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The World Bank Policies: Damned If You Do, Damned If You Don't Author(s): Claudio de Moura Castro Source: Comparative Education, Vol. 38, No. 4, Special Number (26): Latin America and Educational Transfer (Nov., 2002), pp. 387-399 Published by: Taylor & Francis, Ltd. Stable URL: http://www.jstor.org/stable/3099542 . Accessed: 02/10/2013 03:10 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. . Taylor & Francis, Ltd. is collaborating with JSTOR to digitize, preserve and extend access to Comparative Education. http://www.jstor.org This content downloaded from 205.133.226.104 on Wed, 2 Oct 2013 03:10:45 AM All use subject to JSTOR Terms and Conditions

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The World Bank Policies: Damned If You Do, Damned If You Don'tAuthor(s): Claudio de Moura CastroSource: Comparative Education, Vol. 38, No. 4, Special Number (26): Latin America andEducational Transfer (Nov., 2002), pp. 387-399Published by: Taylor & Francis, Ltd.Stable URL: http://www.jstor.org/stable/3099542 .

Accessed: 02/10/2013 03:10

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Taylor & Francis, Ltd. is collaborating with JSTOR to digitize, preserve and extend access to ComparativeEducation.

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Comparative Education Volume 38 No. 4 2002 pp. 387-399 CarfaXPublishing ID Tyor&Faci ru

The World Bank Policies: damned

if you do, damned if you don't CLAUDIO DE MOURA CASTRO

ABSTRACT To some, the World Bank is the all-powerful arm of imperialism. Others regret that it is powerless, incapable of influencing policies in the countries in which it operates. This paper discusses these issues, as seen by the author, a former employee both of the World Bank and the Inter-American Development Bank, as well as a civil servant and consultant at the receiving end of the loans. This experience provides an inside view but the reader has to be warned of the biases that

might have resulted from it.

The supra-national agencies such as the IMF and the World Bank ... [are] like a kind of economical and political ministries of transnational capital ... They are the lords of the world or the de facto power in the world. (Frigotto, 1995, p. 82)

... all this [education development] is being orchestrated by the World Bank with its

concept of education systems linked to vocationalization, aiming at preparing individuals to meet the requirement of productive activities and market circu- lation... (Ianni, 1996, p. 6)

There is a growing participation of outside economic agents-the World Bank and the Interamerican Development Bank-as well as local entrepreneurs. (Monteiro, 2000, p. 48)

Sector Analysis documents of the World Bank, in general, display a lack of

understanding and inadequate knowledge of education and accumulated research in the field ... The dismantling of Education Ministries is, to a large extent, the direct and indirect result of the World Bank and IMF packages ... The World Bank ... package presents serious shortcomings ... and instead of contributing to

change in the proposed direction... reinforces inefficiency, poor quality and in-

equality in school systems. (Torres, 2000, pp. 140, 180, 127)

The Bank became involved in attempts, some more manifest than others, to protect public expenditures that directly benefited the poor... These distortions created a considerable amount of inequality... The Bank had every justification to question these distortions... (Steve Heyneman, forthcoming)

In spite of clear storm warnings, the confrontation between the central and the regional education staff continued ... Even after vigorous protest from within the Bank, the publication of the Priorities and Strategies paper led to predictable

Correspondence: Inter-American Development Bank, 1300 New York Avenue, NW, Washington DC 20577, USA. Email: [email protected]

ISSN 0305-0068 print; ISSN 1360-0486 online/02/040387-13 ? 2002 Taylor & Francis Ltd DOI: 10.1080/0305006022000030757

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388 C. de Moura Castro

objections and institutional replies ... In building consensus and motivating the education profession ... the costs of developing Priorities and Strategies clearly outweighed its benefits. (Steve Heyneman, forthcoming)

World Bank funding exerts little influence on social policy ... High concentrations of World Bank funding have virtually no impact on the share of educational resources devoted to primary education ... Although the World Bank has the financial resources and the technocratic allies to buttress the transmission of its

ideas, bureaucratic and political forces often get in the way ... In the final analysis, the World Bank can pressure but cannot force the Brazilian government to adopt its recommendations ... Domestic political forces prevail over international technocrat- ical linkages when it comes to redistributive social polity making ... [The World

Bank] lacks the political clout to override vested societal groups'. (W. Hunter & D.

Brown, 2000, pp. 126, 129, 135, 138)

The above quotations give a flavour of the predicaments faced by an institution such as the World Bank. To some, it is the all-powerful arm of imperialism. Others regret that it is

powerless, incapable of influencing policies in the countries in which they operate. This paper discusses these issues, as seen by the author, a former employee both of the World Bank and the Interamerican Development Bank, as well as a civil servant and consultant at the

receiving end of the loans. This experience provides an inside view but the reader has to be warned of the biases that might have resulted from it.

