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 A view from inside the World Bank
by Monte Leach

An interview with Ismail Serageldin, Vice President for Environmentally Sustainable Development at the World Bank, citing the widening gap between the rich and the poor nations, the need to educate the governments of poor nations to invest in their people, and the need for microcredit and international collaboration.   

The World Bank is the largest single source of lending to the developing world and Eastern Europe, and arguably the most influential international lending agency in the world. Last year, it provided new loans of more than $20,000 million dollars, and is currently funding projects in 135 countries. Ismail Serageldin joined the bank in 1972, and is now its Vice President for Environmentally Sustainable Development. Share International's United States Editor Monte Leach interviewed him.

Monte Leach: The bank has received a fair amount of criticism in recent years for its policies toward the poor and the environment. How have those policies changed during your tenure at the bank?

Ismail Serageldin: First of all, I totally reject the criticism that's being brought forward against the bank. Certainly the bank made mistakes in the past. So have a lot of other agencies. They were well-meaning mistakes, but they were mistakes, and certainly we've learned from them and improved dramatically by them.

I think we are being held to a higher standard than most agencies, and that's perfectly correct. I am always willing to listen to specific cases and see how we can improve what we are doing. But by and large, I would venture to say that the bank's standards on both the environment and on dealing with poverty and participation issues are higher than practically any other financier. Remember, we are a financing agency. Where there have been lapses from the application of our standards, we try to remedy them immediately.

The World Bank is the largest financier of education, health, nutrition and environmental projects in the world today. Our new President, Mr Wolfensohn, has made a major effort at stretching out his hand to build partnerships not only with NGOs (nongovernmental organizations) and civil society, but also with other international institutions, financiers, private foundations and the private sector. He says that the new way of doing business has to be more than just improving the quality of the interventions that the bank is responsible for; we have to build a much greater partnership in dealing with these issues. I see that as the most welcome new evolution of what we're doing.

We do make mistakes, and people can point to projects here and there. But please remember that these projects are against a portfolio of 1,800 projects under implementation, and about 650-700 projects under preparation, each of which has a number of components in it, each project an average size of $100 million. If you're talking about 2,500 projects at any one time, there are certainly some that would not come up to standard. I thank the critics when they point this out to us. We will certainly keep pulling up our socks. But it's unfair to say that the institution as a whole is not functioning properly or well.

And interestingly enough, a very large part of the data the critics use is what we publish ourselves. We have a public disclosure policy. We hold very high standards, and publish our own shortcomings. Instead of this being seen as a continuous effort to improve what we're trying to do, we're being criticized.

Structural adjustment programs

ML: One of the most controversial areas of involvement for the bank has been its structural adjustment programs. Some people argue they hurt the poor by forcing governments to reduce or eliminate subsidies for basic goods in exchange for getting World Bank loans. Is that still something that the bank is involved with?

IS: Sure. But let me backtrack a bit. The bank is a cooperative of member states. If I have a member state who is in a deep mess, which usually is the case, they don't come for structural adjustment on a pre-emptive basis. It's like a person who waits until they have a heart attack to be taken to the hospital. They don't go in for a medical checkup and preventative medicine. If they're in bad shape, there really is very little that you can do at that point in time except deal with the situation as it is. Sound advice up front is not always acceptable to a lot of people because sometimes it's unpleasant.

I had these discussions with a number of African leaders in the 1980s when I was working on Africa at the time. It's not a matter of ideology, it's a matter of arithmetic. You have spending and you have revenues, and there's a gap between them. There are only three ways of filling the gap. One is to print money, and that will lead to hyperinflation, and we know what the results of that are. Incidentally, the poor suffer the most from that because the Èlites usually manage to dollarize their holdings. The second way is to borrow. But most of these countries have borrowed to the point where there is a debt crisis. They can't service their debts, and they can't borrow any more by the time they come to us. And therefore the third way that's possible is to reduce spending and increase revenues. There is no fourth way in public finance to deal with this issue.

When it comes to removing subsidies, the question is what kind of subsidies. My experience is that in practically every case, subsidies have not gone to the poor. For every single case that you can show where there are subsidies to the poor, there are also massive subsidies on energy, on extractive industries for mining companies and so on.

In the World Bank we support targeted subsidies, rather than broad-based subsidies that cut across the entire population. A number of other social safety nets have to be put in place. But above all, we need to strengthen the hand of people dealing with education, health, agricultural research, and the maintenance of roads which are essential for poor farmers to get their goods to market. The politicians in most countries, when faced with serious cuts, do not want to touch programs that are popular with the urban Èlites. They worry about urban riots rather than the conditions of the rural farmers, who are not very visible politically.

ML: Are you saying that structural adjustment programs don't necessarily have to be a bad thing, that it depends on how they're implemented?

IS: Exactly. There is a lot of difference in the manner in which you do the adjustments.

ML: Although the World Bank and many other institutions are making efforts to reduce poverty, the situation seems to be growing worse. By the World Bank's own estimates, 1.3 billion people live in absolute poverty. Mabub ul Haq, a leading development expert, says that $34,000 million in additional funding per year would provide universal basic education, primary health care, safe drinking water for all, within the next 15 years. How do you see us, as a world, getting to that point?

IS: Certainly we have to double and treble our collective global efforts. I agree with Mahbub that we need a major effort on universal education, and bringing water to the billion people who don't have access to it, the 1.7 billion people who have no access to sanitation. All of these things have to be dealt with. The bank is doing its part. But you have to remember that the bank is a lender. Governments have to agree to borrow for these purposes. There's a large educational effort on the part of the bank to explain to governments why it's important for them to worry about the enrollment rates of little girls in primary schools in remote areas. And why in fact it makes sense for them to access World Bank resources, to borrow from the World Bank, to increase female education in rural schools, rather than just borrowing from the bank to build bridges and power stations and things of that nature.

Another important item is that bilateral aid has almost all dried up. Official development assistance figures are the lowest they've ever been, less than 0.3 of one per cent of GNP -- at a time when the richest 20 per cent of the world, who represent roughly the OECD countries, are 60 times as rich as the poorest 20 per cent. They were only 30 times as rich a generation ago. Today they are refusing to give more than 0.3 of one per cent of GNP to official development assistance. And the official development assistance that is available, in many cases, tends to be politicized on bilateral grounds instead of going to the most deserving areas.

There is a misconception that somehow the private sector is going to resolve all these questions. The private sector will do enormously good things. But at the same time, there are certain things which we recognize as public goods, and that's why everything from certain areas of environmental issues, investments in basic education, literacy, vaccination and health of children, reducing infant mortality, improving hygiene, agricultural research -- all of these are public goods. They are not going to be done by the private sector. We have to recognize that this is needed and that the funding for it is made available.

The second area where I think we need to do a lot more is the priorities of national governments. There are problems with many national governments who do not attach the appropriate priorities to dealing with the poor.

The third part is to assist the poor to help themselves, and that is one of the big things which we tried to do at the Microcredit Summit [held in Washington DC in February]. Hence our concern with microcredit. It is one of the tools that assists the poor to help themselves, and it's an absolutely essential tool. We want to help build sustainable financial institutions to reach the very poor.

The fourth area is international collaboration, whether it's dealing with river basins or with international public goods. There's a major need for international collaboration. These four areas require a lot of action on our part.

From the October 1997 issue of Share International.

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First published April 1999, Last modified: 15-Oct-2005