Time to fore­close on the World Bank

The Washington Times Daily - - Business -

An adage holds that bu­reau­cra­cies can pur­sue their orig­i­nal goals suc­cess­fully only for a gen­er­a­tion at most. Af­ter that, their ef­forts go to feath­er­ing their bu­reau­cratic nests. Fred­die Mac and Fan­nie Mae are ex­am­ples: out­ra­geous ex­ec­u­tive com­pen­sa­tion and pay­offs to con­gres­sional friends, all con­tribut­ing to a hous­ing bust now re­quir­ing ever more bil­lions of dol­lars in tax­payer bailouts.

An­other ex­am­ple might well be the World Bank, which, along with the In­ter­na­tional Mon­e­tary Fund, is one of the two great post-world War II in­sti­tu­tions for re­struc­tur­ing the world econ­omy. John May­nard Milord Keynes, the au­thor of the Bret­ton Woods ac­cords set­ting them up, said the clerks got it wrong: The bank should have been called a fund and the fund should have been called a bank.

Cre­ated to re­build Western Europe, the World Bank soon was eclipsed by the Mar­shall Plan and its ap­pendages as West Euro­pean cap­i­tal mar­kets re­cov­ered. Look­ing for new fields to con­quer, it turned to what then were un­am­bigu­ously called un­de­vel­oped coun­tries, en­ter­ing its golden age un­der Eu­gene Black (1949- 1963), a for­mer Wall Street bond sales­man. Black’s aw-shucks hill­billy act masked a wily Washington politi­cian — although one long­time World Bank in­sider quipped, “Gene Black was a fig­ment of Nate Mckit­t­er­ick’s imag­i­na­tion,” a ref­er­ence to Black’s anony­mous pol­icy ad­viser and aide.

Black stuck to un­der­writ­ing spe­cific sub­si­dized in­fra­struc­ture projects, fudging later with par­al­lel lend­ing for soft cur­ren­cies. His lend­ing record, some $15 bil­lion in the cur­rency val­ues of the day, the­o­ret­i­cally with­out de­fault, masked dis­as­trous poli­cies such as sup­port­ing In­dia’s Soviet-style plan­ning for three decades and ini­ti­at­ing vast In­done­sian (cor­rupt) lend­ing that would un­der­pin the 36-year Suharto dic­ta­tor­ship.

But it was un­der Robert Mcna­mara’s lead­er­ship from 1968 to 1981 that the World Bank went “cos­mic.” (Mckit­t­er­ick once re­marked that “cos­mic lovers are peo­ple who can­not re­late to hu­man be­ings, so they fall in love with the cos­mos.”) Mcna­mara called in the man­age­ment ex­perts at Mckin­sey & Co. to sup­ply the usual blovi­ated ra­tio­nale for the client’s pre­con­ceived strat­egy, in this case a vast ex­pan­sion. He pro­ceeded to ig­nore char­ter re­quire­ments for spe­cific projects, fund­ing so­cial wel­fare schemes and muscling in on the IMF with bal­ance-of-pay­ments loans. In his search, ap­par­ently, for ex­pi­a­tion of his per­ceived Viet­nam War sins as Lyn­don B. John­son’s sec­re­tary of de­fense, Mcna­mara played down cap­i­tal­ist en­ter­prise. He ne­glected the bank’s In­ter­na­tional Fi­nance Corp., its “free-en­ter­prise win­dow” de­signed to guar­an­tee for­eign cap­i­tal part­ner­ing with lo­cals to en­cour­age pri­vate-sec­tor growth. His lieu­tenants even had a hard time get­ting him to be seen on Wall Street sell­ing the bank’s highly rated bonds (not a big deal since they were backed, af­ter all, by gov­ern­ments’ sov­er­eign credit).

But, in­creas­ingly in a world of enor­mous multi­na­tional cor­po­ra­tions, vast liq­uid­ity and in­creas­ingly so­phis­ti­cated fi­nance, the World Bank has be­come su­per­flu­ous. Its sub­si­dized lend­ing would be bet­ter left to the dis­ci­pline of the mar­ket. Its vaunted re­search is too of­ten sus­pect, out­dis­tanced by more hard-nosed en­tre­pre­neur­ial anal­y­sis.

And now a mi­nor cri­sis has arisen: The Euro­peans’ pre­rog­a­tive to pick the IMF di­rec­tor while Amer­i­cans choose the World Bank pres­i­dent is be­ing ques­tioned by Bei­jing in the wake of the unan­tic­i­pated re­fusal of Amer­i­can Robert B. Zoel­lick to seek a sec­ond term as pres­i­dent. A bu­reau­crat me­an­der­ing through the Washington cir­cuit, in­clud­ing time at Fan­nie Mae, Mr. Zoel­lick came to of­fice af­ter his pre­de­ces­sor was ousted in a sex scan­dal and has undis­tin­guished him­self by hav­ing the short­est fuse since for­mer Trea­sury Sec­re­tary Wil­liam Si­mon left town, while con­tin­u­ing to sanc­tion the bank’s mas­sive China fund­ing.

The World Bank’s bloated bu­reau­cracy, now more than 10,000 strong, gives off a mi­asma of in­sti­tu­tion­al­ized cor­rup­tion — ex­traor­di­nar­ily high, taxfree salaries, un­par­al­leled “ex­tras” and fab­u­lous re­tire­ment pack­ages. One sign of the trou­bled sit­u­a­tion has been the In­ter­na­tional Fi­nance Corp.’s at­tempt to part­ner with cor­rupt Viet­namese gov­ern­ment en­ti­ties run by the Com­mu­nist Party. Iron­i­cally, Mr. Zoel­lick’s part­ing shot, a long-winded study on China’s econ­omy in col­lab­o­ra­tion with a Bei­jing Com­mu­nist Party/gov­ern­ment think tank, calls for mas­sive re­struc­tur­ing as China in­evitably stum­bles off high growth rates. But the chances of Bei­jing’s new team, sched­uled to take of­fice this fall, mov­ing away from state cap­i­tal­ism are vir­tu­ally nil — un­less a charis­matic re­formist fig­ure some­how sur­faces from among the face­less par­ty­crats.

An in­com­ing Re­pub­li­can ad­min­is­tra­tion, if and when it ar­rives, should fold up the whole ca­boo­dle as part of its Washington cleanup. But, given the size of the quag­mire await­ing the next ad­min­is­tra­tion, the World Bank’s woes seem an un­likely pri­or­ity. That means choos­ing a new World Bank pres­i­dent — Hil­lary Rod­ham Clin­ton is ru­mored hov­er­ing off­stage — will be­come just one more bone of con­tention be­tween Washington and Bei­jing.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.