Gone are the glorious days when the World Bank was merrily prescribing policies and

lending, rather than stirring controversies. Today, some think it has become the satanic tool of 'neo-liberalism' while others complain that it is plainly ineffective. Bank officers wonder how can it be both at the same time. These days, being a multilateral bank means that you are criticised, no matter what you do or don't do. 'Fifty years is enough', said the critics at the fiftieth anniversary of the Bank.

Granted, development banks are indeed strange animals. As a former employee of such

institutions, we did not know whether we were gods, devils, preachers, bankers, arrogant civil

servants with PhDs or just hopeless and pathetic bureaucrats. Actually, we may very well be

a mixture of all these.

What is a Development Bank? Why it Makes Sense

Before we explore such controversies, it may be necessary to explain what a development bank, such as the World Bank or the Inter-American Development Bank (IDB) is? It is

important to understand the logic behind the operation of multilateral development banks.

Why do they exist and what made them an attractive idea in the first place? First, we need to understand that they are not banks. They are credit co-operatives. In

the mid-1940s, a number of countries got together at Bretton Woods and decided to create

a bank of their own where the less prosperous members could borrow (at that time, the goal was to reconstruct Europe). Hence, from day one it was a governments' bank. Or, more

precisely, a credit co-operative of countries. Therefore, the banks created on that pattern are

influenced by the policies and politics of borrowers and their rich co-owners. Considering their ownership, it should come as no surprise that Cuba, for example, cannot receive loans from either the IDB or the World Bank. Or that both banks have their headquarters in

Washington DC. What makes them attractive, in the first place, is the financial architecture that allows

poor countries to borrow at about the same rates that rich countries do. If the United States

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World Bank Policies 389

decides to borrow money, it issues bonds at the lowest interest rate in the market. Why? Because the USA is rated triple A in the financial markets. If a Third World country decides to float bonds, it will not be rated as triple A because lenders are not so sure they will get their

money back. Therefore, the country will have to pay a rate of interest that may approach twice that paid by the United States, because borrowers are afraid the country may default on its obligations. Spread is the name given to the price of increased risk.

The financial architecture consists in creating a bank that includes the poorer countries that want to borrow and the rich countries that lend their reputation and reliability. The

reputation and the creditworthiness of the USA, Germany, Japan, or the UK ensure a triple A rating to the bank, allowing it to borrow at the lowest possible interest rate found anywhere in the world. So, if Brazil tried to borrow money today, it would pay more than 10% in interest. When the World Bank or the IDB float bonds, they sell them these days with an interest rate below 6 %. Hence, the whole idea of a 'development bank' is little more than a financial trick allowing poor countries to borrow money at 6%, instead of 12%.

As we all know, banks do not lend their owners' money and development banks do not lend country members' money. In other words, banks lend the money they borrow at the financial market. Therefore the rich countries are not subsidising the World Bank, the IDB or any other development bank. Member countries only contribute a modest amount of

money in the beginning, to build initial capital reserves.

Hence, from a financial point of view, multilateral banks are just like commercial

operations; there are no subsidies involved. They borrow money by issuing bonds, and then lend this money. The downside of this style of operation is that these banks have no funds with which to make grants. In fact, it is easier for the banks to lend US$200 million than to

give US$20,000 as a grant. The banks just don't have US$20,000 to give, even though they have US$200 million to lend. This is because the only funds they have are borrowed and have to be paid back-with interest.

In order to keep their financial ratings, the loans must be paid back, as in any commercial bank. But in fact, banks do not fret much about repayment. This is because if the country doesn't repay its loans, it is, as it were, put on the International Monetary Fund

(IMF)'s 'black list'. And being on this 'list' is one of the most uncomfortable financial situations a country could be in. It means that the country is not able to borrow from any financial agency, multinational or private. To sum up, less trustworthy countries get good interest rates because the rich countries underwrite the banks and there are effective ways to collect the money once it is due.

What Makes a Development Bank Different from the Others?

Historically, development banks could have been created to lend money just like commercial

banks, no questions asked about the use of the loans. However, as the name suggests, the role of the World Bank (also known as International Bank for Reconstruction and Development), the first one of its kind, was to fund development projects.

How do multilateral banks work? Let us look at the bad news first. Banks cannot make small loans. The World Bank lends about US$7-8 billion a year for Latin America. If it were to break down this amount into US$1 million loans, it would have 8,000 operations, which is a totally unmanageable number. Hence, it can only deal with big chunks of money. And a bank cannot move big chunks of money without a lot of paperwork. As mentioned, banks are not worried so much about repayment. But they do worry about corruption, about a bad press and about people bragging that they got a free ride with the bank's money. As a

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390 C. de Moura Castro

consequence, there is much effort to control use of the money, once the loan has been

approved. And this means a lot of paperwork. Each loan structures the way the funds will be

spent and does so in ample detail. This is why bank operations are so unbelievably complicated. Indeed, the local administrative officers who have to deal with the development banks hardly can believe how much more red tape they have to deal with-compared with

any domestic programme funded from their budgets. The most controversial projects are those in the social sectors. Even in poor countries,

banks do relatively well building infrastructure. All that is needed is a reputable contracting firm that knows the business of building bridges or railroads and does the book-keeping properly. But problems appear when banks try to tackle more complex development prob- lems, such as reforms that change the way people and institutions work.

