Both the IMF and the World Bank are facing financial struggles, report Sarah Ryle and Alex Brummer
Sarah Ryle in London assesses the World Bank’s efforts to maintain funding to the Third World
THE World Bank has admitted that it is fighting a losing battle with Western governments over aid to the world’s poorest countries and is secretly looking for ways to use private capital to replace the lost funds.
A top-level ad hoc panel which was set up earlier this year by James Wolfensohn, the president of the bank, to discuss how to offset the anticipated decline in government aid, has suggested private-sector investment is the only viable alternative.
“The panel believes that government aid has gone out of fashion and will never reach traditional levels again,” a senior source said. “So far, the only concrete alternative is investment from the markets. That would mean forming new guidelines to make sure that investment was properly used by the governments who received it.
“The World Bank could not be a police force, but it could influence the way money is lent or invested.” There are long- standing fears that aid is misused, particularly for military purposes, by Third World dictatorships.
The admission of defeat alarmed some leading charities. Justin Forsyth, Oxfam International’s chief officer in Washington, said any further decline in official aid would leave many of the world’s poorest nations in desperate straits.
“Some countries, like Mozambique, do not have a choice. They will not attract private investment because of their internal troubles. If official aid declines, they will have no way of funding basic needs like education and hospitals.”
Andrew Simms, Christian Aid representative in London, said: “This is what we have feared all along.”
Official development finance has fallen in recent years from $70-billion to $65-billion, while private capital flows have risen rapidly, to more than $105-billion between 1991 and 1994, according to the latest Organisation for Economic Co- operation and Development figures.
Forsyth called on the World Bank not to give up the fight to persuade industrial countries to maintain contributions, but said it was not surprising that the World Bank was concerned about the future of aid.
He said: “The World Bank has lost credibility with governments because the public does not believe the money is really helping the poorest people. The non-governmental organisations think that the World Bank is more concerned with lending large amounts of money than with it reaching the people it is supposed to.
“The private sector is not convinced that there even needs to be a World Bank. They think there should be more guarantees for their loans rather than more World Bank funding.”
Simms said further reliance on the markets would be the final blow for countries in sub-Saharan Africa. “They have suffered because Western countries have realigned funding since the cold war ended. More money is being channelled into eastern and central Europe. If the decline in aid were being matched by productive private capital inflows we wouldn’t be so worried, but it isn’t.”
The ideological shift to the right, which was initiated by Margaret Thatcher and Ronald Reagan, has put more emphasis on leaving development in the Third World to the free market.
The World Bank’s fears for official international aid have been fuelled by resistance among key donor nations to recent funding programmes. While the Republican-dominated United States Congress has thrown the aid programme into chaos by holding back on hundreds of millions of dollars which it had pledged in previous years, the Germans have put the brakes on a British-driven plan to sell International Monetary Fund gold reserves to increase debt relief.
In each case, politicians are acutely aware of the public response to approving bigger donations. Germany has refused to sell its gold reserves to fund programmes in the eastern part of the country, and politicians are understood to be reluctant to approve an international sale in case they are forced to do the same at home.
British official aid to the developing world is set to decline by 16% by 1999, according to Christian Aid.
13