World Bank warns European officials to act on debt crisis immediately

The head of the World Bank Robert Zoellick said in the Financial Times that it is time to pull the emergency alarm. He wrote: "while those living in the euro-zone building, especially those on the executive floors, will not want to hear an alarm, they had best read the instructions. Events in Greece could trigger financial fright in Spain, Italy and across the euro zone, pushing Europe into a danger zone."

While the concern about events is hardly new there is an increased urgency about warnings. The stock markets today (June 1st) in the U.S. Canada and Europe have taken notice with big drops. European officials are warning that actions must be taken immediately before events spiral out of control. But that seems to be what is happening in Spain and Greece.

The European Central Bank leader Mario Draghi warned that that the euro structure as it stands is "unsustainable unless further steps are taken" He added that leaders "must clarify what is the vision … what is the euro going to look like a certain number of years from now?"

The Italian Prime Minister Mario Monti demanded that the European Stability Fund be allowed to directly provide capital to struggling banks. The move is opposed by Germany.

Events in Spain are one important immediate cause for concern. The central bank noted that 97 billion Euros had left Spain in the first three months of 2012 alone. This amount is equivalent to 10 per cent of the Spanish economy. This makes clear that Spaniards have no faith in their own economy or government.

The central government is injecting money it can ill afford to rescue Bankia the third largest Spanish bank. As a result borrowing costs for ten year bonds are climbing to near 7 per cent an interest rate that the government simply cannot afford. For much more see this Der Spiegel article.

Obama nominates Jim Yong Kim as U.S. choice for World Bank president

The only other candidate in the running at present is the Nigerian Finance Minister Ngozi Okonjo-Iweala. In a surprise move another top candidate Jeffrey Sachs withdrew and threw his full support behind Kim.

By tradition since 1944 an American has always been head of the World Bank and a European head of the IMF. This year there is a more open nomination and selection process. However, it looks as if the tradition will probably prevail. Sachs had the support of many developing nations. Perhaps many of them will now back Kim.

Jim Yong Kim was never a top candidate of those mentioned as being considered by Obama. Lawrence Summers was thought to be the likely U.S. candidate. However many were critical of the choice including some Europeans. Europe is expected to support the U.S. choice.

According to this BBC article Kim is a leading figure in global health. He worked in the WHO as director of the HIV/Aids dept. He also founded a health charity. Kim moved to the U.S. when he was five and grew up in Muscatine Iowa. He has an MD and PhD in anthropology from Harvard. He became president of Dartmouth College in 2009.

The choice is welcomed by many. It is certainly a victory for those who did not want to see Summers become bank president. Others see it as more than that. See this article. Robert Naiman wrote this to me in an email:""If you care about access to basic health services in poorcountries, it's a big victory. If you care about breaking down barriers to access to essential medicines in poor countries, it's a big victory." We will see.

I just wonder what Sachs' aim is in all this. He touted himself as eminently qualifiied for the job and had others write glowing reviews about his qualifications but then at the last moment he withdraws and supports Kim! Were there behind the scenes negotiation? Meanwhile there is one developing world candidate, the finance minister of Nigeria still in the running but she may turn out to be another part of what seems to be a concerted effort to show that the tradition has really changed while in fact she has no chance of winning. She is supported by three African countries. For more see this article.

World Bank lists sources of corruption in the Philippines

This is from the Inquirer. Special Purpose Funds?
Isn't that a euphemism for vote-buying funds? A good example is the fertilizer fund some of which was distributed to urban areas!
I guess the success of drive against tax evasion doomed it since many of the evaders were probably Arroyo supporters!
As for those accused of corruption being punished. It is rare. Even Estrada who was found guilty has been pardoned. He is not supposed to run again for president though. He might win!


SPECIAL REPORT : World Bank lists sources of corruption in Philippines


By Doris Dumlao
Philippine Daily Inquirer

Posted date: April 01, 2008


(First of two parts)
Summary and Lessons for Philippine Corruption Cases

Citing lessons from a number of large-scale corruption cases from the mothballed nuclear power plant in Bataan province to the national broadband network (NBN) scandal, the World Bank has called for tough reforms in the budget system to plug governance loopholes in the Philippines.

A country report prepared for the Philippine Development Forum (PDF) proposes abolishing “poorly controlled” special purpose funds, reforming the civil service system amid perceived vulnerability to political patronage and low compensation, and deepening of reforms on state procurement either during the sale of public assets or awarding contracts, among others.

