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