Experience suggests that development banks can successfully lend to the poor, but not to those who live in very poor regions. And they can also make simple infrastructure loans to

very poor countries. However, they are not good at helping the poor in very poor countries

(or regions). Why? Because social projects require a level of bureaucratic efficacy at the

receiving end that is rarely-if ever-found. Sometimes bank staff cannot even prepare loans, because the bureaucracy on other end is too weak. When the loans are made under such

conditions, they often end up being failures or bad projects. As mentioned ahead, in recent

years, banks have become less arrogant and more humble, learning to be more careful in

adjusting the projects to prevailing conditions within countries. This is particularly the case with the World Bank, which became far more mellow in the 1990s.

What do banks have to offer on the positive side? The good news is that the banks have a lot of money. And money can make a difference. The loans can provide an amount of

discretionary money that a country would not otherwise have. In other words, in the absence of a loan, the project would have to be done with funds taken away from the salaries of civil servants or the provision of basic services-a politically difficult feat.

Stability and continuity are also strong points of multilateral banks. A Minister can announce a programme to be initiated the following day-to give milk to the children or to build schools. In three months time, there may be another Minister, announcing another

programme. Guess where the money for the new programme comes from? Of course, from the programme which was created a few months earlier by the previous minister. But change is not so easy with projects funded by a development bank. The country is committed. Contracts are signed. In other words, if both sides go to all the trouble of preparing and sign- ing a project document, an equal amount of trouble is needed to get the project cancelled. That is, deviations from the project document have a high cost, political and otherwise.

Compared to the standard-fare government programme, this inertia gives a much greater stability and coherence to the bank loans. Projects and their goals are more robust and have far fewer chances of being killed at the political whim of a new Minister or new administra- tion. As a result, there is more continuity, structure, discipline, and technical support.

Another advantage of such loans is that they set aside an amount of money that allows a country to hire the very best minds in the world, which are expensive. Usually it is

politically difficult for a country to hire such expensive consultants, particularly when local salaries are so low. But well-chosen experts can make a difference.

The Ideology of Multilateral Banks and the 'Washington Consensus'

The accusations against the World Bank-and to a lesser extent to the IDB-have been persistent and, if anything, given more press coverage. The banks are often accused of being 'neo-liberal'-the worst insult in the lexicon of the left.

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World Bank Policies 391

Of course, it would be naive to imagine that it is possible to have an institution operating in such central and delicate areas without an ideology. Neutrality or agnosticism are not

options. To have any meaning, policies have to accept or deny such all-encompassing concepts such as free markets, private property and public intervention. Therefore, implicitly or explicitly, banks do have their own ideology. The question is how acceptable this ideology is to the borrowing governments and how acceptable are the ideologies of the borrowing governments-that also have to approve bank's policies.

In countries that have democratically chosen to give a pre-eminent role to markets and

private property, it is not worth discussing the position of those critics that do not accept such

regimes. The interesting discussion is on details and implementation. Despite matters of

image and style, it is worth mentioning that the World Bank and the IDB, at present, share much in terms of ideology-if that can be called the Washington Consensus, it is there. But it is worth noting that this consensus is ever shifting. In addition, there is a huge difference in the strengths of its respective beliefs. The true believers have been in the World Bank, the IDB being far less religious and more pragmatic.

This author always imagined that ideological fervour was a powerful drive in the World Bank. But upon joining it as a professional (in 1992) he was struck by how much more

powerful this belief was at the higher echelons of the Bank. There seemed indeed to be a very purist view on the imperative not to subsidise, to privatise, to create competition where it did not exist, to charge user fees everywhere, and so on. Such fervour practically forced most

project documents to comply and propose the full menu of World Bank policies. Nevertheless, this is only the beginning of the story. Thinking in either bank is far from

being monolithic and compliance with the ideological impositions is more formal than real. The idea that bank professionals form a disciplined army, thinking alike and implementing official policies, is as naive as to imagine that this would happen in an institution that hires the graduates of the world's best universities. There is a wide range of opinions and policy orientation among professionals and a lively debate goes on all the time. In fact, as reported by Heyneman (forthcoming) and witnessed personally by this author, during the first half of the 1990s, the clashes between professionals, division chiefs and the management of the bank were nothing short of formidable.