The World Bank also laments in the report a “dramatic” slowdown in the government’s crackdown on big tax evaders in the last quarter of 2007 as opposed to 2006, when tax revenues were at an all-time high as the strategy of filing tax evasion cases under the Run After Tax Evaders (RATE) drive led to an unprecedented increase in personal and corporate income taxes.

The World Bank report, titled “Accelerating Inclusive Growth and Deepening Fiscal Stability,” a copy of which was obtained by the Philippine Daily Inquirer, lists various grand corruption cases in the Philippines in which no senior government official or private-sector perpetrator had been convicted. (See table on this page.)

“While proving a corruption charge is technically difficult and may take time even in a successful case, there is a perception of impunity in the Philippines, in spite of the recent conviction of former President [Joseph Estrada] on a plunder charge,” the report says.

Without credible enforcement, corruption will continue to be encouraged in the Philippines, the World Bank warns.

“The issue of governance in the Philippines presents an interesting paradox,” it says. “In spite of a strong civil society presence, an open media, and highly capable individuals working in public administration, most governance indicators in the Philippines have fallen substantially over the last decade and are also lower than the average for middle income East Asian economies.”

Special purpose funds

The World Bank presents in the report arguments why the government must stop the proliferation of poorly controlled Special Purpose Funds (SPFs):

• There is no clear legal basis for the creation of some SPFs, or for their inclusion in the general budget. Some are created by legislation, others by executive order. Initially the SPFs were meant to highlight some key expenditure priority items for Congress, control some expenditure items in the budget and allow for contingencies, but over the years this clarity has been eroded. The fluid way with which some of these funds are created weakens the ability of the government to have a simple unified and transparent budget.

• SPFs are not broken down by programs/activities/projects, making them difficult to trace and account for. They offer tempting opportunities to officials to use their discretion in misusing these resources.

• Extensive reallocations of the approved budget between line agencies and SPFs during the year add to the difficulty of matching budget allocations with budget execution.

• SPFs aggravate the problem of deviations from the budget. Deviations between expenditure outcomes and approved spending in SPFs occasionally reach a variance of more than 20 percent.

“The elimination of SPFs will improve the credibility of the budget, improve transparency in budgeting and ensure that there is stability and predictability in the policymaking process,” the report says.

Such a reform, the bank stresses, would have a considerable impact on the perception of transparency in budgeting.

Public procurement

Public procurement is cited in the report as a big business in the Philippines (accounting for more than 16 percent of government expenditure and about 2.8 percent of domestic output), but likewise is considered as the government activity most vulnerable to corruption.

Many Filipinos believe that a significant portion of grand corruption and political corruption occurs during procurement, either during the sale of public assets or simply the process of awarding contracts, the report says.

Grand corruption involves theft of large sums by top politicians or other officials, while political corruption, also called “clientelism” or “state capture,” is defined as the misuse of state power by officials to shape the rules of the game for their own benefit and the benefit of those who pay them.

(To be continued)

Edited by INQUIRER.net





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©Copyright 2001-2008 INQUIRER.net, An Inquirer Company

China's Lessons for the World Bank

Interesting that China is expanding rapidly its own financial involvement globally. In many cases this is related to ensuring supplies of resources such as oil that will be much needed by China's rapidly growing economy.

China’s lessons for the World Bank

by Jeffrey Sachs

The China Daily recently ran a front-page story recounting how Paul Wolfowitz used threats and vulgarities to pressure senior World Bank staff. … At the same time, while the Wolfowitz scandal unfolded, China was playing host to the Africa Development Bank (ADB)… This is a vivid metaphor for today’s world: while the World Bank is caught up in corruption and controversy, China skilfully raises its geopolitical profile in the developing world.

China’s rising power is, of course, based heavily on its remarkable economic success. … I had the chance to participate in high-level meetings between Chinese and African officials at the ADB meetings. The advice that the African leaders received from their Chinese counterparts was sound, and much more practical than what they typically get from the World Bank.

Chinese officials stressed the crucial role of public investments, especially in agriculture and infrastructure, to lay the basis for private-sector-led growth. In a hungry and poor rural economy, as China was in the 1970s and as most of Africa is today, a key starting point is to raise farm productivity. Peasant farmers need the benefits of fertiliser, irrigation, and high-yield seeds, all of which were a core part of China’s economic takeoff.

