The Foundation for Advanced Studies on International Development (FASID)
was established in April 1990. FASID and its affiliate, International
Development Research Institute (IDRI), conduct research, facilitate interaction
among researchers and practitioners, and offer training programs todevelopment specialists. These activities are aimed for improvement in thequality of development programs and policies.

Copyright © 2003 by FASID
Published in 2003 in Japan by the Foundation for Advanced Studies on
International Development, 1-6-17 Kudan-minami, Chiyoda-ku, Tokyo
102-0074, Japane-mail : pub@fasid.or.jp
URL : http://www.fasid.or.jp

Foreword
Yujiro Hayami
Director, International Development Research Institute,Foundation for Advanced Studies on International Development

The past 50 years have seen several waves of change break over theinternational development community as it struggled to find an effective
approach to development assistance. Since the end of World War II, whendevelopment became a focus for action, classical economics, neo-classicaleconomics, and maverick “new views” have surged and retreated in response
to information, experience and world events. This ebb and flow has accelerated
over the past two decades as the strong advocacy to promote growth byincreasing economic efficiency through market mechanisms gave way in the
1990s to the approach that sees poverty reduction as the primary goal and thatstresses participation by and social safety-nets for “partners,” as aid recipientsare now known. These two different approaches are generally known,
respectively, as the “Washington Consensus” and the “post-Washington
Consensus.”
There is widespread acceptance at this time of the post-Washington
Consensus position that poverty reduction is the “overarching” goal ofdevelopment assistance. The elimination of endemic poverty has always been
the objective of development assistance, as it is of all economic analysis andapplication. This is not new. What is new about the prevailing view is thedefinition of poverty – “deprivation in well being,” according to the WorldBank – and the strategy of attacking it directly rather than as an automatic
outcome of economic growth. It is difficult, however, to predict how long thisview will remain as the consensus of the international development community
under incessant shocks, such as the September 11 attacks and the war in Iraq
as well as ongoing challenges posed by the HIV/AIDS pandemic and theintegration of transition economies into the global market. The combinationof acute situations and chronic conditions makes it clear that the identificationand implementation of effective approaches is more critical now than everbefore.
This is a fascinating subject and it affects every one of us. In a real sense,
we are all stakeholders and we should all have some familiarity with this topic

— but it can be very confusing. The immediacy of development assistanceand the dynamic nature of the strategies that are devised, seemingly on a daily
basis, can create an impression of chaos and uncertainty. The present study
intends to address these obstacles to an understanding of the field ofdevelopment assistance: to clarify some of the confusion, to organize some of
the apparent chaos, and to remove some of the uncertainty.
The first step toward this end is a review of the history of development
assistance theory and practice. Having thus set the historical context, the study
moves on to analysis of the currently existing situation. A central focus of theauthors, and their mechanism for organizing the diverse material, is an
examination of the strategies of the World Bank and their roots. Other players
are discussed, but the Bank is a huge presence and it has designed a broad anddeep development strategy which warrants presentation in detail. Japan has aunique history in development assistance and with the World Bank, beginningwith its post-war role as a major recipient and transforming to its present role
as a major donor. In this context, this book includes a chapter devoted
specifically to the World Bank-Japan relationship, which has been rich andrewarding for both. Finally, in conclusion, based on the material presented,
some prognoses are ventured on what might happen next in the arena ofinternational development assistance.
The present study was conducted at the International Development ResearchInstitute (IDRI) of the Foundation for Advanced Studies on International
Development (FASID) at the request of the Japanese Ministry of Foreign Affairs(MOFA). The Japanese version of this book was published in January 2003
from the Chisen Shokan, Tokyo. I would like to thank Professors Shinji
Asanuma of Hitotsubashi University and Yasutami Shimomura of Hosei
University, Messrs Jock Anderson and Ron Duncan, both formerly of the World
Bank, and Mr. Masaki Saito, Executive Director of FASID, each of whom
took the trouble of reading the draft manuscript and giving invaluable comments.
I am grateful to Mr. Hajime Sato for translating Chapter 6 from Japanese to
English. My thanks also to Ms. Rie Fusamae and Mr. Colin Rundle of FASID
for their excellent contributions to the editing of the manuscript.

