Examination of Witnesses (Questions 1-19)
MR MICHAEL
HAMMER, MR
JEFF POWELL
AND MS
NURIA MOLINA
20 NOVEMBER 2007
Q1 Chairman: Good morning. Thank you
very much for coming in to help us with our inquiry into the World
Bank and, particularly, obviously, Britain's relationship with
the World Bank and the extent to which the World Bank delivers
on UK development objectives. I think it would be helpful for
the record if you could introduce yourselves and your organisations,
briefly, so that we can then move on to the questions.
Ms Molina: Good morning, I am
Nuria Molina from EURODAD (European Network on Debt and Development).
I am a Policy Officer, dealing mainly with international financial
institutions.
Mr Powell: Good morning, my name
is Jeff Powell. I am the Co-ordinator of the Bretton Woods Project,
a UK NGO.[1]
Mr Hammer: Good morning, my name
is Michael Hammer. I am the Executive Director of the One World
Trust, an organisation that is looking at accountability in global
governance.
Q2 Chairman: Thank you very much
for that. Obviously, we have seen some of you before and had discussions,
and there has been a long-standing debate about conditionality
and the extent to which the Bank imposes conditions. There has
been a lot of analysis of this and how effective it is, and from
our point of view what we are interested in, as the British Government
is giving £1.4 billion over three years to IDA,[2]
is that it is delivering in accordance with our policy, which
is poverty reduction, in particular. The UK National Audit Office
has said that the World Bank appears to perform best of all the
multilateral organisations. Do you agree with that assessment?
Mr Powell: Perhaps I will start
on that issue. There have been, as you are, I am sure, now aware,
a number of these assessments of the effectiveness, which used
various metrics to look at the multilateral institutions—questions
of predictability, concessionality, flexibility, co-ordination
with other agencies, use of budget support—and on these
metrics the World Bank does quite well, and we think the World
Bank performs quite well, though with the caveat that on some
of these measures, particularly, and I have noted,, the use of
conditionality and co-ordination with other agencies and predictability,
the UNDP,[3]
for example, seems to be performing better. So that is a clear
signal that we are getting from these assessments. We also have
the perceptional survey, such as what was conducted by the Overseas
Development Institute, and in those cases we see that what is
influencing the perception quite substantially is the governance
of these institutions and a perceived policy bias. From that study
the World Bank does less well. Having considered both of those,
I think, conferring with my other colleagues in NGOs that work
on development finance issues, what we do not want to have is
that this becomes a purely technocratic exercise; that, really,
what we should be focusing on is the impact assessment question.
Not too long ago ODI did a study where they looked at aid effectiveness
and they constructed a graph where they had, on one axis, low
effectiveness to high effectiveness and, on the other axis, they
had doing what you want and not doing what you want. Of course,
any institution can be very effective at doing what you do not
want it to do. So, I think, very often when you hear critiques
from civil society about the actions of the World Bank it is not
that it is not effective in these fairly technocratic senses,
it is that there is a feeling that the Bank is not doing what
civil society would like it to do.
Q3 Chairman: Do you mean civil society
in the developing country?
Mr Powell: I am having to use
a lot of shorthand today, unfortunately, as always. I am referring
here to many of the networks that we are involved with, north
and south, who focus on development finance issues. Just to finish,
if we are emphasising this question of impact evaluation, some
of the impact evaluations that have been done by the Bank's own
evaluation unit are quite important to look to. Last year's annual
review of development effectiveness conducted by the Bank's evaluation
unit said that the Bank had been reasonably effective at getting
countries on a growth path, but that it had not been as effective
as it should be at understanding the distributional impacts of
that growth path—so, in other words, understanding whether
or not that growth path was actually helping the poor. I think
that was quite an important lesson coming from the evaluation
unit. That was looking at the public sector work. Looking at the
private sector work of the Bank, the evaluation unit was actually
much more harsh, saying that there was very little evidence that
the IFC[4]
was looking at distributional paths or at evaluating the value
added, in terms of poverty reduction, of the Bank's work. So these
are the kinds of things that we are more focused on in feeling
that the Bank needs further reform and needs to work on a number
of counts in improving its effectiveness towards poverty reduction.