On that occasion, the Bank management took a particularly active role in having a

heavily conservative and neoclassical education policy paper prepared. Predictably, this document met with ferocious opposition from 21 of the 26 division chiefs. While this was a discrete battle, it was no less fierce for that. One way or the other, the crises shook the Bank and left many scars. Several prestigious professionals ended up leaving the Bank and several eminent names in the management were eventually replaced. From the point of view of this

paper, the lesson is clear: professionals are not as well behaved and subservient as outside critics imagine.

While all this took place, the reality of loans and their official documents is something else. Project managers-and there is at least one for every project that is under preparation- have a balancing act to play. They have to sell the loan to the country. And they have to

shepherd it through the management of the Bank. The management wants to see all the demonstrations of ideological purity. But the real world is different. There is inertia in local

politics, there is Congress opposition, hostile legislation, political lobbies, resistance from the middle-level bureaucrats and lack of political will to face battles to sell unpopular policies. Project managers have to find a course of action in between. In some cases, matters are solved through skilled wording that gives the impression of ideological discipline but which is, ultimately, very vague. In others, country negotiators have to swallow projects they know they cannot implement fully or do not want to implement, for political reasons. They sign the loan

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392 C. de Moura Castro

document but never take the conditions seriously. And experienced local administrators

already know they can get away without complying with the difficult parts. In the 1990s, the World Bank got scared by the high failure rates of loans and significantly softened its

postures. The IDB has mostly avoided these battles. For historical reasons, the neoclassical

hard-liners never had the upper hand. The IDB has been more demand-driven-sometimes too much so-lending for what the country requested, even if it meant a foregone opportunity to bring reform and modernisation. In the 1980s more than in the 1990s, the IDB was too

ready to please. However, in the 1990s, with a new President, it became again more reform oriented. But reform rarely meant imposing orthodox neoclassical rules.

One problem with critics of the banks is that they tend not to realise how much thinking and acting in the banks keeps changing. They harp on about policies and practices that have

changed long ago. The most egregious cases are in environmental matters. The gross mistakes of the World Bank were committed when nobody (inside and outside the banks) was paying attention to such matters, policies merely reflecting the development fashions of the moment. Fifteen years later, when the dams are ready and critics discovered the

ecological tragedies, the World Bank was already going too far in the opposite direction, sometimes wasting fortunes to preserve a ridiculously small number of animals-such as a

monkey (mico estrela) in Brazil. In other words, critics are very often outdated in their

comments, not realising how often policies flip in opposite directions. Critics accused the banks of allowing social expenditures to be squeezed, long after the loan documents included clauses preventing them from being cut.

Conditionalities: the bone of contention

Let us now move to what was hinted at in the last sentence and remains the most delicate

part of development banking: something called conditions or conditionalities. Loans have

strings attached and the strings are the conditions stated in the loan contract. Conditionality thus means that the country must fulfil a certain number of requirements to get the loan, such as reforming teacher statutes, reducing budget deficits, charging full costs of utilities, preserving the environment, or whatever is fashionable at the time.

In the majority of cases, the conditionalities will have two key features: they are good for the country-at least in the long run-and they have a political cost to those who implement the loan. Therefore, the conditionalities use the clout of the Bank and the massive volume of funds it has to offer to push through reforms that, most informed citizens would agree, are beneficial but politically costly. Some such reforms probably would not be undertaken if they were not backed up by bank resources.

This puts a frightfully dangerous weapon in the hands of bank officers, but it can also be a most powerful weapon for pushing reform. The loan money is what allows a bank to

support local groups to overcome inertia. This is what gives the banks the power to be a

catalyst for reform. For good reasons, these conditionalities are the bone of contention with critics of the

multilateral banks. First of all, one may ask, why don't banks just lend money for whatever the countries want to do? There are several lines of responses. One can discuss principles. Do

banks have the right to impose conditions? This is not a promising line of discussion for this paper, leading us to matters where power politics, idealism and policies get tangled up.

A more relevant line of inquiry is to notice the relatively large number of requests for loans that are not at all a good idea. Country representatives very often come up with loan requests where the experience of bank officers allows them to predict that they cannot

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World Bank Policies 393

work well. For instance, the project is not technically feasible; it benefits only those who already are very rich; it involves procedures that are morally dubious (such as giving money to political parties, rather than to Ministries); it would have negative environmental conse- quences; implementation would be a nightmare; or it cannot by any stretch of the imagin- ation be considered a development project. Such loans would merely be a drain on the country's scarce foreign exchange when the time comes to pay them back. Of course, in stating the above, there are value judgements, maybe prejudices, and a margin for errors that may be committed by bank officers. Be that as it may, the case for discarding all rules and impositions is not a strong one.