Two other critical investments are also needed: roads and electricity… Farmers might be able to increase their output, but it won’t be able to reach the cities, and the cities won’t be able to provide the countryside with inputs. The officials stressed how the government has taken pains to ensure that the power grid and transportation network reaches every village in China.

Of course, the African leaders were most appreciative of the next message: China is prepared to help Africa in substantial ways in agriculture, roads, power, health, and education. And the African leaders already know that this is not an empty boast. All over Africa, China is financing and constructing basic infrastructure. During the meeting, the Chinese leaders emphasised their readiness to support agricultural research as well. They described new high-yield rice varieties, which they are prepared to share…

All of this illustrates what is wrong with the World Bank, even aside from Wolfowitz’s failed leadership. Unlike the Chinese, the bank has too often forgotten the most basic lessons of development, preferring to lecture the poor and force them to privatise basic infrastructure, rather than to help the poor to invest in infrastructure and other crucial sectors.

The bank’s failures began in the early 1980s, when, under the ideological sway of President Ronald Reagan and prime minister Margaret Thatcher, it tried to get Africa and other poor regions to cut back or close down government investments and services. For 25 years, the bank tried to get governments out of agriculture, leaving impoverished peasants to fend for themselves. The result has been a disaster in Africa… The bank also pushed for privatisation of national health systems, water utilities, and road and power networks, and grossly underfinanced these critical sectors.

This extreme free-market ideology, also called “structural adjustment”, went against the practical lessons of development successes in China and the rest of Asia. Practical development strategy recognises that public investments - in agriculture, health, education, and infrastructure - are necessary complements to private investments. The World Bank has instead wrongly seen such vital public investments as an enemy of private-sector development.

Whenever the bank’s extreme free-market ideology failed, it has blamed the poor for corruption, mismanagement, or lack of initiative. This was Wolfowitz’s approach, too. Instead of focusing the bank’s attention on helping the poorest countries to improve their infrastructure, he launched a crusade against corruption. Ironically, of course, his stance became untenable when his own misdeeds came to light. …

The good news is that African governments are getting the message on how to spur economic growth, and are also getting crucial help from China and other partners that are less wedded to extreme free-market ideology than the World Bank. …

The Wolfowitz debacle should be a wake-up call to the World Bank: it must no longer be controlled by ideology. If that happens, the bank can still do justice to the bold vision of a world of shared prosperity that prompted its creation after the second world war.

The battle for Wolfowitz's replacement looms.

The importance of power in appointing World Bank and International Monetary Fund presidents is transparent. No drawing veils over who really determines things through accountability to third world countries, often the clients. No trappings of democracy involved just the unvarnished appointing by fiat by two big powers the US and Europe. Even the tradition is changed the underlying reality will remain.


White House set for battle over Wolfowitz successor
Agencies



Washington: A day after Paul Wolfowitz resigned, a fresh battle loomed over how and if the United States should pick his successor.

The World Bank chief's resignation on Thursday was forced by his handling of a high-paying promotion for his companion Shaha Riza that prompted an uprising among staff and bank member countries, some of them long-standing critics.

The international community expressed relief yesterday at Wolfowitz's decision to step down at the end of June but the move also prompted calls for a change in the way the top job is assigned.

In Berlin, which holds the rotating presidency of the European Union, German Finance Minister Peer Steinbrueck welcomed the end to the long-running row. "We must re-establish the reputation and the working capacity of the World Bank as quickly as possible," he said.





Washington said it hoped to announce Wolfowitz's successor soon, following the tradition that the United States nominates the World Bank chief while Europe names that of its sister institution, the International Monetary Fund.

US Treasury Secretary Henry Paulson said he would help Bush identify a nominee after consultations with other World Bank member countries. However, he made clear it would be an American.

"I see no reason why this should change and I see every reason why it's important that the World Bank should continue to be run by an American," Paulson said.

But Dutch Minister for Development Cooperation Bert Koenders told Radio 1 news: "We live in very different times from 1945 when this was agreed upon - now there are new powers in this world who also want their voice heard. The Wolfowitz affair makes clear that quality should be the foremost criterion for finding a successor."

International development agency Oxfam called for the next president to be "appointed based on merit through an open accountable process," a call echoed by anti-poverty agency ActionAid.