Ms Molina: Particularly in the
area of conditionality, it is one of the areas identified by these
different comparisons of the effectiveness of different multilaterals,
and a lot of them seem to coincide with the fact that in conditionality,
which is crucial, the Bank has been performing quite low and there
is still great scope for improvement.
Mr Hammer: I think, at the entry
points, where they are doing well is a really interesting one
because it all depends from which perspective you see it. The
assessment that we did, including the World Bank in 2006, was
one trying to understand whether there was an effective possibility
for stakeholders that are affected actually to have input into
how the World Bank makes its decisions. One of the things that
one finds is that if you consider the World Bank to be one of
the biggest global operators that has most influence in the world,
and if you are then searching for the common principles of accountability
and how that is reflected in governance, then you find that the
record of the World Bank in terms of its performance of its governance
systems is actually relatively mixed. So we do find that the World
Bank is doing quite well, for instance, on the ways that it evaluates
its programmes and the way that it is handling external complaints
through, for instance, its inspection panel, but it is very, very
weak when it comes to its ability to be transparent and its ability
to be really participative, in the sense that stakeholders who
are affected, living in the countries in which most of the World
Bank funding is going to, in terms of the programmes that the
Bank implements. There is very limited opportunity for people
in those countries, or through their representatives, for instance,
in Parliament, to actually input and exercise some form of control
over what the World Bank does. There is—and that is quite
crucial, also—only a very limited degree of transparency
about how the decisions are being taken. So when you are asking
the question whether the Bank is doing well and when you are looking
at the policies and the systems that the Bank has in place in
order to be accountable to the stakeholders, meaning the people
that it affects most, then the record is fairly mixed and there
are only very few dimensions, such as, for instance, its ability
to evaluate its programmes, where it actually has some significant
good practice in place that others can learn from. For other dimensions
of accountability, I think, it is more for the World Bank to look
at other global organisations to learn from them.
Q4 John Battle: Do you think the
World Bank actually lists who the stakeholders are that it should
consult? In other words, obviously, governments, dealing bilaterally
and directly. Business? Civil society? Local government? Does
it actually provide a list and have any template of who it might
build those relationships with?
Mr Hammer: To our knowledge, there
is no such list. It is a big question whether a standard list
would be useful. What we would like to see is a policy that sets
out with whom the World Bank commits to engage when it does take
decisions, more in terms of the typology rather than to say: "These
are the organisations: A, B, C and D". We are looking at
long-term processes and so organisations would come on and off,
and it would be a huge effort to keep that list up to date, but
I think a policy that would set out what types of organisation
and what level of stakeholders is we want to see. There is an
issues and options paper at the World Bank which is providing
some guidance which staff can take on, on a voluntary basis, but
the World Bank at a high level fails to commit to make that policy,
and I think that is one of the biggest issues.
Q5 Chairman: The Secretary of State
in the debate we had in the House of Commons last week, indicated
(I think he put it as a sort of rhetorical statement) that the
Government would be putting more funds through multinational/multilateral
agencies, and they also have a rising budget.[5]
It was in the context of a debate saying: "We do not want
you to do the wrong things for the wrong reasons; constrained
by staffing, to be giving money to multilateral agencies simply
because you cannot do it in-house". His response was, on
the contrary, there is a clear role for expanding the contribution
through multilateral agencies. So that was a clear statement by
the Secretary of State that he felt that was a proper way to deliver
and distribute more of a growing aid budget. In that situation,
given the criticisms (and I accept that they are qualified, not
comprehensive criticisms) of the World Bank, if you were in the
Secretary of State's position or advising the Secretary of State
and saying: "I have got reservations about the World Bank",
what other organisations would you prefer to put money into, either
in total or in part? If you were in that situation how would you
distribute it? If you think the World Bank is flawed what are
the agencies you think would do a better job?
Mr Powell: You ask a very easy
question, of course, as this Committee is prone to do! We would
not, I do not think, for a moment, want to downplay the fact that
I think DFID is very seriously considering how to allocate increased
ODA[6]
amongst various channels and that, in fact, this is a very difficult
decision. It is not a technocratic exercise, it is a political
decision. What UK NGOs would like to see is more transparency
about how these decisions have been arrived at in the past and
how they might be arrived at in the future, with more involvement
of broader stakeholders who have an opinion on these issues. I
probably do not want to get into a "Take-this-much-money-and-put
it-with-this-institution" game, in that I might get in trouble
with many of my colleagues in the networks I work with, but I
think what they would agree is that DFID needs to have a vision
of which institution should play which role and a clear agenda
for reforming those institutions so they can most effectively
play that role. So there is the question of how do you then get
change in these institutions. This gets us into the question of
the IDA allocation and how we feel DFID should be using what levers
it has to leverage change at the World Bank, in the Bank's case.
