At the annual meetings of the IMF and World Bank, taking place this weekend in Singapore, a major row has emerged between the Bank’s president, Paul Wolfowitz, and Hilary Benn, Tony Blair’s minister heading the British Department for International Development. Wolfowitz has made fighting developing-world corruption the centerpiece of his presidency of the Bank, and has withheld loans from Congo, Chad, India, and other countries. On the eve of the meetings, Benn announced the withholding of £50 million pounds going to the Bank’s concessional grant-making arm IDA to protest conditions being placed on aid to poor countries. (The British press speculates that Benn may be a stalking horse for Gordon Brown, suggesting the direction US-UK relations may take once Tony Blair steps down.)
Benn’s threat echoes points made by other critics of the World Bank’s new direction. They argue that fighting corruption is only one of the goals of the multilateral organization, and that corruption-linked conditionality is getting in the way of providing aid to the world’s poor. A “zero-tolerance” attitude towards developing-country corruption, given its pervasiveness, would mean that the World Bank will stop lending, period. Wolfowitz responds, quite reasonably, that the poor will not be benefited if aid is “siphoned off into the hands of the corrupt and greedy.” The Bank cannot fail to put conditions on its loans, and he has been working hard in his first year to make those conditions seem less arbitrary.
Laudable as these goals are, the problem is that Wolfowitz is heading an organization poorly structured to lead a fight against corruption. There are several reasons for this.
First, a lot of corruption starts at the top, and can’t be addressed without getting into overtly political issues. The Bank’s articles of agreement explicitly prohibit it from dealing with politics. Its lawyers have pushed the envelope over the past decade by arguing that corruption and bad governance are clearly linked to bad economic performance. (On this, they are largely right.) But the Bank cannot intervene openly to remove corrupt politicians, or cut off countries simply for being undemocratic or unaccountable. China, after all, has been one of its biggest poverty-reduction successes in recent years.
Second, the Bank is structured as a lending and aid-granting institution, and all of its incentives are to push money out the door. Pressure to lend has undermined past efforts to tie loans to good economic policies; like Charlie Brown and the football, it keeps running up for another kick on Lucy’s promises that she will never, ever pull the ball away again.
Third, pressure to move money regardless of performance is vastly increased by lobbying from the likes of Jeff Sachs, Bob Geldorf, Bono, and others to meet the UN’s Millennium Development Goals. The MDGs seek, among other things, to halve extreme poverty and provide universal primary schooling by 2015. Michael Clemens of the Center for Global Development has argued cogently that these goals are both unrealistic and counterproductive, but the pressure to “do something” to end poverty in Africa is enormous. The idea that the Bank will simply sit on loans and aid going to poor African countries until they dramatically improve their governance is itself wholly unrealistic, given this larger political climate.
If an international organization were truly serious about tackling the problem of corruption, however, sitting on aid is precisely what it would have to do. This is why the single most successful effort to spread good governance around the world is the European Union’s accession process. Unlike the Bank and its loans, the EU’s member states are not eager to expand membership in their club. This means that their conditionality is properly back-loaded: no one gets the big plum of EU membership until they have satisfied its governance criteria. This has put countries like Romania, Bulgaria, and Turkey under the gun in a way that the Bank could never do.
The Bush administration’s innovative effort to reinvent aid, the Millennium Challenge Account, could have been structured in a similar fashion, offering grants as a reward only at the end of a long reform process. But it has fallen under the same pressures as the Bank to move money, based on the misunderstanding that it is aid flows rather than aid effectiveness that should be the real measure of success.
I wish Paul Wolfowitz luck in his efforts to push an anti-corruption and governance agenda at the World Bank. There is lots of evidence showing that this is at the core of the problem of poverty. But it is very much an uphill struggle he is waging, where the good intentions of the international community become their own worst enemy.