Multilateral Banks Under Siege

Critics from the left have taken a very strong stand on the imposition of rules and priorities by international agencies, as can be guessed from the initial quotes in this paper. The World Bank-and to a lesser extent the IDB-are considered as the evil arm of imperial powers. Three sets of comments are elicited by such statements.

The first is whether Banks are indeed driven by moral principles or the unbridled interest of the large Western powers. The second set is whether they are imposing reasonable policies, whether they have the technical competence to design them and are proposing policies based on the best scientific knowledge available. The third is whether they are effectively able to impose their views and policies.

The first answer is a qualified yes. The G Seven and particularly the United States have de facto veto power and use it occasionally to stop a loan project. But that is not the same as saying that they can impose whatever they want. The banks have boards with a wide representation of all member countries where, all the time, disputes are going on. For instance, at present, the rich countries want to impose higher interest rates on the middle- income countries, in order to generate grant money for the poorest. The middle-income countries ask why should they foot the bill of foreign aid, just because the G Seven is cutting down on aid with their own money? Also very noticeable is a strong bias towards exaggerated consulting budgets in the loans, obviously favouring the rich countries, which are much better endowed with professionals with the calibre and the experience required to perform accord- ing to standard practices in such tasks. However countries can complain and prune down such budgets. But to be fair, the rich countries are most of the time trying to help, have better technical expertise at their disposal and tend to give projects a better technical review. To sum up, the answer is not black and white. Having been inside banks for eight years did not reveal to this author too many cases of misuse of power by the rich member countries.

Authors such as Rosa Torres (2000) question the technical skills of the Bank staff, the scientific standing of its policies and its overall approach to education. From my experience, there is a grain of truth in her criticism, but not much more than that.

The World Bank and the IDB have hired some of the best minds around. They are prolific, clear and rigorous researchers and writers. More than any other institution, they base policies on empirical evidence and on hard-nosed scientific criteria. But it would be presump- tuous to believe that policies can be derived on the basis of evidence alone. In between empirical data and policies, guesses, biases and ideological considerations are smuggled in, often passing as plain science. And clearly, banks typically hire the young PhDs from the world's leading universities, who come with their views, sell them hard and forget that they do not have the monopoly on truth. Intellectual arrogance is an accusation that fits many bank officers (far more from the World Bank than the IDB and far more before than now). There is a tendency to quote only their own papers or that of their consultants. Data are often

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394 C. de Moura Castro

less reliable than purported to be. And the true fact that the critics of the banks are poorly equipped to offer criticism cast in the same level of scholarship may create a serious problem of asymmetry in arguments. If we accept the scholarly premise that facts-based policies are a plus in policy analysis and design, this poses an intellectual and moral dilemma. Those who criticise the banks' policies may have a point, let us even admit that they can be right. But their criticism is not based on facts, on sound analysis or on good scholarship. Their technical

training is less thorough and the resources available to do the kind of studies that would counteract those of the banks are inadequate. What can be done?

Bank policies are also accused of containing all the typical biases of economists and

public administrators, at the expense of pedagogical views. This is true. But can it be otherwise? The Banks deal with ministries, not teachers or non-governmental organisations (NGOs) (they can deal with NGOs if the Ministries so decide, not otherwise). The banks deal with multi-million dollar projects. They have to be designed and managed. There is a

very clear constraint to what bank loans can do. This is something that has to be seriously considered in the design of loans. All projects require formalised rules, heavy accounting procedures, frequent auditing, bids and tenders to decide who is going to do what and good management practices. A project idea that cannot function well under a heavy administrative

machinery or that needs too many ad hoc decisions and a high level of decentralisation may not be feasible. This is a fact of life, something that cannot be changed without a major retooling of how banks work. The accumulated experience shows that complex projects, particularly those that require geographical dispersion of activities, have a higher failure rate.

The Implementation Problems

Based on my own experience as a former bank employee, most of the above criticism has a

grain of truth and is well taken. As in any real life organisation, banks have weaknesses and

shortcomings. But they are not as evil and incompetent as their critics state. That, however, is not the critical issue. In fact, by and large, critics miss the target. They focus on policies and policy controversies and usually fail to take notice of the most critical weakness of multilateral banks: the implementation process. The authors from both the American establishment [1] and the international left focus their comments on policies, policy debates and the intrinsic merits of what the banks are proposing to do. The main thrust of my message in the present paper is that whatever the policy controversies might be, this is not where the real problems are. The real problem is at the implementation stage.

Past experience has taught the banks very humbling lessons. First, everything can go wrong-and things do go wrong. Banks do not advertise much their failings at the implemen- tation stage. Some projects die at the preparation level, due to the inability of the country teams to respond to the requests for information or due to basic disagreements about what the project should look like. A few are approved but never disburse, due to legal snags or bureaucratic inertia. Most loans actually disburse but more slowly than predicted. In fact, very few loans come to completion within the originally scheduled programme. A significant proportion gets stuck somewhere along the line, due to many different reasons, the major one

being delays in counterpart funding. While banks neither disseminate nor collect reliable statistics on which projects fall

victim of each of the above problems, the vast majority of the projects eventually disburse all the funds and come to an end. The failure rate, measured as not disbursing all the money in the loan is relatively low-perhaps not even 10%.

