Global Policy Forum

New World Bank Chief Confronts Aid Shortfall


By Steven R. Weisman

International Herald Tribune
September 24, 2007

Girls' schools in Bangladesh, clean water systems in Ghana, courthouses in Armenia, roads in Nicaragua. For decades, the World Bank has provided more than $10 billion a year for projects like these, the biggest source of aid for the world's poorest countries. But continuing that aid, and perhaps increasing it, is now the major hurdle before the bank's new president, Robert Zoellick, who is finding that wealthy countries are balking because of their own budget problems and lingering questions after the recent bank turmoil over its future relevance, priorities and effectiveness. "It's an uphill struggle," Zoellick acknowledged during an interview, referring to the drive to raise the money for aid to the poorest countries. "We have put out various scenarios for increasing aid at a time when most finance ministers around the world are trying to keep their budgets even."

Not least among difficulties in raising a preliminary target of $39 billion over the next three years are the rifts left by Paul Wolfowitz, the former deputy defense secretary who as bank president tangled with other colleagues at the bank and around the world before resigning in May after a furor over his ethical behavior. Wolfowitz's relations with European development officials were so strained that before he resigned, German officials warned they would have difficulty financing the bank's aid for poor countries if he continued in office. But even with Wolfowitz gone, Zoellick continues to face resistance among some donors. Japan is threatening to cut back aid because of its own budget difficulties. And European countries say they are looking to other vehicles to give money and are resentful that the United States, which accounts for 20 percent of the world's economic output, has slipped in its share of burden of aiding the poor to just under 14 percent.

Part of the reason why the United States' share has declined is that the value of the dollar against European currencies has fallen. Still, European resentments continue. It has also not helped Zoellick's campaign that the United States has fallen behind in meeting its past commitments to help the bank aid poor countries by $375 million. "We have an arrears problem," said a senior U.S. administration official, speaking anonymously because of the awkwardness of the situation. "The administration and the Congress are committed to this cause, but I'm sure people are wondering how strong that commitment is." The bank's aid to the poorest countries is channeled through a division known as the International Development Association, or IDA. Its aid is in the form of grants and interest-free loans, payable over as much as 40 years, to more than 80 countries rated the poorest because their per capita income is below $1,050. About half of these are in Africa. But over the years, IDA loans have become a smaller and smaller part of the worldwide aid that goes to poor countries from rich countries. These days, donors have increasingly preferred to provide aid to poor countries directly through their own development agencies, not through the World Bank.

Donors also prefer to earmark funds for specific purposes, like combating HIV-Aids, health care for women or environmental problems. It is easier, leaders in these countries say, to build political support at home for such specific causes, especially when the bank was discredited in Europe because of Wolfowitz. As a result of this trend, IDA now accounts for only about 8 percent of the worldwide aid from rich countries to poor countries. Zoellick has had to argue that its role is crucial because it has the staff and resources to analyze overall needs, share information, set priorities and avoid duplications and contradictions in aid programs. "Trying to get huge contributions for a general fund like IDA is getting harder and harder," Zoellick said. "But IDA has a unique benefit. In a world where there's a fragmentation of aid, IDA is the unifier. It's the platform. It's the foundation. It's the glue that holds everything else together."

Another major factor complicating Zoellick's efforts is that he has to raise more money than before just to keep even. That is because in the past, the bank has relied for income on repayments of past loans to poor countries and then lent that money elsewhere. Now those repayments are no longer available because two years ago President George W. Bush and Prime Minister Tony Blair of Britain led an effort to cancel the debts of scores of poor countries. The loss is estimated as $12 billion over the next three years. To make up the difference, Zoellick is pondering the tapping of other resources from within the bank. For example, he may use some of the repayment income from loans made to middle income countries or to private businesses made by separate divisions of the bank. He is also "customizing" his sales pitch, bank officials say, by trying to persuade certain European countries interested in funding climate change, like Germany, that they do not want to be in a position of spurning aid to Africa. In addition, he is trying to persuade China, a recipient of bank loans, to tap some of its huge foreign exchange reserves, which exceed $1 trillion, to provide aid to Africa as well.

"I predict that Bob Zoellick will have success," said Nancy Birdsall, president of the Center for Global Development, a policy organization. "I think he will figure out how to make the Europeans who had doubts about Wolfowitz confident in his priorities." Those priorities include aid to countries racked by civil war, aid to Africa and help to slow global climate change by encouraging energy and environment programs in developing countries. Europe in particular is interested in making the climate issue the centerpiece of the next round of IDA programs, but bank officials say that African countries have begun to warn that other urgent needs, in health for example, are in danger of being overlooked. Zoellick has yet to reconcile these competing claims. "We still feel that Zoellick is in a listening mode," said a senior European development official, speaking anonymously in order to be more candid. "He's definitely committed and knowledgeable. But he still hasn't come out with his vision of the bank. The donor countries are still not ready to come up with large amounts of money."

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