Transcript World Bank Lessons on Development Assistance

World Bank Lessons on
Development Assistance
Erh-Cheng Hwa,
Shih-Hsin University
International Financial
Architect
• World Bank along with IMF and GATT form the
pillar of post WWII international financial
architect.
• World Bank: fight world poverty
• IMF : safeguard stability of currency by providing
balance of payments assistance; often acts as the
lender of the last resort
• GATT/WTO: promote free trade
• All three institutions promote international
cooperation through trade and investment
Evolving Missions
• Immediately after the WWII, the mission
focused on European economic
reconstruction.
• The mission had been changed to aid the
third world economies when they became
independent states en mass, in particularly
in the 1960s.
•
•
•
Evolving Strategies
1970s –
– Basic needs approach: health, education, and health
– Focus on redistribution
1980s –
– Background : Latin America debt crisis
– Approach: urge countries to undertake structural
adjustment program to restore growth and external
credit worthiness
– Washington consensus : Liberalizing markets and open
trade
1990s –
– Background : 1997-98 Asian financial crisis
– Emphasis on corporate governance
Assistance Instruments
• Development aid
– IDA: concession terms
– World Bank loan: market terms
• Development policy Advisory capacity
and/or Conditionality
– Sector policy: e.g., rationalization of power
tariffs
– Macro policy and development strategy
Lessons Learnt
• Although effective development assistance cannot
be separated from financial aid, financial aid is
often not the most critical constraint for sustained
development.
• As a hindsight, the early thinking on development
like big-push, Restow’s stages of growth, two- gap
model, Solow model and the like all had paid
lopsided attention to the financial/capital
shortcoming of under-developed economies such
as saving and foreign exchange shortfalls.
• The “elasticity pessimism” has also proven
to be unfounded; developing countries on
the whole has been able to escape the
poverty trap, with the glaring exception of
some countries in the African continent.
Institutions and Policy Matter
• Institutional capacity building proves a far
more critical constraint to development
– In fact, one can argue that economic
development itself is nothing but building new
institutions to accommodate growth
– The challenge is what are the right institutions
to develop, at what time, and how to build
them
• Government capacity is by far the most limiting
factor for development in the third world
economies
– Africa, Latin America, and transition economies (e.g.
Russia)
– Corruption weakens development assistance
– However, World Bank’s intervention on government
corruption treads on a careful line for fear being
charged of invading national sovereignty
• Development policy also matters
– But the right set of policies must be conditioned on the
situation of each country.
– A “one-size-fit-all” policy framework is doomed to fail.
Herein lies the criticism of the “Washington Consensus”
of which the World Bank is presumably partly to blame.
– Country must choose its own path, not unduly
influenced by aid agencies. Although international
experiences help, there is only so much countries can
learn from one another.
Assessing World Bank
Performance
• The world development over the last five-decades
after the WWII has been uneven.
• It is hard to pass judgment on the effectiveness of
the World Bank or any multilateral institution
based upon the development record of the third
world economy.
• Why? This mainly because what makes a
successful development experience or one ended
in failure is largely the making of the country itself.
• Paradoxically, a more successful country knows
how to tap the World Bank resource for its owngood and use it more effectively than a country
with poor performance.
• This says to make development aid effective, the
recipient country must be able to “own it”. But
too often aid is stuffed to it by granting parties for
a variety of reasons including geopolitics, aid
targets, etc. and is taken by leaders for private
gains.
• The result is mounting debt arrears and, worse,
stagnation in development.
Conclusion: Implications for
Taiwan
• Bilateral aid can hardly escape meeting a country’s
diplomatic objectives. After all, domestic
constituencies would not support an aid program
that do not help the friends but the enemies.
• However, if an aid program is conditioned on
friendship, it should pay even more attention to
aid efficiency.
• The size of the aim program should be based upon
a country’s absorptive capacity which, in turn,
depends upon macro policy environment,
cleanness of the government, and implementation
capacity of the aid-receiving agencies.
• Whenever feasible, seek opportunities to cofinancing with other bilateral or multi-lateral
donors and to involve able and effective local
partners.
• The government’s aid program should try to tap
the knowledge of local academics and other
professionals and in the process help nourish local
intellectual capacity for doing overseas
development work. The good example is provided
by U.K.
• More important, this is also the best way to
transmit Taiwan’s successful development
experience to developing economies.