Wolfowitz's decision also failed to quell staff anger. Senior bank managers urged staff yesterday to focus on the bank's mission of fighting poverty.

The World Bank board began meeting yesterday to discuss leadership issues, including how a new bank president should be chosen and whether an interim leader should be appointed to take over after Wolfowitz departs and before a new head of the bank is named.

Wolfowitz resigns from World Bank

This is not too surprising. The Bushies supported him until it was hopeless. I can't understand how his girl friend remains on the World Bank payroll while she was transferred to the State Department.


Wolfowitz to resign from World Bank By JEANNINE AVERSA, AP Economics Writer




WASHINGTON - World Bank President Paul Wolfowitz said Thursday he will resign at the end of June, giving up his long fight to survive pressure for his ouster over the generous compensation he arranged for his girlfriend.



His departure ends a two-year run at the development bank that was marked by controversy from the start, given his previous role as a major architect of the Iraq war when he served as the No. 2 official at the Pentagon.

"He assured us that he acted ethically and in good faith in what he believed were the best interests of the institution and we accept that," the board said in its announcement of Wolfowitz's resignation.

Wolfowitz was all but forced out, however, by the finding of a special bank panel that he violated conflict-of-interest rules in his handling of the 2005 pay package of bank employee Shaha Riza.

The controversy, which gripped the bank for a month, was seen as a growing liability that threatened to tarnish the poverty-fighting institution's reputation and hobble its ability to persuade countries around the world to contribute billions of dollars to provide financial assistance to poor nations.

By tradition, the World Bank has been run by an American. The Bush administration keenly wanted to keep that decades-old practice firmly intact as the board dealt with Wolfowitz's fate. The United States is the bank's largest shareholder and its biggest financial contributor.

The White House said it would have a new candidate to announce soon, allowing for an orderly transition.

Earlier Thursday, President Bush had seemed resigned to the likelihood that Wolfowitz would lose his job over the conflict-of-interest charges. "I regret that it's come to this," Bush said.

In its statement, the bank's board said it was clear that a number of people had erred in reviewing Riza's pay package.

Wolfowitz, who had fought the pressure to resign for weeks, had sought a recognition from the bank that he did not bear sole responsibility for the matter. In his own statement Thursday, Wolfowitz said he was pleased that the board "accepted my assurance that I acted ethically and in good faith in what I believed were the best interests of the institution, including protecting the rights of a valued staff member."

Now, he said, it was in the best interest of the board that its mission "be carried forward under new leadership."

The board's statement made no mention of any financial arrangements related to Wolfowitz's departure, nor did it speak to Riza's future.

As a result of the controversy, the board pledged to review the World Bank's ethics policies, noting that "the bank's systems did not prove robust to the strain under which they were placed."

Wolfowitz waged a vigorous battle to save his job and maintained he had acted in good faith.

European nations had led the charge for Wolfowitz to resign. Those calls were backed by many on the bank's staff, former bank officials, aid groups and some Democratic politicians.

Until near the end, the Bush administration had professed support for Wolfowitz. But in a shift on Tuesday, the White House indicated for the first time it was open to his departure. It was the same day Wolfowitz made a last-ditch plea to save his job before the board.

Among those mentioned as a possible replacement for Wolfowitz are former Deputy Secretary of State Robert Zoellick, who was Bush's former trade chief; Robert Kimmitt, the No. 2 at the Treasury Department; Treasury Secretary Henry Paulson; former Republican Congressman Jim Leach and Sen. Richard Lugar (news, bio, voting record), R-Ind., and Stanley Fischer, who once worked at the International Monetary Fund and is now with the Bank of Israel.

Paulson, who will work with the president on finding a successor to Wolfowitz, said: "I will consult my colleagues around the world as we search for a leader."

Riza worked for the bank before Wolfowitz took over as president in June 2005. She was moved to the State Department to avoid a conflict of interest but stayed on the bank's payroll. Her salary went from close to $133,000 to $180,000. With subsequent raises, it eventually rose to $193,590. The panel concluded that the salary increase Riza received "at Mr. Wolfowitz's direction was in excess of the range" allowed under bank rules.

Wolfowitz "placed himself in a conflict of interest situation" when he became involved in the terms and details of Riza's assignment and pay package and "he should have withdrawn from any decision-making in the matter," the panel said. Under Wolfowitz's contract as well as the code of conduct for board officials, he was required to avoid any conflict of interest, the report said.