Q6 Chairman: Do you have suggestions?
We have mentioned other agencies.
Ms Molina: I am not going to provide
a final and conclusive response on how much money should be channelled
into which institution, but obviously channelling through different
institutions implies diversification of risk. It is, as Jeff was
saying, a financial contribution but it is also a very political
decision and it gives an opportunity to government and particularly
to the most progressive donors in Europe. This is a question that,
obviously, is being raised within UK politics but it is being
raised, at the moment, as well in the context of the later stages
in the IDA negotiations and the replenishment round; it is being
raised in the context of other European countries, and a number
of parliaments and governments are trying to find an answer to
this decision. So beyond implications in financial locations,
this opens the door to exerting a political influence and being
able to foster further change in these institutions, bearing in
mind that when comparing different multilaterals we need to identify
different flaws in providing aid finance to different institutions
which open the door for these governments to try to tackle these
different deficiencies in a number of them.
Mr Hammer: I would probably approach
the question from the point of view of which are the global public
goods that this Government or other governments want to see delivered
at world level, and what institutions or what network of institutions
of global governance do they want to see in place in order to
be able to deliver these goods for world citizens. On that front,
I think organisations such as the World Bank are very hard to
replace. I think that the Government needs to make choices and,
also, see that global governance is not just a matter of state-based
institutions but there may be other actors who may well perform
roles which currently, in the very long-established state-based
system of global governance, are traditionally occupied by those
organisations. I think what we need to look at—and what
DFID may want to look at—is which are the global public
goods that it wants to support the provision of to citizens, particularly
the vulnerable and the marginalised, and which organisations can
best deliver them. Also, where it has identified that maybe the
World Bank is the best organisation to do that, where are the
areas that the Bank can learn from others in order to deliver
those goods in an accountable way? Our research really shows that
there are lots of opportunities for learning. I think we would
not advocate for saying: "Do away with the World Bank, or
do way with this or that organisation"; it is about what
we want to achieve and whether that organisation is able to deliver
on these goals in an accountable way.
Q7 Chairman: I thought it was interesting
and, perhaps, instructive that none of you mentioned the European
Commission. Louis Michel, I think, two years ago at the seminar
we hosted here, said he wanted to see the European Commission
develop the capacity to deliver things in a way that the World
Bank did, to which the World Bank's response was: "If I thought
they could do it I would be worried, but I know they have no chance".
You do not see the European Commission as really in the frame?
Mr Hammer: Maybe it is going to
be interesting, from our perspective, to wait until 4 December
when we are publishing our next global accountability report because
we are going to be looking there at one European institution;
we are looking at the governance and accountability of the Council
of Europe. Last year we looked at the OECD[7]
as an organisation as well. I think what it shows is that there
are organisations which include countries that are powerful, for
instance, also, in Europe, that may have complementary or interfacing
abilities to work together with the World Bank. So as we are progressing
with this research we may be able to give some more answers.
Chairman: As a former Member of the Parliamentary
Assembly in the Council of Europe, I shall look forward to that
with interest.
Q8 James Duddridge: To what degree
are DFID's hands tied in relation to the World Bank? Are they
effectively contracted to the World Bank and annually expected
to incrementally increase their level of funding? To what degree
is there discretion over that relationship?
Mr Powell: I think Nuria might
have something to say about the question of the aid effectiveness
of the EC,[8]
and then can I come back to that question? Is that all right?
Ms Molina: Just a final comment
on the European Commission. Since I am based in Brussels, I do
not know if I have the response to that but, maybe, I am closer
to these institutions. Coupled with the question of how much we
have to channel to which institutions, I think it is a crucial
question that goes along the lines of: how, as a government, as
a progressive donor, can you influence the shaping of the policies
and the aid effectiveness of the institutions? I think there is
scope for that, but we will come to that later. One of the strengths,
probably, of the European institutions (we are aware there have
been a number of problems related to the aid effectiveness of
the European Commission and the European aid), is that it is multilateral,
which is open to change, open to new development and new ways
of delivering aid, particularly in terms of issues related to
conditionality, but also related to predictability and ownership.