The question is whether the loans achieved their purpose. This, of course, is a thorny issue, not very popular among bank administrators. Not only that, but agreeing on what is the

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World Bank Policies 395

purpose of the loan is just as delicate. There are several measures of achievement. The one favoured by everyday bank procedures is disbursement. Lack of disbursement is the only real embarrassment for bank staff. Once the money is disbursed, there is a sight of relief and few want to probe further. The next step, also formalised in the banks' rituals, is whether the

money purchased what it was supposed to purchase. In other words, was the prescribed number of schools built, were all the targeted teachers trained, the books purchased? This is

part of the contract and is duly verified by accountants and auditors. But this is tantamount to measuring results by inputs.

The issue is not whether teachers have taken courses. But have they learned anything? Are the students benefiting from their increased skills? Are the purchased books being distributed? Are they being used? Are students learning more as a consequence? The loan officers and the regular bank bureaucracy rarely if ever ask these questions. But ultimately, they are the truly relevant questions. Otherwise, why have loans if students do not benefit from them? To be fair, special studies by evaluation offices of the banks do ask such

questions, every so often. And the results, while not tragic, tend not to be very flattering. In a very systematic way, the bureaucracy pays attention to the papers and seminars produced by evaluation offices, politely acknowledges them, agrees on their importance and does

nothing about it. Given the existing rules, there are no rewards for doing much along these lines. Nobody gains by admitting that loans have less spectacular impacts than assumed by the standard rules of measuring results.

Probing a bit deeper into the realities of implementation, there is one recurring feature that is often mentioned by observers-mostly inside the banks. The less physically concrete the line of activities, the greater the chance of not being implemented. Typically, all schools are built, most teachers are trained and computers are purchased. Also typical, the reform

component is not implemented.

Can Banks Impose Reform?

This is the most crucial issue in development banking, as perceived by this author. All the discussions about conditions boil down to the moment of truth of their implementation. The banks use all their clout-and displays of arrogance are not uncommon-when the project document is being discussed. Officers defend their reform plans and there are formidable clashes with the negotiators from the country. Negotiations occasionally break down and consultations to those higher in command take place, often under heavy pressure not to delay the timetables. But ultimately, the record of the banks in truly enforcing the conditionalities is dismal. In the middle of projects costing hundreds of millions dollars, with tight bidding and construction schedules, the willingness of bank officers to interrupt disbursements because reform conditions are not being fulfilled is very subdued. The bottomline is quite clear and not very reassuring for those who defend strong conditionalities. The politically unsavoury components of the projects drag and nothing much is done to enforce them. Some moral persuasion is used, for sure, but no hard penalties are common.

S. Heyneman offers an interesting glimpse at the issues that were brewing inside the World Bank:

There are two different interpretations of where the bank went wrong in the 1980s. One is that ideology took over the education sector because of the precedent set in Latin America of doing adjustment operations. This new form of lending required a quick menu of policy options pertaining to the social sectors, and these policy options were often negotiated by macro economists well outside the

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396 C. de Moura Castro

education sector. The education sector was essentially trumped by the need for a

quick fix in the macro-economic arena. I believe this was true in the countries as well as the bank. In other words, the short policy menu which was often proposed was discussed first in the ministries of finance, and often over the head of the ministers of education. Then there is another interpretation. This one holds that these policy distortions could not have occurred had the original balance of power been maintained. The structure was originally created by Robert McNamara who had predicted just this kind of distortion. In the balance of power structure, there was authority to stop bad policy from the regions. And there was authority in the centre to stop bad lending. Clearance was required from the Central Projects Staff if a loan was to go to the Board. And no policy could go to the Board if there was not a consensus about the regional vice-presidents. It was a balance which made the bank work. [But] this balance had been destroyed. In its place the bank had created a 'super authority' over all of the other senior vice-presidents. It ... allowed the centre to run roughshod over the regions. (Personal communication)

This reasoning above leads us to a very strong conclusion: the banks cannot impose reform. This was the painful lesson the World Bank learned in the 1980s, when as much as a third of its ambitious portfolio was under-performing.