The panel acknowledged that the informal advice Wolfowitz received from the bank's ethics committee "was not a model of clarity."

Still, the entire episode involving Wolfowitz's handling of the pay package "underscores that there is a crisis in the leadership of the bank," the panel said.

Before taking over the bank nearly two years ago, Wolfowitz was the No. 2 official at the Pentagon and played a lead role in mapping the U.S.-led war in Iraq.

Bush tapped Wolfowitz for the job, a move that was approved by the bank's board even though Europeans didn't like him because of his role in the Iraq war.

The 185-nation World Bank, created in 1945 to rebuild Europe after World War II, provides more than $20 billion a year for projects such as building dams and roads, bolstering education and fighting disease. The bank's centerpiece program offers interest-free loans to the poorest countries.

The bank's staff association, which had called for Wolfowitz to step down, said in a statement: "Mr. Wolfowitz has finally done the necessary thing by resigning. He has damaged the institution and continues to damage it every day that he remains as its president."

Wolfie needs mouth washed with soap!

Supreme arrogance and an overwhelming sense of their self-importance seems to be character traits of many of the Bush cohorts including Bush himself.

--------------------------------------------------------------------------------

Angry Wolfowitz in four-letter tirade


Richard Adams in Washington
Tuesday May 15, 2007
Guardian Unlimited


Paul Wolfowitz. Photograph: AP

An angry and bitter Paul Wolfowitz poured abuse and threatened retaliations on senior World Bank staff if his orders for pay rises and promotions for his partner were revealed, according to new details published last night.

Under fire for the lavish package given to Shaha Riza, a World Bank employee and Mr Wolfowitz's girlfriend when he became president, an official investigation into the controversy has found that Mr Wolfowitz broke bank rules and violated his own contract – setting off a struggle between US and European governments over Mr Wolfowitz's future.


Article continues

--------------------------------------------------------------------------------

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Sounding more like a cast member of the Sopranos than an international leader, in testimony by one key witness Mr Wolfowitz declares: "If they fuck with me or Shaha, I have enough on them to fuck them too."


The remarks were published in a report detailing the controversy that erupted last month after the size of Ms Riza's pay rises was revealed. The report slates Mr Wolfowitz for his "questionable judgment and a preoccupation with self-interest", saying: "Mr Wolfowitz saw himself as the outsider to whom the established rules and standards did not apply."


The report brushed off Mr Wolfowitz's defence that he thought he had been asked to arrange Ms Riza's pay package, observing that "the interpretation given by Mr Wolfowitz ... simply turns logic on its head".


The investigators have sent their completed report to the bank's governing board, containing a string of withering criticisms of Mr Wolfowitz's behaviour and casting doubt on his ability to continue running the bank, a multibillion-pound international agency with 12,000 staff based in Washington.


According to the report, Mr Wolfowitz's actions "had a dramatic negative effect on the reputation and credibility" of the bank.


It concluded that "the damage done to the reputation of the World Bank group" should lead the bank's board to "consider whether Mr Wolfowitz will be able to provide the leadership needed to ensure that the bank continues to operate to the fullest extent possible".


It also said: "Mr Wolfowitz's contract requiring that he adhere to the code of conduct for board officials and that he avoid any conflict of interest, real or apparent, [was] violated."


Despite the weeks of turmoil within the bank, Mr Wolfowitz may still keep his job if the US government is prepared to stick by him.


Mr Wolfowitz still enjoys support from the Bush administration, where he served as deputy defence secretary at the Pentagon during the invasion of Iraq.


Yesterday vice president Dick Cheney defended Mr Wolfowitz, saying: "Paul is one of the most able public servants I've ever known .... I think he's a very good president of the World Bank, and I hope he will be able to continue."


The US treasury secretary, Hank Paulson, was yesterday said to also be drumming up support for Mr Wolfowitz, while European governments increasingly despair of US intransigence in allowing Mr Wolfowitz to hang on.


The angry comments attributed to Mr Wolfowitz came from damning testimony by Xavier Coll, head of human resources at the bank, who provided investigators with his notes of a meeting with Mr Wolfowitz last year. The notes directly contradict Mr Wolfowitz's assertions that the details of Ms Riza's treatment were properly shared with senior bank officials.