So, obviously, this is interesting to explore and this is interesting
to support in a constructive way so all the ways of delivering
more effective aid can be developed within other multilaterals.
Mr Powell: To return to your question,
effectively, how the IDA process now works is that the World Bank
staff in countries do assessments of what they think their various
portfolios can absorb over the next IDA period. They formulate
a grand total request on a number of different scenarios and they
then go back to the donors and, basically, ask for an increase
on their previous contribution in line with what they would like
to increase the current IDA fund to. Is DFID (I think that was
your question) simply saying: "Yes, thank you for that estimate,
and we will comply"? Up until the last IDA replenishment
round, which was the first time where DFID had said: "We
want these changes before we are willing to respond to that request",
my answer would have been "Yes". With that precedent
last year it is a positive one that now UK is much more constructively
saying: "We are willing to consider that increase but we
want a reform agenda. We want something for our money". That
is something we would like to see continue. Having said that,
the usual response is we can't have everyone saying: "This
is what we want and we will not give you our money unless we get
it". That is not the nature of a multilateral institution.
However, multilateralism is also not about simply complying and
handing over money when you get the request; there has to be a
balance in the middle. I think this is where European civil society
has been working together across countries to try and encourage
various donors to work together to put forward a reform agenda
for the Bank. Our understanding from those inside the process
is that the Bank, in terms of senior management, has been reluctant
to bring any new issues into the reform agenda. That has been
disappointing for us. So it appears that in this round there is
not a sense of getting something for your money—getting
something for the increased commitment.
Q9 James Duddridge: Are there any
other good examples where countries have used the replenishment
round to push a particular agenda effectively? You mentioned the
British being proactive, but in relation to other countries are
there any good case studies?
Mr Powell: The history of using
the IDA lever is dominated by the United States, and I would not
want to put that forward as a best practice example, because the
US has usually acted unilaterally in that respect. Where sometimes
civil society has been on board and in agreement with that action
(for example, with the Pelosi amendment, which brought the need
for Environmental Impact Assessments into Bank project lending)
civil society groups in both the United States and in many developing
countries were quite pleased with that development. However, in
terms of a process, that is not the way we would want to go; we
would want to see more donors working together as groups, ideally
working together with recipient countries to think about a common
reform agenda for the Bank.
Q10 Sir Robert Smith: Robert Zoellick
has talked about the need to expand the pool of donors to the
IDA and, in particular, also, apparently, floated the idea of
a couple of private sector companies that might be interested.
There was also talk about South Korea, Turkey and Egypt maybe
coming along, and other countries that have benefited in the past
now becoming donors as well. What do you think the likelihood
is of attracting new contributors, whether private sector or from
other countries?
Ms Molina: There might be some
likelihood of attracting new donors, definitely. There is a concern
that we have seen that we would like to ensure, obviously, that
decision-making governance and the local objectives of the International
Development Association remain within the domain of, firstly,
global public goods, development and poverty reduction. Our concern
with some actors which have not been traditional in the development
aid field would be related to the fact that they might try to
change this agenda of looking into poverty reduction and trying
to foster pro-development policies. So maybe we see these as an
opportunity but an opportunity that we have to be very careful
in keeping vigilant that this does not divert from the prior objectives
of the International Development Association.
Mr Powell: I would add that I
think most civil society groups would be very pleased to see IDA
graduates, if you will, become donors to the Bank—expanding
the pool of donors in that sense. What we would not want to see
is that that takes any pressure off the richer countries to meet
their commitments to the 0.7% contribution. On the question of
the private actors, I think initially there was some concern;
rumours were swirling around the annual meetings that it was some
pharmaceutical companies that wanted to give money to IDA, and
you can imagine that there were some concerns amongst civil society
groups working on health issues about what that might imply in
terms of governance. What is clear, as Nuria has expressed, is
that there should be no governance rights given to anything other
than states, if other actors do want to contribute to the Bank.
