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Thursday, Oct. 9, 2003

Charming the IMF in Dubai

Fine words from the president of the World Bank


Special to The Japan Times

HONG KONG -- James Wolfensohn, the president of the World Bank, made the most powerful speech of his career at the annual meetings of the World Bank Group and International Monetary Fund in Dubai last month. It was full of sharp sound bites driving toward a vital central theme that Wolfensohn enunciated with a great passion -- that this world is out of balance and something needs to be done urgently or we shall all suffer.

The hard part now begins -- trying to do something to remedy the deficiencies that had been pointed out. With U.S. President George W. Bush single-mindedly pursuing his own agenda and U.S. elections looming, with deadlock in world trade talks, with official development assistance at low levels and with many developing countries in no mood to listen to outside advice, Wolfensohn will need more than charm to make a difference.

"In our world of six billion people," Wolfensohn pointed out, "one billion own 80 percent of global GDP (gross domestic product) while another billion struggle to survive on less than a dollar a day. This is a world out of balance." He contrasted the paltry sums that the rich countries spend on aid -- $56 billion or just 0.22 percent of their GDP -- with the massive $300 billion given in subsidies to farmers in rich countries and the even more outrageous $600 billion spent on defense."

He was also critical of poor countries -- for spending $200 billion on defense, "more than what they spend on education." He even dared to raise the issue of the cancerous big C disease that is all too often swept under the official communiques: Corruption. "In nearly every country, it is a matter of common knowledge where the problems are and who is responsible. Frankly, there is not enough bold and consistent action against corruption, particularly at the higher levels of influence."

Wolfensohn recognized the frustrations of developing countries, pointing to the impasse at the World Trade Organization summit in Cancun a few days earlier. He said, "The wall that many people imagined to separate the rich countries from the poor came down on September 11 two years ago.

"We are linked in so many ways: not only by trade and finance, but by migration, environment, disease, drugs, crime, conflict and -- yes -- terrorism. We are linked, rich and poor alike, by a shared desire to leave a better world to our children, and by the realization that if we fail in our part of the planet, the rest becomes vulnerable. That is the true meaning of globalization. . . . Too few control too much, and too many have too little to hope for. Too much turmoil, too many wars, too much suffering.

"The demographics of the future speak of a growing imbalance of people, resources and the environment. If we act together now, we can change the world for the better. If we do not, we shall leave greater and more intractable problems for our children."

But Wolfensohn will have a harder task in turning his message into action. After all, his central theme of the fragile unity of the world is one that goes back centuries, so Wolfensohn appeared as a latter-day prophet in giving the latest grim numbers of a world heading toward catastrophe.

The World Bank president only has to go three blocks from his office at 1818 H Street in Washington to understand a major part of the problem. There is no evidence that Bush took much notice of global considerations when he launched his crusade against terrorism, or that he had thought through the consequences of his actions in the Middle East, either in Iraq or in supporting Israeli Prime Minister Ariel Sharon in Palestine. With great fanfare, the U.S. recently announced a 50 percent increase in its official aid. If accomplished, this will take American aid from a meager 0.10 percent of its GDP to 0.15 percent, still among the laggards of the rich countries.

A lot of what counts as American aid is quasi-military assistance to countries like Egypt and Israel. Moreover, recent statements from the Bush administration suggest that the new aid will be dispensed along unilateral rather than multilateral lines and given out like goodies to governments who see the world Bush's way.

Apart from the Scandinavian countries, most of which have achieved or surpassed the brave United Nations target of 0.70 percent of GDP as official aid, there has been no great rush by the rich countries to help the poor. Nor have the newly rich -- economies like Hong Kong, South Korea -- been very disposed to share their new wealth.

In his public comments Wolfensohn tried to put a brave face on the WTO failure in Cancun, asserting that it was a step on the road to working out the new "equilibrium" in the world between the industrialized world and the developing countries. This is surely undue optimism or political naivete, which is a common enough commodity in the World Bank.

Therein lies another problem. The chasm between the rich and the poor world cannot be blamed only on rich countries. Most of the rest of the developing world has not shown a strong determination to help itself. Even India, which is beginning to pick up its economic pace, is riven by internal politics and vested interests that make economic development a journey through a maze.