Why? Because it tried to design loans that were too complex and impose politically unpalatable reforms. Observation of past experience yields a clear lesson and we have to be

very candid about it: banks cannot impose reform. They can identify the 'good guys'. They can have good antennae to find where some reform is brewing. But the best they can do is to find the good guys at the right moment and support them in their efforts to make reform

happen. The World Bank has tried to sell or impose reform time and again, and it has not

worked. It used to be that designing a modem reform project was the core challenge for bank staff. Now staff know how to do it. The real challenge is to understand the country and to know how far the country can go in reforming its institutions. This is not such a problem with

bigger and better developed countries. They tend to know what they want and have the self-confidence to say no to a project that is not politically viable-or for which they don't want to pay the political price. Either the banks back off or there is no project. That is the best that can happen. But the smaller or poorer countries may be overwhelmed by the need to borrow and by the heavy hands of bank staff. They sign the contract, only later to realise that they cannot fulfil the conditions during execution. Often, they never meant to pay the

political price. That has happened several times.

Avoiding entirely the discussions about the right of multilateral banks to impose conditions-and particularly which conditions-we can look at the issue from a purely pragmatic perspective. From this author's point of view, if those in charge of implementing the projects do not like the conditions imposed by the banks, the chances of enforcing them are quite remote. Is this a fatal flaw, making conditions a useless annoyance? The answer is a strong negative.

Conditionalities play a role, albeit a more modest but still a very powerful one. Reform is a tug of war in local politics. If it were easy, the banks would have no reasons to spend so much time and energy pushing them. Reforms change the balance of power. Central administrators may lose power to other political bodies or to local decision makers. Politi- cians may lose their ability to make political appointments; teachers may lose some privileges (such as too early retirement). Therefore, reform almost always has a political price-and it may be a steep price. What do ministers and other officers gain with them? What do they lose

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if they do not reform? Rational ministers will have to face those two questions and make difficult decisions.

Most ministers mean well and try to do their best. But they cannot escape facing the two

questions mentioned above. This is where the carrots and sticks of conditionalities may play a role. First of all, the political price can be transferred to those 'evil officers' from the Bank. In fact, the 'evil officers' themselves suggest to the Minister putting the blame on the banks for the politically unpalatable impositions. This gimmick allows the Minister to avoid some

political costs. But more importantly, assuming that the Minister is favourable to the reform, the banks

can create a number of incentives and penalties. The loan itself gives the Ministry an enormous amount of funds that are not tied to payrolls. It increases his visibility, allows him to do a lot of construction, buy equipment and even indulge in the kind of spending that

pleases the lower bureaucracy: better officers, air conditioners, computers, automobiles, drivers etc. This soft money is a 'lubricant' of the gears of the bureaucracy-a bribe would be too strong a word.

To sum up, the conditions give the extra push to reform, if the Ministry is almost ready to pay the price. The loan adds some prizes for doing it. But, as mentioned, the banks cannot

impose reform on a Ministry that is not ready for it. The banks simply are not powerful enough to impose it on the heavily bureaucratic and unresponsive machinery of a social

ministry. In fact, a social Minister has little control over his staff, even when they try hard. This is in sharp contrast to the conditions the IMF imposes-such as changes in interest rate or changes in private banks' reserve requirements. Such impositions usually fall on monetary policy that is in the hands of a single person who can change it with a signature on a piece of paper. They are easy to monitor and implementation follows naturally.

This contrast becomes clear in the work of W. Hunter & D. Brown, mentioned at the

beginning of this paper. In fact, the authors found that even in countries where the World Bank has a very strong portfolio-some of them small and weak countries-the policy of

giving less money to higher education and more to primary was not enforced. Notice that this is one of the strongest policy advices offered by the Bank in the last several years. The authors

correctly mention the powerlessness of the Bank to change local policies and to win over middle-level bureaucratic layers. The empirical evidence carefully presented by the authors, to a significant degree, counters the 'great Satan' accusations of the banks imposing policies on their clients.

This lack of power truly to enforce policies that depend on sluggish administrative

machinery is well known to officers and administrators of multilateral banks. In fact, the 1980s have been a crisis and learning decade for the World Bank. Since then, it has calmed down its reformist furor and realised that it has to understand more about the countries. By contrast, the IDB, which was very conservative in the 1980s, has become more ambitious, pushier, and more engaged in reform. Yet, its regional composition has allowed it to retain closer links with local cultures and cadres, leading in many cases to more realistic appraisals of what can be implemented in the real world.

Are Banks Learning Organisations?

After so many years doing projects, it is fair to ask whether banks are learning from their experience and from their mistakes. In other words, are they learning organisations?

This author and an associate (from the IDB) have conducted an analysis of the entire IDB portfolio of education projects, asking exactly this question. The paper was never published, which is understandable, considering the sensitive nature of the material. What is

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398 C. de Moura Castro

worrisome, but not surprising, is that it never received much attention from the management of the Bank (even though it is a best-seller with professionals).

The results are surprising in more ways than one. Firstly, they are clear-cut, which is not common in such analysis. Secondly, they show a sharp dichotomy in the answers that we found to the basic question asked. When we asked whether a given project reflects what was learned in the previous loans along the same line, the answer was clearly positive. Each

project tends to incorporate learning and lessons from the previous ones. The IDB tends to

repeat success stories and tries to fix problems found in previous projects that are similar.

