WB recommendations seen as conditionalities

WB recommendations seen as conditionalities

Is the World Bank interfering with the domestic political environment of client countries?

By Joaquin L Gonzalez III

Is the World Bank drifting away from its mandate? This is a serious question one asks after examining Bureaucrats in Business (1995), the fourth and latest World Bank findings and policy recommendations on reforming state-owned enterprises or government-linked companies in developing countries.

Since 1993, the World Bank has been actively disseminating high-profile policy recommendations through a new mini-World Development Report series that supposedly seeks to "bring to a broad audience the results of its research on important policy issues". However, some of the assertions made in these "policy research studies" seem to go beyond the limit set by the organization's founding members about prescribing reforms that interfere with the domestic political environment of client countries.

In this latest controversial report, the World Bank seems to be suggesting political conditionalities disguised as policy recommendations for the developing countries of the world. The report's main finding is quite interesting since it acknowledges that despite more than a decade of heavy World Bank-supported privatization, the use of state-owned enterprises is still very much the direction developing countries have taken. However, it goes on to outline the following political conditions necessary for success in reforming state-owned enterprises:

* leaders perceive the reform as politically desirable (that is, they perceive that their supporters favor reform);

* leaders must see the reforms as politically feasible (that is, leaders are able to overcome opposition);

* leaders should make the reform credible (that is, the leader's promises to protect investors property rights and compensate fired employees are believable). From these findings, the World Bank seems to be making clear what conditionalities political leaders should expect to ensure technical assistance or development financing for future state-owned enterprise and privatization reforms. If so, then certain political regimes will have to conform or face some form of sanctions.

In other recent recommendations to policy-makers in developing countries, the World Bank delves into promoting good governance. Their definition of good governance is "the manner in which power is exercised in the management of a country's economic and social resources for development". Their prescriptions relating to this policy area usually includes a disclaimer stating that the World Bank does not seek to change a country's political regime but only reform its governmental machinery for effective public policy output. From this definition, economists at the World Bank seem to think that the citizens in developing countries are naive about the obvious fact that their political and governmental institutions and the public policy issues they address are inseparable.

According to the World Bank, they seek to target the following broad policy areas for their good governance prescriptions:

(1) public sector management

(2) accountability

(3) legal and regulatory framework

(4) transparency and information

(5) human rights

(6) participatory approaches

(7) military expenditure.

However, some of these policy areas such as human rights and military expenditure are definitely sensitive politically and should be left alone. One big lesson from The East Asian Miracle, the World Bank's first policy research report, was the capacity of governments in East Asia to insulate themselves from the whims of some politicians. Probably, another secret to East Asia's success, not stated in the World Bank's report, was the ability of political leaders to protect themselves from interference by international organizations such as the World Bank. Hence, leaders of developing countries should be wary of so-called "good governance experts" who act as members of World Bank missions to transitional economies in Eastern Europe and Southeast Asia.

Despite the interesting facts and analysis in its authoritative policy reports, the World Bank must endeavor to re- examine its business of prescribing lessons to developing countries since some of their recommendations, especially the ones they just outlined in their current policy reports, have become quite political and thus sensitive. The domestic political repercussions can be quite serious. Developing countries must endeavor to be vigilant. If the World Bank is indeed drifting from its original path, then leaders of developing countries must send this message across to keep it from going further astray: Kindly stick to your economic and social development mission and leave domestic political issues and institutions alone.

Dr. Joaquin L Gonzalez III is with the Department of Political Science, National University of Singapore.