Finally, a comment on the fact that there is a greater contribution
from the IFC (International Finance Corporation) to this IDA replenishment
round. While, I suppose, returning some profits to IDA is a positive
development we note some contradiction in the fact that the IFC
has been active in promoting fossil fuels. That comes at a time
when it is giving money to IDA to actually work on the climate
change adaptation agenda. So, if you will, this is a bit of a
sense of continuing to pollute with one hand while you pay to
clean up with the other. That is not entirely without some problems.
Mr Hammer: To echo the concern,
we have just recently had a very short stab at what governance
arrangements are in place to look at, for instance, multi-donor
trust funds. What was interesting is that there was always this
tension between not involving those who are most affected by the
decisions but then very often giving power to a lot of actors
whose credibility and legitimacy themselves is very difficult.
I am not saying that there would be an intention to use that same
model for, for instance, governing IDA funds, if they were coming
from private donors in part as well, but I think that the experience
just shows that one has to be very, very careful because when
we look around and see one or two other examples it is not exactly
trust-inspiring how it is working at present, and they are not
exactly the best examples around. If private donors were to contribute
to IDA then a very public and, clearly, safe way of ensuring the
governance of these funds, I think, is a very necessary thing.
Q11 Sir Robert Smith: These are all
pledges. What is the record of actually delivering on the pledge
when the money is needed? Is it a good track record?
Mr Powell: State pledges to the
IDA replenishment?
Q12 Sir Robert Smith: Yes.
Mr Powell: I do not have the numbers
to mind but I understand that the record is mixed. I know that
Italy, for example, is in the throes of its contribution to IDA
13, I believe, right now. So there are countries who are quite
prompt in their payment record (which I think includes the UK),
there are members that are slightly delayed but generally do not
cause problems for the BankB in terms of predictability, but then
there are a number of donors who, I think, have not been large
in terms of volume but who have not kept up their end of the bargain,
if you will. Maybe Nuria knows more of the detail there.
Ms Molina: I think that is a fair
picture.
Q13 Sir Robert Smith: In the main
top 10 largest pledges to IDA 14, there is nothing from Norway
or the Arab States, who are all extremely oil-rich at the moment.
Is there any historical reason for that??
Chairman: Would it bother you if they
were to come in?
Ms Molina: Norway, as you know,
delivers roughly 1% of their GDP as development aid. Proportionally
to their GDP, contributions to the World Bank are large, but obviously
we are talking about countries which are smaller than other major
donors. These countries are considering increasing donations at
the moment, for the current replenishment round with some contingent
to further progress, obviously.
Q14 Sir Robert Smith: And the Arab
States?
Mr Hammer: We do not do research
in that area, so it would be a bit difficult for me to venture
into that.
Q15 Chairman: Would it cause you
any concern if they came in in a similar way?
Mr Hammer: I have to talk a little
bit beyond the One World Trust. I have done some work on human
rights before and I think if you have actors that have a difficult
track record, for instance, in terms of international human rights
accountability, then, of course, their transparency, as well as
the legitimacy of how they are coming into power, may have to
have an impact on how their contribution is valued in terms of
the governance of funds they contribute to the Bank. How that
could be formally reflected in a body such as the World Bank is
probably something that would need to be looked at, but we do
not have a ready-made solution for that.
Q16 Mr Crabb: The evidence submitted
to us from DFID states that there is a shared ambition on the
part of it and the World Bank in terms of eradicating poverty.
Do you, as a panel, perceive any tensions between the heavy focus
on poverty eradication on the part of DFID and any aspects of
the policy or practice at the World Bank?
Ms Molina: Probably my colleagues
on my left are more knowledgeable than I am on the particular
details of the DFID policy, but definitely there is divergence
between the stated policy by DFID and their White Paper published
in 2005, and the policy, for instance, at the Bank in terms of
conditionality. So there would be, obviously, a tension and a
need to reconcile and to make those more coherent, particularly
on the British Government side, if they want to protect the policies
that they have shaped and expressed publicly.
Mr Powell: If I can drill down
on a particular point here which I think is very relevant, until
very recently there was never any research done at an early stage
in either a project assessment or a policy loan to determine what
the likely poverty impacts of that financing would be. It is quite
remarkable, really, that you would not do that kind of research.
To DFID's credit, over the last few years, they have funded some
of this research which goes by various acronyms, often known as
poverty and social impact assessments, at the Bank, and this has
started to be pioneered. If you are going to say: "What is
this finance going to do to help a country move towards MDG[9]
achievement?" then that kind of research is absolutely critical.