Table of Contents
Foreword
List of Graphics and AppendicesAbbreviations and Acronyms
Executive Summary
Chapter I.

Overview ------------------------------------------------------- 11

Chapter II.

Evolution of Ideas on Development ------------------------- 20
The Pioneers ----------------------------------------------- 20
The Neoclassic Resurgence ------------------------------ 25
Criticism of andAlternatives to the Neoclassic Approach --------------- 26
Others ------------------------------------------------------- 28
Agriculture and Trade: -------------------------------- 28
Reformist/Basic Needs ------------------------------- 35
New Views ------------------------------------------------- 37
Institutions and Social Capital ----------------------- 37
Human Development/Human Capital --------------- 40

Chapter III.

Evolution of Development Assistance ---------------------- 44
Beginnings and Background ----------------------------- 45
World Bank: 1950-1990 --------------------------------- 46
The Post Washington Consensus ------------------------ 50
Lending Trends -------------------------------------------- 57

Chapter IV.

The World Bank: Poverty Reduction Strategy ------------ 67
Poverty and Institutions ----------------------------------- 68
Strategy ----------------------------------------------------- 74
Themes ------------------------------------------------- 74
Processes ----------------------------------------------- 79
New Lending Instruments ---------------------------- 85
Problems in Employing the Strategy ---------------- 86

Chapter V.

On-going Issues ------------------------------------------------ 92
Consensus -------------------------------------------------- 92
Dissension -------------------------------------------------- 94
Bank Reactivity ------------------------------------------- 100
Fungibility, Program Approach andSector Wide Approach ----------------------------------- 102
Suitability of International Financial Institutions ----- 105
Measuring Change ---------------------------------------- 106
Compliance with the Articles of Agreement ---------- 106

Chapter VI. The World Bank and Japan ---------------------------------- 108
Japan as Recipient of World Bank Loans ------------- 109
Post-War Economy and the Impact ofWorld Bank Loans ----------------------------------- 109
Explaining the Effectiveness ofWorld Bank Loans ----------------------------------- 113
Japan as Financial Contributor to the Bank ----------- 115
ODA --------------------------------------------------- 115
The Japanese Investor in World Bank Bonds ----- 116
Japan as World Bank Shareholder ---------------------- 117
Development Strategy Debate ---------------------- 117
Supplementary Aid Arrangements ----------------- 118
Private Sector Relationship ------------------------- 120
Social Sector Relationship -------------------------- 120
Implications for Japanese Development Assistance -- 120
Chapter VII. Concluding Remarks ----------------------------------------- 123
Recapitulation --------------------------------------------- 123
Possibilities and Prognoses ------------------------------ 125
Summing up ----------------------------------------------- 128
References ---------------------------------------------------------------------- 131
Selected Events in World Bank History ------------------------------------ 177

List of Graphics and AppendicesFigure 1:
Figure 2:

ODA from Major Donors ------------------------------------- 13
The Flow of International Economic
Development Assistance -------------------------------------- 21
Figure 3:
Comprehensive Development Framework (CDF)
Matrix------------------------------------------------------- 84
Box 1:The Washington Consensus ---------------------------------- 49
Box 2:“Conditionalities” ---------------------------------------------- 51
Box 3:
Millennium Development Goals ----------------------------- 55
Box 4:CAS Public Information Notice ------------------------------ 82
Box 5:
Elements of Poverty ------------------------------------------- 88
Box 6:
Military Expenditure as percent ofCentral Government Expenditure 1999 -------------------- 104
Table 1:World Bank Lending by Instruments, 1991-2001 --------- 59
Table 2:
Lending Shares by Instruments, 1990 - 2001 -------------- 60
Table 3:
World Bank Global Lending by Sector --------------------- 61
Table 4:
World Bank – Staff/Skills Distribution at Headquarters,
Fiscal Year 1989-2001 ---------------------------------------- 71
Table 5:World Bank Lending to Japan in comparison withJapan’s GNP, Current Balance and Foreign Reserves ---- 111
Table 6:
Japan’s ODA through International Organizations ------- 115
Appendix 1: Articles of Agreement ---------------------------------------- 145
Appendix 2: Elements of Poverty ------------------------------------------ 149
Appendix 3: World Bank (IBRD) Bonds ---------------------------------- 157
Appendix 4: Millennium Development Goals,
Targets and Indicators ---------------------------------------- 159
Appendix 5: Lending Instruments ------------------------------------------ 164
Appendix 6: World Bank Regional Lending by Sector ------------------ 170
Appendix 7: Strategic Compact -------------------------------------------- 173
Appendix 8: World Bank Loans to Japan --------------------------------- 174
Appendix 9: Official Development Assistance from DAC Countries ---- 175
Appendix 10: Net Disbursements of Concessional and Non-concessional
Flows by Multilateral Organizations ----------------------- 176

