No longer were the hosts and their guests–some 15,000 finance ministers, investment bankers and CEOs–simply readying their tuxedos, turbans and tiaras for a week of partying and hustling for new business. The savage assault on the people of East Timor–following their vote favoring independence from Indonesia–led the bank and the IMF to reconsider further aid to the giant Southeast Asian nation, in whose economic restructuring they’ve both been major players. Evidence of massive and systemic corruption in Russia called into question the institutions’ ability to administer aid effectively. In the chancelleries of the West there was a sense that both the bank and the IMF had become little more than resource-transfer vehicles for economically imperiled nations–and largely inefficient ones at that. Critics, such as John R. Bolton of the American Enterprise Institute, a former assistant secretary of State, charged that the World Bank, in particular, had “lost all sense of direction.”
And so, what might have been a pleasant week of seminars and cocktail parties was shaping up as something a lot more sobering. “The meeting will surely be preoccupied with the reform of the international financial system, especially the questions raised by the Asian financial crisis and the capital outflows from Russia,” says Jagdish Bhagwati, Arthur Lehman professor of economics at Columbia University. “But it is equally necessary, particularly as one millennium ends and another begins, to ask for an informed vision on the appropriate governance of the highly integrated world economy today.”
Concepts such as “vision” don’t ordinarily figure in the lexicon of the mandarins of Mammon. But the lack of a driving vision for the two world organizations is especially conspicuous as the World Bank and the IMF stagger from one crisis to another. These institutions should be concerned with more than the world’s financial plumbing. They need to think long and hard about how their actions interact with some profound political and social developments now in train, developments that will either cripple or change for the better the 130 nations of the developing world. Specifically:
Politicization. Thanks to the Asian crisis, for which neither the IMF nor the U.S. Treasury can escape some blame, the IMF has now extended its authority into political and social areas that go beyond its conventional competence. The IMF was intended to provide support to countries looking to correct their balance-of-payment situations. Instead, the organization has become a major issue in the contentious domestic politics of many poor countries because of “conditions” it attaches to its bailout money, such as ending subsidies and trimming bloated bureaucracies. The bank and IMF have also placed excessive faith in nongovernmental organizations, many of which proclaim transparency but engage in the same sort of corrupt financial practices that have characterized governments criticized by the world agencies. NGOs in India, Kenya and Brazil have done well enough with bank money to sign up their executives on the international-conference gravy train, when funding was supposedly for grass-roots activities. Shouldn’t the bank demand more responsible use of such funds?
Fudging of roles. Professor Bhagwati points out that the World Bank has expanded into areas such as supporting projects to protect local cultures. There’s wasteful replication among global agencies on issues such as family planning, environmental protection and sustainable development. While “mission creep” is endemic to many international organizations, such expansion is involuntarily borne by taxpayers in donor countries. Should the World Bank really be planting trees and designing Web sites for NGOs? The role of the bank and IMF as financial institutions–not advocacy organizations–should be redefined and restated.
Corruption and malfeasance. Frank Vogl, vice chairman of the Berlin-based watchdog group Transparency International, notes that Indonesia and Russia have long scored terribly on international corruption indexes. “For years the bank and IMF ignored these realities,” says Vogl. “In the last couple of years, to be fair, the two institutions have taken a tougher anti-corruption stance, especially in Indonesia. Clearly, judging by the latest news, they have not been tough enough.” Instead of simply “reconsidering” loan disbursements to Indonesia, the World Bank can afford to entirely unplug its program unless the government of President B. J. Habibie unconditionally agrees to stop violence in East Timor and vows to make human rights its No. 1 priority. Tough talk is fine, but tougher action is needed–whether the issue is human rights or corruption.
What will take place in Washington next week isn’t just an assembly where the world’s mightiest financial and political leaders greet, meet and eat. The participants have an opportunity to start transforming the Bretton Woods institutions into leaner, better-managed institutions for promoting economic growth and social equity in a world where deep poverty still afflicts more than 4 billion people–and where “Web” is a metaphor for hopelessness, not transformational technology. For the World Bank and IMF, global reform must begin at home.
