s presidency.

Can the World Bank successfully manage both macroeconomic policy interventions and infrastructure development in recipient countries?

Currently, the bank has extraordinary leverage over the economic policies of most borrowing nations. To ensure repayment of its loans, the bank has wittingly or unwittingly become a major policy making institution for developing countries and a lightning rod to individuals and organizations concerned about national sovereignty, the powers of unelected bureaucrats and the negative effect of tightly controlled fiscal policies on the poor. The new president of the World Bank is very likely to decide whether the institution should focus more on infrastructure development in recipient countries or continue its strong but unpopular influence on the macroeconomic policies of borrower nations.

Another looming headache for the new president is how to assist poor countries dealing with the huge burdens of external debt. The World Bank’s Highly Indebted Policy Initiative (H.I.P.C.) for reducing the debt burden of poor nations has a mixed result, even according to World Bank reviews.

Critics charge that H.I.P.C. is theoretical, rhetorical and hardly at a pace to help poor countries deal with the unsavory choice of either servicing external debt obligations or spending scarce national resources on urgently needed healthcare, education and other social programs.

Should the World Bank become an instrument of the foreign and economic policy of any country?

When Wolfowitz becomes the president of the World Bank, he will be scrutinized by non-American shareholders of the bank and an army of the bank’s vociferous critics for any sign that he intends to make the institution an instrument of America’s foreign policy. A major fallout of the close scrutiny of a Wolfowitz presidency is an accelerated process to reform the governance structures of the bank to accommodate what I predict will be an increasingly assertive stance of the governments of developing nations working in concert with Western civil society organizations. The new president of the World Bank must work a fine line between reconciling the real and powerful global economic and political clout of G-7 nations and the equally powerful moral arguments of a development institution dedicated to fighting poverty and improving living standards in developing nations.

How should the bank interface with civil society organizations?

A major preoccupation of the next president of the World Bank is how to manage the often-prickly relationship with civil society. Civil society organizations are the livewire of established democracies in the West and the lifeline of oppressed and marginalized populations in impoverished societies. Any global development institution that ignores the reach of civil society operates at its peril. The new president of the World Bank should seek a constructive relationship with the civil society especially in the areas of (1) what works in development assistance (2) lessons learned from the field (3) scaling up promising programs (4) constructive feedback on the impact of bank policies on the poor (5) how to achieve sustainable debt relief, and (6) how to improve governance in recipient countries.

The Wolfowitz presidency of the World Bank comes at a time when the world is increasingly intertwined with advances in technology and the capacity for social activists to be better organized. His presidency will mark the beginning of an era where opaque decision-making and remote control of global institutions will no longer be fashionable. As an experienced technocrat and a first class academic, Wolfowitz is expected to provide guidance on how best to mesh the extraordinary knowledge base of brilliant World Bank staff members with the urgent, real and practical need to end poverty as we know it. As long as more than 1 billion people live on less than one dollar a day, the World Bank and other multi-lateral development institutions will continue to come under pressure to reform their policies and better align their programs to meet the needs of the poor.

Chinua Akukwe teaches the graduate international health policy and analysis course at George Washington University, Washington, D.C.