Global Policy Forum

The World Bank ignored political reality as it tried to push through a controversial loan to China last year and shareholders persuaded it to bail out countries which should never have been on its lending list, President James Wolfensohn said.

Speaking in an interview with Reuters late on Thursday, Wolfensohn also said he was worried about the World Bank annual meetings in Prague later this month, a 10-day gathering which demonstrators have vowed to disrupt.

Wolfensohn said the bank was ready for dialogue with those who wanted to talk, but did not know how to respond to those who simply did not want to talk. "I am concerned about Prague - from what I hear, not everybody wants to talk," he said. "Speaking candidly I don't know what to do. If it's peaceful, there's no problem. If it's not peaceful, then no doubt the Czech authorities will do what they have to do to try to make it peaceful."

Tens of thousands of demonstrators are promising to converge on Prague for the meetings, the first time the World Bank and International Monetary Fund have me in a country which was once a member of the Soviet-era Communist bloc. Czech President Vaclav Havel has summoned world leaders and nongovernmental organizations to discussions in Prague Castle during the meetings. But some demonstrators want to disrupt the gatherings in a follow-up to large-scale anti-globalization protests in Washington in April and in Seattle last December.

The demonstrators, from a broad range of political groups, say the IMF and World Bank ignore reality with their lending programs. Many were particularly angry about a resettlement loan to a part of China close to the border with Tibet.

"WE WERE NAIVE"

Wolfensohn said the bank had undergone a string of changes since he took over in 1996 and more emphasis was being laid on country participation, consultation with aid groups and civil society and efforts to crack down on corruption.

But he admitted bank staff had been naive when they considered the Western China Resettlement Project, which would have moved 60,000 farmers closer to Chinese-controlled Tibet. "I think there was a lot of political naivety in not anticipating that something close to Tibet would trigger an adverse movement," he said.

"But 200 people were involved before I knew about the project and not one came up with the problems. Our people were looking at all this technically... They saw these people and they felt that if they moved them the result would have been that these people would live a better life."

After over a year of debate and reviews, China pulled the project and said it would finance the plan without World Bank help. Others have since said this means the bank can no longer ask China to enforce its tough environmental standards.

The bank, whose task is to reduce poverty, was also deeply involved in efforts to resolve the world financial crisis of 1997-99, contributing billions of dollars to international rescue deals because the IMF was short of cash. Countries receiving World Bank cash during the crisis included resource-rich Russia and South Korea, the world's 11th largest economy before the crisis struck. Wolfensohn made clear that neither of them had been obvious candidates for large injections of liquidity.

"I am against the bank acting as a liquidity lender - I was then and I am now - I think that is the function of the fund," he said. "I said that three years ago, but our shareholders had different ideas, and the shareholders own the bank." The IMF said on Thursday that its "available resources" were now double the levels seen at the peak of the crisis, when Brazil battled to defend its currency and the world appeared to stand on the brink of a global recession.

The world economy is looking rosier too. IMF experts expect it to grow by 4.7 percent this year for the fastest global growth rate in a decade.