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Bankrolling change

China’s investment in developing-world infrastructure is a good thing, since it liberates many poor countries from unreasonable requirements set by western financing agencies, argues John Briscoe, kicking off a week-long series on dam construction.

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China, India, Brazil and other middle-income countries (MICs) are appropriately using the financial crisis to push for reform of the Bretton Woods institutions, the global financial organisations established towards the end of the Second World War to help rebuild the world economy. In particular, they advocate changing the voting shares of countries on the governing boards of the International Monetary Fund and the World Bank to give emerging economies a greater say. The logic of such reform – the small countries of Belgium and the Netherlands until recently had the same weight as China – is undisputable. But, in the case of the World Bank, such changes alone will not fix much.

To understand why this is the case, one must look to events of recent decades. A vast gap has opened up between the practices of countries that have successfully grown and reduced poverty – the MICs – and the priorities of the World Bank and the aid community more broadly. The MICs have focussed heavily on getting right the basics, such as fiscal stability, infrastructure and agriculture, by setting priorities and sticking to these priorities. No country has more clearly demonstrated the wisdom of following this path than China. But with the Millenium Development Goals (MDGs) as the guiding principles, the World Bank and other donors have given little attention to such basics, have increasingly put the social cart before the economic horse and have adopted a faddish policy approach, constantly inventing new “flavours of the month”.

Consider the two examples of infrastructure and agriculture. All countries that are rich today invested heavily in infrastructure during their high-growth periods. But, starting in the 1980s, environmental and social non-governmental organisations (NGOs) in rich countries – supported by aid officials from wealthy countries – relentlessly attacked the World Bank’s work on infrastructure and modern agriculture. The results were bizarre. The bank’s lending for cheap, renewable hydropower, for example, fell by 90% over the course of the 1990s, while lending for agriculture has dropped by 75% over the past 25 years.

The MICs, however, took a different path and continued to invest in these areas, a move that led to continued growth and poverty reduction. The poor, aid-dependent countries suffered enormously both because of the priorities set and because of the continuous introduction of new initiatives.

One of the main reasons this situation was allowed to develop was the set of incentives embedded in the structure of the World Bank Group. Although the International Bank of Reconstruction and Development (IBRD) is the institution’s main lending arm – accounting for 75% of its disbursements in the form of hard loans – about half of the bank’s budget comes from donations from rich countries. Most of these contributions go towards the administration of the International Development Association (IDA), which provides virtually interest-free loans to help boost growth in the world’s poorest countries. IDA has become the tail that wags the IBRD dog – discussions at the IBRD board, where emerging economies will now have a greater voice, are not nearly as important as the closed-door negotiations of the permanent IDA.

Take the emotive issue of dams, for example. Rich countries have developed 80% of their hydro capacity, while Africa has only developed around 3%. The United States has 6,000 cubic metres of water-storage capacity per person, while Pakistan has 150 cubic metres and Ethiopia just 40. MICs find this gap immoral and have said so in discussions at the World Bank. When the issue was raised at the board in the late 1990s, the Bill Clinton-appointed US executive director did not speak up but immediately thereafter phoned the responsible vice-president, saying that if this were the position taken by the Bank, then it would be difficult to obtain support for IDA from the United States government.

A silver lining to this dark cloud is that the MICs are now partially filling the gap left by the World Bank and others. In recent years, the World Bank has only financed two major dams in the developing world, but China now finances over 200 such projects in Africa and Asia. This is a great service to the developing world. It would be even greater if China were to export not only its superb construction capabilities but also its world-leading capability in the sensitive area of resettlement. (To the surprise of many, the World Bank’s Independent Evaluation Group and others have shown that China has by far the best record in the developing world in resettling those who are relocated by large dams.)

What this all means is that changes in voting shares on the board of the World Bank will have little influence. What is needed is a fundamental re-engineering of the business processes and incentives to which staff respond. The first requirement is a major overhaul of the suffocating plethora of rules, or “safeguards”, which have been put in place over the last 20 years. The second is reform of the Kafkaesque independent “Inspection Panel”, which enforces these rules. And the third is a dismantling of the groups of staff who live off the transaction costs imposed by each of these rules.