What we understand, and I think Oxfam made a submission to this
Committee specifically on this point (they have done a recent
report), is that after the DFID pilot funding has run out the
Bank has not taken this on in a systematic way. This kind of research
should be an integral part of the Bank's work, and until it is
that does leave a gap between both agencies' stated commitment
to poverty reduction as the primary goal of ODA, and the Bank's
actual practice in terms of its financing.
Mr Hammer: I do not know whether
this is the exact point at which to raise the issue in the best
way, but poverty reduction also depends on the credibility of
those who will, for instance, address issues of corruption when
delivering aid. I think it has been made a priority by the World
Bank, and it is a priority for DFID as well, as far as I understand
it. As that is a shared interest, how does the World Bank reflect
in its own ways of working the necessary integrity in the way
that it governs its own processes? Over the last year we have
seen a very problematic process in terms of the senior leadership
of the Bank, which has undermined, partly, the credibility of
the World Bank to lead on a number of issues which are relevant
to poverty reduction. I do not know whether we will be coming
back to that, but the anti-corruption agenda is very important,
and I think so is the credibility of the institutions which drives
it, and here we have seen a certain slump over the last year.
Q17 Hugh Bayley: DFID has put a strong
emphasis of priority on reforming the World Bank to increase its
focus on the Millennium Development Goals and their implementation.
Is that DFID policy delivering results?
Mr Powell: Another one of these
very easy questions! I am not an MDG specialist—I should
probably say that up front. I understand that, broadly speaking,
there is progress being made on virtually all fronts, particularly
in Asia and in many countries of Latin America, but that the African
picture is much more mixed, with certain countries not making
any progress on any of the indicators and, in some cases, some
countries going backwards on some of the indicators. Again, perhaps,
to pick up on a particular issue, then, if we look at the African
context, where obviously things are not working as well as the
international community would like to see them working, we have
recently seen a lot of renewed attention placed on agriculture.
What has become clear from that study is that agriculture, in
terms of return for your money invested, has a much more significant
impact on poverty reduction than many other types of expenditure.
In some senses it is, again, quite remarkable that for nearly
two decades the World Bank has essentially withdrawn from agriculture—at
one point where its lending portfolio was approximately 15% in
agriculture to, I think, where we stand in the low single digits,
something like 4%. I think both DFID and the World Bank have made
this recognition that we are going to have to see a much more
serious commitment to agriculture, and this, hopefully, will give
us more impact in terms of MDG achievement, along with the existing
work that is going on in terms of essential services, because
that is really where the focus has been, but we have not really
looked at the other half of the question which is the livelihoods
question, which is an agricultural question for Africa.
Ms Molina: Greater focus on the
MDGs has been also embodied through, amongst other things, different
particular tools, which is, on the one hand, more emphasis on
budget support, with greater aid effectiveness and with greater
impact on results in poverty reduction and on MDGs. In general,
it is a results-based approach that several donors have been really
emphasising in the last few years. Initial evaluations say that,
first and foremost, it is very difficult to tell because these
are mid-term to long-term processes, and it is too early to tell,
but, for instance, just to give you an example, the joint OECD
evaluation conducted in 2005 would say that even if we have to
be cautious because it is early to tell, there is some initial
evidence pointing at the fact that both budget support and the
results-based approach have helped achievements on MDGs and poverty
reduction-related results. Now, how does the World Bank perform
in this area? This is a bit more concerning, let us say, not so
much on the side of the budget support, because the World Bank
is performing quite well, but more in the results-based approach,
and the results-based approach, once again, has suggested other
areas, like the ones mentioned before—ownership and assessment
of distributional impacts—where we have identified some
divergences between DFID policy and the World Bank. This would
be, once again, one of these areas where the World Bank has been
rather good at rhetoric and expressing publicly that they are
focusing more and more on results, but when looking more concretely
on what sort of results they are looking at, at a country level,
in country assistance strategies, in the joint performance assessment
frameworks, we see that still the World Bank is very much focusing
on other indicators which are obviously relevant to macro-economic
management, such as debt management or fiscal policies. These
are very important but the question raised here is: are they actually
shifting and living up to their commitments to look at poverty
reduction outcomes? This is very much more limited than the other
sort of results and outcomes that the World Bank is still looking
at.