In March last year, when a mention of Ms Riza's secondment outside the bank to avoid rules about partners was first published in the magazine US News & World Report, an angry Mr Wolfowitz accused Mr Coll of leaking the information.


According to Mr Coll's notes: "At the end of the conversation Mr Wolfowitz became increasingly agitated and said that he was 'tired of people ... attacking him' and 'you should get your friends to stop it'. Mr Wolfowitz said, 'If they fuck me or Shaha, I have enough on them to fuck them too'," naming several senior bank staff he felt were vulnerable.


Mr Wolfowitz appears before the bank's executive board today to make a final defence of his actions, with the board meeting tomorrow to consider the report and make a statement later in the week.


With Mr Wolfowitz so far refusing to step down, the board may need to take radical action to break the stalemate. Members have discussed a range of options, including sacking Mr Wolfowitz, issuing a vote of no confidence or reprimanding him. Some board members argue that a vote of no confidence would make it impossible for him to stay in the job.

Venezuela will quit IMF and World Bank

It is not surprising that Chavez should make these moves--or announce them on May Day. An alternative lending agency seems like a good idea. With the price of oil staying high the bank should have lots to lend.

Venezuela to quit IMF, World Bank
Mon Apr 30, 2007 11:05PM EDT
By Saul Hudson

CARACAS (Reuters) - Venezuela will withdraw from the Washington-based lending organizations, the IMF and World Bank, in a symbolic move that distances leftist President Hugo Chavez from much of the international economic community.

Chavez, who plans to create an alternative lending bank run by South American nations and funded in part with his OPEC nation's high oil revenue, said on Monday Venezuela no longer needed the institutions dominated by U.S. "imperialism."

Leaving the International Monetary Fund and the World Bank would severs ties between the fifth largest oil supplier to the United States and the world's leading lenders to emerging nations.

"We don't need to be going up to Washington ... We are going to get out," Chavez, who calls Cuban leader Fidel Castro his mentor, said at an event to celebrate May Day workers' rights.

"I want to formalize our exit from the World Bank and the International Monetary Fund," he said.

Chavez blames the organizations' decades-old economic recipes of tight budget control, privatizations and open markets for continued poverty across Latin America.

He wants to build a socialist state based on policies rejected by the institutions in Washington, such as those he announced on Monday -- a 20 percent minimum wage hike and a gradual reduction in the working day to six hours.

The move to quit the multilaterals is politically symbolic but should have little immediate financial impact.

Since Chavez first took office in 1999, Venezuela has gradually reduced its cooperation with the organizations and, after years of strong oil prices, said it paid off its last debts to the World Bank this month.

Venezuela is one of several countries, particularly in Latin America, that have in the last few years reduced their dependence on the multilateral agencies and so tempered the lenders' global clout.

Some leftist Latin leaders hosted by Chavez at the weekend proposed quitting a World Bank body that arbitrates between foreign investors and states as they seek greater freedom to dictate the terms of foreign investment in their nations.

Chavez is nationalizing huge swathes of the economy this year and on Tuesday will lead a massive rally to take over the operations of multi-billion dollar oil projects run by some of the world's largest companies.

He said it marked the end of an era of Washington-dictated policies and returned Venezuelan resources under the state's control.

"The wheel has turned full circle," he said.

(Additional reporting by Patricia Rondon)


© Reuters 2006.

World Bank: Predictions through Rose-tinted glasses

No this is not about Wolfowitz and his girl friend but actually about what the world bank does!


The global economy through rose-tinted glasses





Robert Wade



FT Published: April 30 2007 18:29 | Last updated: April 30 2007 18:29



Talk of the future has been dominated by climate change and the mood is one of alarm. But among those who focus on economics the mood is upbeat. Climate change worries aside, the future to 2030 looks quite rosy.



According to the World Bank’s recent Global Economic Prospects, output will probably double in real terms by 2030 and developing countries’ output will triple. In much of the developing world, average incomes per head will converge with those in high-income countries and the number of people living in poverty (on less than $2 a day) will fall from 2.7bn today to 1.9bn. These trends will be driven by increasing integration of trade and finance and diffusion of technology. If they continue on beyond 2030, Bangladesh will have a chance to become as prosperous as the Netherlands.



It is worth taking a closer look at the World Bank’s model, for projections are only as good as the assumptions. The model assumes, first, that globalisation has been and will continue to be the main driver of improvements in economic performance – provided there is no protectionist backlash.