India has not managed to bring primary education and simple literacy to its 500,000 villages, which is one of the foundation stones for economic development. The World Bank can do little except enlist advisers like Nobel laureate Amartya Sen (India). At the other extreme are countries like Myanmar (Burma) and Zimbabwe and, let's be frank, many of the slow-growing countries where poverty is entrenched and where internal gaps between the rich and poor are wider than those between rich and poor in the rich countries.

It is hard to reconcile Wolfensohn's optimism that "the developing countries' policies and governance have never been stronger" with his attack on the debilitating effects of corruption in high places. When it comes down to it, it is the military strongmen of Myanmar who hold that country's minuscule shareholding in the World Bank, just as Robert Mugabe control's Zimbabwe's and corrupt dictators control those of other countries.

Even among neighboring countries, such as China, India and Thailand in the case of Myanmar, South Africa in the case of Zimbabwe, loyalty to the World Rulers Club comes before honesty. The best the Bank can do is deny pariah countries aid or attach onerous conditions to any loans

Wolfensohn talked a lot in Dubai, publicly and privately, about the beginnings of a "new equilibrium" between rich and poor countries. Before the WTO failure in Cancun, a new G21 grouping of leading developing countries emerged, in which Brazil, China and India forged a common alliance with others. It would be formidable if these developing countries can stay together. But they will still face an uphill fight, because there is little evidence that the rich countries are prepared to sacrifice their vested interests to level the global trading field. With election campaigns now starting in the U.S. for the White House and for Congress, there is no chance that Washington is going to think more generously until at least 2005, if then.

In the World Bank and IMF, the setup is different from the WTO and other bodies. Unlike the rest of the U.N., where voting is on the basis of one country-one vote, there is a weighted system based on quotas and paid-in capital. The U.S. dominates both the Bank and the IMF with about 17 percent of the vote (actually slightly less in the case of the Bank and slightly more in the Fund), followed by Japan, with 7.5 percent in the Bank, then Germany, Britain and France with between 4 and 5 percent each. Emerging powers China and India each have 2.78 percent in the Bank, the same as Saudi Arabia. Thailand has 0.41 percent, the same share as Colombia. Smaller economies have as little as 0.02 per cent (El Salvador).

A number of longtime staff of the two bodies say that the debate about voting is nonsense because loans are almost always decided by consensus. But there is important symbolism at stake -- and Washington is intent on keeping its big stake because 15 percent effectively provides a veto, for example to stop loans to a country.

Two things might constitute a really "new equilibrium" in the World Bank and IMF. One would be if the developing countries got an overall majority -- a symbolic shift in the balance of power -- and then tried to change the rules. The other would be if they could appoint the head of either institution, just as Thailand's Supachai Panitchpakdi heads the WTO.

For the almost 60 years of their existence, the managing director of the IMF has been a European, and the president of the World Bank has been a U.S. citizen, the latter appointed at the direct behest of the White House. Many critics think that it is time for a change.

But in Dubai, none of the main shareholders wanted to take a lower seat that might allow the developing countries to get a greater say. The U.S. will not give up its effective veto, France does not want to move out of the top four, Saudi Arabia wants to maintain its position. After all of the fierce arguments, a deal was struck -- the real debate on giving the developing countries a new voice was postponed until next year, and in the meantime it was agreed that Africa would get a third place among the two dozen seats on the executive board.

For all his prophetic words, Wolfensohn also has to take stock of his own stewardship at the World Bank. He has almost a decade at the helm and has extended its mandate to many new areas, such as emergency lending after financial crises, postwar Balkan reconstruction, economic management as part of Middle East peacekeeping, loans to combat AIDS in Africa, all the while stretching the Bank's resources thinner and thinner. Internal critics say he has been too much a visionary to be a good manager and claim he is too prone to appoint cronies to key jobs. External critics say that if he had been a better leader, Wolfensohn would have coaxed the rich countries to be more open with trade, more generous with aid, and would have chided the developing countries to put their economic houses in better order -- so that the world and the World Bank would not be faced with a crisis of such magnitude as Wolfensohn so eloquently described.

Kevin Rafferty is author of "City on the Rocks, Hong Kong's Uncertain Future" (Viking and Penguin Books), a guide to the magic and mystery of Hong Kong's rise to become an international city.


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