The fourth necessary step is to put a firewall between rules which govern the IDA, where donors can impose what they wish, and the IBRD, where the bank’s borrowers sit. More broadly the MICs should use their new-found clout to force the World Bank culture to change from one in which managers and staff are pre-occupied with sins of commission, which are punished severely, and sins of omission are ignored.


John Briscoe is the Gordon McKay professor of environmental engineering at Harvard University. He worked for 20 years at the World Bank, where his last assignments were as senior water advisor and country director for Brazil. His role in reforming the World Bank is highlighted in Sebastian Mallaby’s landmark history of the Bank, The World’s Banker.

Homepage image from Consulate-General of China in Cape Town shows Liu Guijin, China's special representative for African affairs, in Sudan.

Also in this series:
Peter Bosshard urges smart infrastructure
BG Verghese speaks on third pole rivers
Graeme Kelleher defends dam building
Joydeep Gupta looks at tension in south Asia

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Default avatar
匿名 | Anonymous

中国式的发展道路

虽然这篇报道里赞扬了中国的发展道路,但中国发展中的许多问题(例如短视发展伴随的环境污染和过度开采、贫富差距、利益分配不均)也应该是世界其他地区发展中应当谨慎避免的。

A Chinese Path of Development

Even though this report praises China’s path of development, many of the problems in China’s development (such as environmental pollution and overexploitation due to short-sighted development, the wealth gap, and uneven distribution of benefits) should be avoided in development in other parts of the world.

Default avatar
匿名 | Anonymous

发展问题

担心产生新的问题和破坏现有平衡,一直是阻碍快速发展的首要问题...现有的假设和解决方案都过于理想...

Development Issue

The primary issue which hinders the fast deveopment is the concern for new issues coming out and the disturbance for the existing balance... ... in which the present assumptions and solutions are too ideal... ...

Default avatar
匿名 | Anonymous

文章很生涩

这个文章我看了半天也没看明白,内容太生涩了,谁来给提炼一下?

This article is very choppy

After reading it again and again, I still didn't understand the article. The content is too choppy. Can someone please explain the main points?

Default avatar
匿名 | Anonymous

我覺得寫的還可以

只不過是西方的語法問題罷了。礙不著閱讀吧。

I think the article is all right

That is just the western grammatical problem, which does not affect reading.

Default avatar
匿名 | Anonymous

关于人权和环境问题的一点谨慎个人意见。

尽管我充分尊敬政府的方式,但我个人对中国的水利发展项目仍持有不同意见。我们研究并分析了一些美洲的项目,包括巴西,阿根廷,厄瓜多尔,巴拿马和墨西哥在内的许多国家,从对它们项目的系统分析中,反映出了严重的人权、环境问题,且其影响多为不可逆转。不幸的是,所有我们评估的水利项目都有着同样的问题。我们发现,项目缺乏恰当的公共政策,政府以及开发者并没有充分思考替代能源开发、水需求的其他真正有效途径。我们的国家(以及中国)一直认为水利项目是解决贫困问题、发展经济的良方,这一点颇让人无法置信,况且它们所造成的伤害是如此显而易见。因此,我们需要思考的是真正的替代措施,是不牵涉到成千上万人的背井离乡,以及其他形式伤害的解决方式。这个问题的确棘手,但鉴于这种方法所造成的严重伤害,我们有必要好好思考其他的解决方案了。

Astrid Puentes

此篇由雅晴翻译

Respectful disagreement with the article, considering human rights and the environment

With respect I disagree in particular regarding the benefit of China’s development of hydropower. We have analyzed several projects in the Americas, including in Brazil, Argentina, Ecuador, Panama, and Mexico, and all of them have systematically evidenced severe and irreversible human rights and environmental impacts. Unfortunately all of the hydro projects that are under evaluation and construction have the same problem. What we have evidenced is the lack of adequate public policies, and real efforts from governments and developers to think about effective alternatives for energy, and water needs that can help us achieve a real and adequate development. It is unbelievable that our countries (and China) still think that these projects are a good solution for our economies, poverty, and development, despite the evident damages. Unfortunately lessons from the past are not learned yet. Thus, we need to think about real alternatives, local solutions to the needs that do not involve thousands of people displaced, among other harms. Recognizing that this is a question without an easy solution, after all the evident damages, it is clear that other strategies are needed. Astrid Puentes