Global Policy Forum

by Abid Aslam

The World Bank released a report "Assessing Aid: What Works, What Doesn't, and Why" yesterday. Without massive debt cancellation aid to indebted countries just goes through a revolving door back to donor countries. Also that, their focus on aid is more about in "leveraging" private investment than poverty eradication.

Washington, -- Donor countries today are the stingiest they have been for the past 50 years, even though more countries are adopting 'sound' economic policies, says the World Bank.

''Developing countries, in large numbers, are moving toward sound policies and donor agencies are changing to become more effective,'' says Joseph Stiglitz, the Bank's chief economist and senior vice president for development economics. ''In fact, there has never been a better time for giving aid.''

In "Assessing Aid: What Works, What Doesn't, and Why", a report released Tuesday, the Bank sets out to respond to foes of aid in the U.S. Congress and other donor parliaments. The report upholds the Bank's own policy prescriptions and practice of lending money to ensure these are implemented. But it comes as the Bank faces questions about its own effectiveness in fostering development, especially in Africa, and amid suspicion it is seeking to strengthen its own hand in dealing with borrowers.

Surging investment flows have given rise to a ''let them eat private dollars mentality'' among some donors, notes spokesman Phil Hay. Yet, according to the report, aid is a catalyst for international private investment in poor countries. That is because ''aid increases the confidence of the private sector and helps to provide public services that investors need, such as education and infrastructure,'' the report says.

Rather than shrinking from giving aid, ''donor countries could do better....by focusing a larger amount on poor countries with sound policies,'' argues David Dollar, the report's lead author. These would include India, Ethiopia, Vietnam and other nations where more than half the population live in poverty but where policies are "better than average" for developing countries.

That might seem to undermine support for the most needy countries but the Bank maintains that a 10-billion-dollar increase in aid could benefit 25 million people if properly targeted. Otherwise it would help only seven million people if distribution followed current practice.

The Bank defines countries with ''good'' policies as those having low inflation, good fiscal balances, and open trade regimes. Good policies must be matched with ''high-quality institutions'' capable of protecting private property and ensuring the rule of law, bureaucratic competence and little or no corruption.

That message echoes the Bank's flagship 'World Development Report' for 1997, which describes the ideal state as one helping the market to function freely and effectively. The Bank's reliance on foreign investment to transfer resources from rich to poor countries, and on the market to allocate resources locally, involves serious risks for the poorest countries. It also could bolster the hand of multinational corporations and the Bank itself, according to the Bretton Woods Project, a London-based research and advocacy group.

Despite the Bank's claims of the numbers who stand to benefit if aid is redirected to countries with 'sound' policies, nations not meeting the agency's approval would risk ''severe financial and, in turn, social consequences,'' says David Woodward, a former staff member in the office of Britain's executive director to the Bank and International Monetary Fund.

''This threat could give the Bank and Fund greater power to dictate economic policies to developing country governments,'' Woodward says in a recent assessment for the Bretton Woods Project.

''The Bank has shown a marked tendency to prefer promoting the free-market policies it believes in, rather than investigating the actual economic effectiveness or the merits of alternative policies on an objective basis, or observing the preferences of governments, however strong their democratic credentials.'' Bank officials disagree with that assessment but it is shared by a recent Norwegian government report.

'The World Bank and Poverty Reduction in Africa' says that the agency suffers from image problems because of its ''unpopular adjustment operations, the distinct ideological edge to its pronouncements, and perceived arrogance.'' ''The World Bank has maintained a remarkably constant approach to poverty reduction over its 50-year history,'' contends the report, written by the Christian Michelsen Institute. ''Its assumption has always been to view development and poverty reduction as fundamentally an issue of economic growth.'' Dollar counters: ''Growth is important because in countries with mass poverty, growth is a necessary ingredient for reducing poverty.''

Nevertheless, the Bank ''pays scant attention to inequalities and distribution of assets as constraints on growth and poverty reduction,'' the Norwegian report says, highlighting class, gender, and political disparity. As a result, ''linkages between macroeconomic policy interventions and poverty remain weak.''

The Bank's latest report follows the pleadings of senior United Nations officials. Last month, U.N. Development Programme chief James Gustave Speth beseeched wealthy nations to join the 'Group of Point Seven', or the handful of countries that have honoured an international pledge to spend at least 0.7 percent of their gross national product (GNP) on development assistance.

Last year, rich countries in the Organisation for Economic Cooperation and Development gave less than one-quarter of a percent of their GNPs in aid - the smallest proportion since comparable statistics began in the 1950s, the Bank says.

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