Wolfowitz it is: What to do next?

Wolfowitz it is: What to do next?

Ari A. Perdana, Cambridge, Massachusetts

The World Bank board, which is dominated by the United States,
Europe and Japan, unanimously named Paul Wolfowitz as the World
Bank president replacing James Wolfensohn on Friday.

I have argued that Paul Wolfowitz' appointment as the new
World Bank president was not a smart move (The Jakarta Post,
March 22). I stand by that position. I believe that the board
members' decision to confirm his leadership is not the best thing
for the Bank and its developing countries as stakeholders. Still,
while I consider the decision unfavorable, I believe we can live
with it. The question is: What to do next?

"Bring on Seattle again!" said a fellow Harvard student. What
he is referring to is the antiglobalization protest that took
place in the city in 1999. Nevertheless, I have a slightly
different opinion (as a cash-strapped graduate student I will not
be able to afford such travel, anyway). For development
practitioners, there is no such thing as an unfavorable
situation; it is only the second-best solution. Also, problems
are not constraints but challenges.

The first challenge is to envisage what are the changes
Wolfowitz will bring to the Bank. President Bush has been
explicit about one thing. He is sending Wolfowitz to the World
Bank for a mission: to reform the Bank management. As the biggest
source of World Bank development funds, the U.S. government has
many concerns that the institution has not been very effective in
providing development assistance.

Many of the Bank US$15 billion to $20 billion loans a year
were not well-spent and have not been successful in alleviating
global poverty. That is an issue of management, according to
Carnegie-Mellon's professor Allan Meltzer, who is a big fan of
Wolfowitz' appointment.

To some extent, such concern has a point. Even World Bank
economist William Easterly argued in his book (2001) that there
is a problem with the Bank's aid and lending policies. The
policies have failed to create the right incentives for recipient
countries in achieving self-sustained economic growth. For
example, Easterly pointed out that most of the Bank loans were
given prior to making reforms. But if they complete their reforms
and the economies get better, they will receive less money.
Hence, there are no incentives for the recipient to sustain the
reforms. The Bank loan schemes also did not discriminate between
corrupt and less corrupt governments so that no punishment
mechanism for corrupt governments that have been granted loans.

The lender also lacks of incentives to tie its lending to the
recipients' performance. Sometimes the reason is related to the
Bank's internal system that relates the budget of each country
department with the number of loans made. As a result, the Bank
officials may keep disbursing even when the conditions for
getting loans are not met. Sometimes the Bank was the one taken
hostage by the recipients. It keeps giving new loans to non-
performing creditors because that is the way to get old loans
paid back.

If that's Wolfowitz's main mission in the Bank -- to
restructure the institution -- then that's fair enough. But we
also know that he has a personal idealism -- somewhat of an
obsession -- to spread his ideas of democracy throughout the
world. The Iraq project is one manifestation of his idealism.

There is nothing wrong with idealism, especially if the
idealism is democratizing the world. Even his political opponents
may agree that the Iraqi election was a positive start toward the
future of the country. But having idealism is one thing.
Miscalculating the cost of pursuing it is another. The war in
Iraq has cost the U.S. a great deal, much more than the initial
proposal. Our concern is if he will make similar miscalculations
in the future if he lets his personal obsession color World Bank
policies. Because this time, the Bank fund is at stake -- the
fund that is supposed to free the world from poverty.

I still have some hopes that Wolfowitz will be a pleasant
surprise for everyone and that my objection to his appointment is
wrong.

The writer is a researcher at the Centre for Strategic and
International Studies, Jakarta, and the Kennedy School of
Government, Harvard University, Cambridge, U.S. He can be reached
at Ari_Perdana@ksg06.harvard.edu