Hence, in this sense, the IDB is a learning organisation. However, when we looked at implementation, the answer is just the opposite. The tools

of implementation do not seem to improve. What did not work before reappears again in the next project. The same mistakes are repeated again and again. The projects get stuck exactly in the same hurdles (lack of counterpart funds, poor management, lack of leadership, bureaucratic snags and many other recurrent causes). Offering management-training pro- grammes is naively taken as administrative reform or improvement. Local control procedures are too complicated. Fear of corruption traumatises small bureaucrats who would rather slow down a project to a halt, rather than run the risks of petty irregularities. Supervision is purely from an accounting point of view, failing to notice obvious errors of judgement along the way. Worst of all, these weaknesses do not generate any counter forces to fix the system. The banks are not learning organisations in what concerns implementation. They are stuck with

dysfunctional procedures, fail to detect problems and fail to create any meaningful motivation to learn and use this learning to improve.

Are Development Banks Still a Good Idea?

Damned if you do, damned if you don't. Critics are merciless on development banks. Some accuse them of unwarranted mingling in countries' internal business. Others regret the missed opportunities to inflict what amounts to an even greater intervention. However, hard data show that the countries can disregard the reform messages of the banks, some of them

pushed down their throats. This paper recognises that banks develop policies and try to sell them to countries. It also

shows that this is easier said than done. On the positive side, ex post facto analyses of projects suggest that loans learn from one another, improving all the time. Yet, at the implementation level, the same mistakes are repeated and no learning takes place.

We may ask how useful are the policy discussions, the agendas, the priorities and the fireworks that result from disagreement on them. Perhaps they are intrinsically useful, perhaps they clarify issues and map consensus or its absence. Perhaps, in the long run, all this filters down in better-informed decisions. Granted that, this paper claims that the nexus between policies generated at the banks and its implementation in loans is, at best, very weak.

All this may give the reader a bitter aftertaste. In fact, confrontations between banks and local administrators do not lead very far, ideology can be an unsavoury issue, conditionalities

bring to the surface thorny dilemmas and the ability of the banks to follow up on implemen- tation is sorely deficient. Hence, why bother? Were the critics right when they said that fifty years was enough?

Actually, this does not seem to be the case. The fact that the banks are unable to enforce reform, countries can ignore conditionalites and the lack of power of the banks to fix

implementation problems is just one side of the equation. It totally ignores the fact that the vast majority of projects accomplish a significant part of what they try to do, if not all of it. In all areas where the banks lend, there are hundreds of projects that started with a modest

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World Bank Policies 399

objective and fully achieved it. In education, many countries borrowed in order to improve and reform their education systems and that was exactly what they did with the money. And, overall, many impressive reforms took place with the banks' help.

The thrust of the arguments discussed in this paper is that banks cannot impose much on countries, they are quite powerless to force countries to do what they don't want (or are unable to accomplish) and they are chronically weak at the implementation stage.

But in most cases, countries want to achieve exactly what is written in the project document and have the ability to do so-give or take some details. The conditionalities are well meaning and welcomed by those who implement the loan. In most cases, the loan documents propose sound policies and this is acknowledged by the countries themselves and used as a political tool to make life easier for those who implement the loan. Often, the issues are not confrontational and bank officers and their local counterparts work together to sort out snags. Also common, when there are confrontations, banks and the local counterparts band together to sell the policies to the public at large and to battle their political opponents.

In the majority of cases, countries need the money to do what is proposed in the project, they welcome the low interest rates and long amortisation periods and they perceive the

policy lines of the banks as being reasonable. Therefore, while we should not underestimate

any of the many problems mentioned in this paper, we should not forget either that they affect a relatively modest proportion of projects.

Will this system survive in the future? This is another discussion. Middle-income countries progressively acquire both the international credibility to borrow directly at reason- able interest rates and the competence to do their own reforms without the heavy hand of the multilateral banks. Truly poor countries, now and in the past, cannot really benefit from bank

loans, other than for very simple projects, such as infrastructure, due to their lack of

governance and the acute shortcomings of their public administration. Recent observers

propose grants for them, instead of loans. But in between those extremes, there is still room for the present system, imperfect as it might be.

NOTES

[1] In addition to Heyneman, Karen Mundy from Stanford has produced a well-researched and interesting paper on

the World Bank educational policies: 'Retrospect and Prospect: Education in a Reforming World Bank' (draft).

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HEYNEMAN, S. (forthcoming) The history and problems in the making of education policy at the World Bank:

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HUNTER, W. & BROWNE, D. (2000) World Bank directives, domestic interest and the politics of human capital investment in Latin America, Comparative Political Studies, 33 (1), pp. 113-143.

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