Abbreviations and Acronyms
ACPC
ADB
APL
ARPP
CAS
CAW
CDF
DAC
DFID
DG
DRL
DSL
EA
EBRD
ECLA
EDI
ERL
FDI
FfD
FIL
FY
GDIF
GDP
GNP
HDI
IADB
HIPC
IBRD
ICSID
IDA
IDT
IFC
IGR
ILO

Association of Coffee Producing Countries
Asian Development Bank
Adaptable Program Loan
Annual Report on Portfolio Performance
County Assistance Strategy
Country Analytic Work (Partnership)
Comprehensive Development Framework
Development Assistance Committee (of OECD)
Department for International Development(of the British Government)
Development Gateway
Debt Reduction Loan
Development Support Loan
Environmental Assessment
European Bank for Reconstruction and Development
Economic Commission for Latin America
Economic Development Institute
Emergency Recovery Loan
Foreign Direct Investment
Financing for Development
Financial Intermediary Loan
Fiscal Year
Global Debt Issuance Facility
Gross Domestic Product
Gross National Product
Human Development Index
Inter-American Development Bank
Highly Indebted Poor Countries
International Bank for Reconstruction and Development
International Center for Settlement of Investment Disputes
International Development Association
International Development Target
International Finance Corporation
Institutional and Governance Review
International Labor Organization

IMF
InfoDev
ISI
JBIC
JICA
JSDF
LDC
LDS
LICUS
LIL
LLDC
MCA
MDB
MDG
MIC
MIGA
NGO
NIEO
NIC
NNP
ODA
OED
OECD
OECF
PCF
PHRD
PQLI
PRC
PRGF
PRSC
PRSP
PSAL
PSL
QAG
RIL
RWG

International Monetary Fund
Information for Development
Import-Substitution Industrialization, or Industrialization
Through Import Substitution
Japan Bank for International Cooperation
Japan International Cooperation Agency
Japan Social Development FundLess Developed Country, Least Developed Country in UN usage
Letter of Development Strategy
Low Income Countries Under Stress
Learning and Innovation Loan
Least Developed Country, in OECD/DAC usage
Millennium Challenge AccountMultilateral Development Bank
Millennium Development Goal
Middle-Income Country
Multilateral Investment Guarantee Agency
Non-Governmental Organization
New International Economic Order
Newly Industrialized Country
Net National Product
Official Development AssistanceOperations Evaluation Department
Organization for Economic Cooperation and Development
Overseas Economic Cooperation Fund(of the Japanese Government)
Post Conflict Fund
Policy and Human Resources Development (Fund)
Physical Quality of Life Index
Poverty Reduction Support Credit (same as PRSC)
Poverty Reduction Growth Facility of IMF
Poverty Reduction Support Credit
Poverty Reduction Strategy Paper
Programmatic Structural Adjustment Loan
Programmatic Structural Adjustment Loan (same as PSAL)
Quality Assurance Group (of the World Bank)
Rehabilitation Loan
Redistribution With Growth

