Home > Opinion
  print button email button

Thursday, Oct. 11, 2012

Refocusing newly led World Bank on old challenges to global growth


By CURTIS S. CHIN

For only the second time in history, from Oct. 9-14, the World Bank Group and International Monetary Fund (IMF) are holding their annual meetings in Japan. The venues are different and the World Bank has had for the first-time ever, since July, a different kind of leader — Asian-American public health expert Dr. Jim Yong Kim. But will policy prescriptions that emerge over time simply be more of the same? This, despite a very different world than that of 1964 when the World Bank and IMF meetings, as well as the Tokyo Olympics, last convened here.

This year's meetings of the two global institutions' Boards of Governors take place amid Japan's continued struggles to put the devastation of last year's Tohoku earthquake and ensuing Fukushima nuclear crisis behind it, and just a few days after the latest Cabinet reshuffle and naming of yet another finance minister, the relatively unknown Koriki Jojima.

The meetings also come at a time when there is little agreement on how best to halt Europe's seemingly unending series of sovereign debt crises, or to spur economic growth while reducing record deficits and persistently high unemployment in the United States.

Since stepping down from my post as U.S. ambassador and a member of the Board of Directors of the Asian Development Bank — a multilateral financial institution that like the World Bank is owned by governments and primarily lends to governments to reduce poverty through economic growth — I have been asked frequently for my own views on the way forward, particularly in Asia, and which nation might be next to capture people's imaginations and investments during these troubled economic times.

The underlying premise to that question though often seems to be that the "West" has gotten it wrong, and the "rest" will now show the way forward to more sustained economic growth. Inevitably, the "West" seems to include institutions such as the World Bank and IMF, which rightly or wrongly are perceived as unduly influenced by the United States and Europe.

The "rest" meanwhile often encompasses the large emerging economies of Brazil, Russia, India, China and South Africa. These so-called BRICS countries for some time have been heralded as the next drivers of global growth. Yet they, too, have slowed or faltered, held back by what I have termed a lower-cased case of the "brics" — namely bureaucracy, regulation, interventionism, corruption and increasingly sectarianism. Ironically, the challenge of these brics writ small-scale may well in the long run stymie the sustainable rise of the BRICS and other large economies

As finance ministers, central bankers and other mandarins of the financial world, and their hangers on, gather in Japan, however, they might well want to take a lesson from the playbook of a past U.S. presidential election season, and quite frankly adhere to a principle often associated with then candidate Bill Clinton's 1992 election campaign, namely "keep it simple, stupid."

Complicated formulations, diplomatic speak and official communiques aside, many a policymaker knows that at some point, the solution is simple. Complex responses and plans can create their own problems. Government leaders know what must be done — improve the bureaucracy, regulate fairly, intervene rarely, stamp out corruption and reduce sectarianism. Further, they know, too, that the answer to a debt crisis cannot simply be more debt.

Truth be told, when it comes to a case of the brics, government leaders all around the world, including in the U.S., have not always set the best example. Everyday people, with everyday problems, may well want to ask their leaders, as well as finance officials gathering in Tokyo, five simple questions:

• Is our government bureaucracy hindering or fostering economic growth?

From the well paid civil servants of Singapore to the tens of thousands of relatively poorly paid officials in places as diverse as Afghanistan and Zimbabwe, the track record of government's performance is mixed. No wonder the continued calls for the dismantling of large government bureaucracies.

Yet, whether in Asia or outside the region, a real fight against bureaucracy is less about new organization charts, and more about assessing what works and what doesn't, and then getting rid of the latter. It's not just the size, but also the service quality, of the bureaucracy that matters.

• How are regulations impacting job creation?

Businesses and investors around the world are often challenged by not just too many or too few regulations, but more critically, by unequally applied and unevenly enforced regulations. Clearly, not all regulation is bad. Safeguards are essential. Indeed, the new president of the World Bank should commit to no dilution of that institution's social and environmental safeguards as a two-year review process begins, just as the ADB had previously done when it updated its safeguards policy. But policymakers also must ask if ill-timed or excessive regulations are imposing too high an economic cost.

A report earlier this year argued that the U.S. economy has been hindered by some 32 regulations imposing more than $10?billion in annual costs and $6.6 billion in one-time implementation costs last year. Is near-term job creation and growth in other countries around the world also losing out to red tape and regulatory excess?

• When is government intervention appropriate?

Governments in Asia have long been both praised and criticized for seeking to pick winners and losers, often distorting the market in favor of national players. U.S. and European bailouts in industries from automobiles to banking also have helped make government involvement in business increasingly accepted as par for the course.

Too often, however, government interventions and inefficiency can go hand in hand. Policymakers need now ask how to ensure such interventions, if any, are limited and a matter of last resort.

• What more can be done to root out corruption?

Throughout the world, corruption and cronyism go hand-in-hand. Weak judicial systems and limited transparency allow culprits to go free. The original Occupy Wall Street movement, for all its detractors, brought needed attention to the U.S.' own version of crony capitalism.

Allegations of favoritism or leniency must be investigated, institutions strengthened, and individuals held accountable if people from all walks of life are to regain confidence in their leaders and systems of governance.

• What level, if any, of sectarianism is appropriate?

Understandably, once disenfranchised or marginalized minorities are seeking to right past wrongs and are speaking up with their own claims to a nation's wealth and to recognition, if not outright violence. The Arab Spring is a case in point. As dictators have fallen, tensions and conflict have risen throughout the Middle East and North Africa. Indeed, this year's annual meetings of the World Bank and IMF were originally scheduled to take place in Egypt before developments in that country led authorities there to ask the meetings be moved to the alternate venue of Japan.

Whether in Egypt, Nepal or the once pariah state of Myanmar, also known as Burma, how best to forge a nation out of people of different ethnicities or religions? Leaders need to put their own nation's interests first and foremost, rather than those of their own sect, party or denomination.

At the heart of these five simple questions is the notion that true leaders are needed — national leaders — to tear down new walls built of bureaucracy, regulation, interventionism, corruption and sectarianism. These brics are blocking the way and hindering the steps needed for sustained, private sector-led growth.

Whether at the Asian Development Bank, or its cousin the World Bank, even the harshest critics should acknowledge that these and other multilateral financial institutions have contributed to financing the development of road, rail, power, water and other critical infrastructure needs of some of the world's poorest nations. The IMF likewise has played a part in the past in helping nations weather difficult times.

Yet, as the everyday investor knows all too well, past performance is no predictor of future success. Raising financing and renegotiating past debts are not the only challenges for the developing world today. As resources become increasingly available over time, government and development leaders must also focus on how money raised will be spent, including applying lessons learned from past projects and programs gone awry.

Putting an end to capital misallocations built of the new brics also would go a long way toward spurring business innovation, increasing the flow of investment dollars and creating the private sector jobs and innovations that would help drive the global economy forward.

Curtis S. Chin served as the U.S. Ambassador to the Asian Development Bank under Presidents George W. Bush and Barack Obama (2007-2010). He is now a senior fellow and executive-in-residence with the Asian Institute of Technology, and a managing director with RiverPeak Group.


Back to Top

About us |  Work for us |  Contact us |  Privacy policy |  Link policy |  Registration FAQ
Advertise in japantimes.co.jp.
This site has been optimized for modern browsers. Please make sure that Javascript is enabled in your browser's preferences.
The Japan Times Ltd. All rights reserved.