Q18 Hugh Bayley: I have another easy
question. In answer to the Chairman's very first question, Jeff,
you said that the Bank tends to perform better, certainly, in
regard to lifting people out of poverty with its public sector
programmes than its private sector programmes. I am not in the
least bit surprised by that because many public sector programmes
are intended to be universal in application and the private sector
programmes create wealth-creating centres, and the best you can
hope for is that wealth will trickle down into the society as
a whole. My question is this: I take it as read that the Bank
should be investing in the private sector because until you get
wealth generated in-country you do not have a sustainable development
path, but how that wealth is used and distributed is vitally important.
Surely, the primary responsibility for the slicing of the cake,
the distribution of wealth, lies with the government of the country
and not with an investor, whether it is the World Bank or anybody
else. The question, in a sense, is: surely we should not be surprised
that there is less of a direct poverty alleviation impact dollar-for-dollar
invested in the private sector than the public sector, but that
the Bank and other donors should be investing in good governance
that raises the question of accountability to the people and the
responsibilities for distribution. There were big battles in this
country a hundred years ago about how the fruits of market capitalism
should be spread to prevent poverty—the same throughout
Europe and, to a lesser extent, in North America. Is that not
where the debate should be, with the governments in developing
countries, on distribution, rather than the Bank's private sector
programmes or the private sector itself?
Mr Powell: I would agree with
you that the history, of course, is that we went through nearly
20 years of development aid where the very simplistic answer was:
get the state out of that equation. Even in the weakest countries
where, clearly, the capacity to regulate was not there, we seem
to have come around a bit on that pendulum of perspectives in
development to now where the state has a role again, in the World
Bank's view, but it still has a fairly minimal role in terms of
having the capacity to play that redistributive function. I guess,
if the question is about what role the Bank's private sector arms
should be playing relative to the public sector arms, it does
look as if one of the major initiatives of the new President will
be to better integrate the private sector lending with the public
sector action. That, even of itself, is problematic. The questions
that organisations such as ourselves, which monitor the IFIs,[10]
are interested in, in terms of the private sector lending arms
of the Bank, is what is the value added of this money? At its
worst, this is simply investing in initiatives that would have
got funding anyway, that is crowding out private investment, and
much of what we see the IFC doing confirms our suspicion. Some
40% of its portfolio goes to other financial intermediaries; a
very large percentage of its funding is going to extractives and
to fossil fuels, as I have already mentioned, and which I understand
the Committee will be looking into in more depth in a future hearing.
We feel that there should be a role in terms of supporting small
and medium enterprise development and the framework by which small
and medium enterprise development occurs. Some initial research
that we are in the midst of right now finds many IFC projects
which cannot be said to be doing that: investing in a Coca-Cola
bottling plant in India does not, to us, suggest a value added
in terms of private sector contribution to poverty reduction.
I think there are some real question marks around the role of
the IFC, and typically the donors have been less interested in
the reform agenda of the private sector lending arms of the Bank
than the role of the public sector section.
Q19 Hugh Bayley: Briefly, why can a soft
drinks factory not form part of the growth and diversification
of the individual economy? I can think of somebody who I met in
Ghana who was, literally, lifted off the street and into providing
a secure future for his family because he got a job as a truck
driver for, I think it was, the Guinness brewery, or a similar
sort of business. Why does that not play a part in poverty alleviation?
Mr Powell: It absolutely does;
it does play a part. Employment, growth plays an enormous part.
The question is, with multilateral bodies with limited resources,
where are those limited resources focused? If the bottling plant—whether
it be Guinness or Coca-Cola—is able to raise funds in other
ways then our feeling is that they should be raising funds in
other ways, and the onus of proof should be that the multilateral
agencies are saying: "This is something that would not have
happened without us being there".
1 Non-governmental organisation Back
2
International Development Association (the World Bank's concessional
lending arm) Back
3
United Nations Development Programme Back
4
International Finance Corporation (the World Bank's global private
sector development finance institution) Back
5
See HC Deb, 15 November 2007, cols 869-929 Back
6
Official Development Assistance Back
7
Organisation for Economic Co-operation and Development Back
8
European Commission Back
9
Millennium Development Goal Back
10
International financial institutions Back
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