In reality, much of the success attributed to globalisation is in fact the success of one giant country: China. The picture of the past 25 years would look quite different if we took the typical developing country rather than the average for all of them (which is pulled up by China). For example, the fall in the number of people in extreme poverty since the early 1980s is due entirely to the fall in poverty in China. Take out China, and the number rose.



Many developing countries have gained little from globalisation and export-led growth and it is unclear whether they will gain more by continuing on the same track. The World Bank’s model also assumes that free-trade norms will continue to prevail. This is doubtful. In affluent countries, a lot of evidence suggests that further affluence is reducing people’s capacity to enjoy it. Throughout the west, rates of over-eating, family breakdown and addiction are rising. It is possible that electorates will respond by seeking to "embed" certain markets more firmly in a framework of political controls, even at the cost of slower growth.



In developing countries, disillusionment with the paradigm of maximum openness is growing, as those that have moved towards free movement of goods, finance and enterprises have not experienced substantially improved economic performance. The focus on export-led growth has created intense competition between developing country producers to lower costs – including labour and environmental costs – and the exchange rate.



Developing countries’ governments may begin to pay more attention to the growth of domestic demand and less to export demand as it becomes clear that export-led growth is not delivering. Commentators in the west will misrepresent this shift as a "protectionist backlash". But the task for analysts is to figure out how to do import substitution well, and subject to multilateral disciplines, rather than just less.



The Bank’s projections assume, third, no significant interruption from war. But the rise of important new economic states has almost always raised the level of conflict between them and existing dominant states. China’s rise is likely to generate further tensions between it and the US. The US may reassert its dominance by invoking China and Russia – flanked by Iran, North Korea and other non-compliant states – as a threat far beyond their "real" threat.



The other impetus for conflict comes from the tendency for global supply capacity to run ahead of demand and for profits to fall. In response, the west has pushed for market liberalisation and infrastructure investment in developing countries, which help to expand demand by bringing in more consumers and producers. But their efforts have often generated conflict over the ownership of the newly liberalised assets and over the terms of exploitation. We saw western companies buying bankrupted Asian companies at rock-bottom prices after the Asian financial crisis of 1997-98, prompting a strong anti-western reaction. The emergence of China only adds to the tendency for supply capacity to run ahead of demand and for global financial instability to rise as payments imbalances accumulate.



None of these less-than-rosy dynamics features in the World Bank’s projections to 2030 or in the prevailing optimism about the economic future. But we would be foolish to ignore them.

The writer, a professor of political economy at the London School of Economics, is the author of Governing the Market

Paul Wolfowitz and Accountability at the World Bank

I don't suppose World Bank employees are unionised just cronyized.


Congress Needs to Hound Answers from Paul Wolfowitz
April 9th, 2007
Last week, the Government Accountability Project (GAP) released documents to journalists showing that World Bank President Paul Wolfowitz’ girlfriend and fellow Bank staffer, Shaha Riza, received raises far in excess of what World Bank regulations stipulate for her position. Riza, who works at the State Department for the Bank under Karen Hughes and Liz Cheney, currently makes $193,590 take-home, a salary far greater than Secretary of State Condoleezza Rice’s.

Yesterday, GAP released documents showing that Riza’s raises have caused an uproar among Bank staff employees, as evidenced by an internal Bank email from the World Bank Staff Association to all staff detailing that the association was “inundated with messages from staff expressing concern, dismay and outrage.”

Predictably, it appears that Wolfowitz is not intent on explaining himself, but rather finding the leaker of the information. An article by Inter Press Service quoted an anonymous Bank staffer as saying “Wolfowitz is much, much more concerned about who leaked the information than about how to rectify the situation. He’s just furious.”

You may realize at this point that while everything is coming from GAP, we don’t have a public whistleblower going on record with this case. As the nation’s leading whistleblower organization, we typically assist whistleblowers who go public. Our sources in dealing with this case are anonymous, because whistleblower protections do not exist at the World Bank. If they did, this gross waste and misuse of public funds could have been easily avoided. But because Bank staffers are helpless if they report wrongdoing to superiors, no one came forward years ago to stop the problem.

Congress should hold hearings to investigate Wolfowitz’ actions during his tenure at the Bank for this and other acts of cronyism.