SA
SACII
SAD
SAL
SECAL
SIL
SIM
SOE
SSAL
SWAP
TAL
USAID
UNCTAD
UNDP
UNFPA
UNIDO
UNRISD
WBI
WID
WSSD
WTO

Social Assessment
Structural Adjustment Credit II
Sector Adjustment Loan
Structural Adjustment Loan
Sectoral Structural Adjustment Loan
Specific Investment Loan
Sector Investment Maintenance Loan
State-Owned Enterprise
Special Structural Adjustment Loan
Sector-Wide Approach Program
Technical Assistance Loan
United States Agency for International Development
United Nations Conference on Trade and Development
United Nations Development Programme
United Nations Population Fund
United Nations Industrial Development Organization
United Nations Research Institute for Social Development
World Bank Institute
Women in Development
World Summit on Sustainable Development
World Trade Organization

Executive Summary

Executive Summary
1

Approaches and strategies to propel poor countries out of poverty havebeen evolving over the five decades since the end of the Second World War.
This process, development assistance, is a reflection of dynamic and continualinterplay among intellectual theories, world events and assistance efforts. Over
this time the realization has taken hold that economic development is profoundly
complex. Fifty years on, this is probably the one known fact.
What are some of the complexities:• One is that economic development goes beyond economics to qualityof life, participation, and security. On the staff of the pre-eminent
development assistance organization, the World Bank, are now moresociologists, anthropologists, and political scientists (SAPs) thaneconomists.
• Another is that traditional economic inputs, capital and labor, require
suitable policies and institutions to yield desired returns. This meansthat imposed or “involuntary2” measures will not work.
• A third is that the bridge linking understanding of these complexities toresults for people is still unclear. It is not clear whether suitable
institutions will generate development with only minimal aid; and it is
not clear how to generate development when suitable institutions areabsent.
The main objective of this book is to describe the international development
assistance strategies and instruments in play today. This is a very dynamic
field, and while every attempt is made to be as up-to-date as possible, newstrategies, instruments and concepts emerge continually. An examination of
the historical and theoretical roots of this subject sets the context for thedescription. The book concludes by commenting on some of the most significant
issues and by venturing some speculation on what might lie ahead. For topicalinterest, a section is devoted exclusively to the relationship between Japan andthe World Bank. It surveys Japan’s progress from post-World War II borrower
to donor and major shareholder, analyzes the nature of the relationship andsuggests way to improve it.
1

Variously referred to as “undeveloped,” “underdeveloped,” “developing,” “less developed,” “south,” and“backward.”
2
A term used in the Helleiner Report with reference to technical assistance (Helleiner, 1995: 11)1

The World Bank is central to this book and much attention is given to its
history and current strategies. The Bank disburses by far the greatest amountof money and is also the acknowledged intellectual leader in the field. Becauseof its stature, it offers a convenient and instructive focus.
The multi-dimensional quality of development, the wide-range of viewpoints
reflected, and the variety of sources used, demand a paper that approaches its
subject through several disciplines including economics, history, political
economy and journalism. The sources include an extensive academic andprofessional bibliography, newspapers, magazines, websites and personal
interviews.
Evolution of Ideas on Development
The book begins by reviewing the theory of economic development.
Historically, scholarly analysis has provided the intellectual foundation fordevelopment assistance so a review of theory is a useful prelude to any
discussion of implementation. This review is presented with particular attention
to those ideas which continue to have impact today. Economists may differ on
nomenclature, but this analysis divides the ideas into three general categories:
the “pioneers” (post-World War II to mid-1970s); the “neoclassic resurgence”
including divergent others (mid 1970s to late 1980s); and “new views” (early
1990s to present).
Pioneers, a term introduced by Meier and Seers (1984), were
macroeconomists who focused on capital accumulation, industrialization andeconomic growth rapid enough to outstrip population increase. They believedthat government intervention could facilitate growth and therefore was vital tothe development process. They supported government-led strategies andpolicies including large infrastructure building and “industrialization throughimport substitution” (ISI). The thinking among these theorists was that if growth
could be stimulated to reach a sufficiently high rate it would become selfsustaining, thereby lifting a country’s economy out of its underdeveloped
condition. Prominent economists who contributed to this line of thinking include
Hirschman (1958), Nurske (1952), Prebisch (1950), Rosenstein-Rodan (1943)
and Rostow (1960).
Toward the late 1960s and early 1970s, reaction to this approach wasappearing on several fronts. Many economists criticized the pioneers’ distrustof market and price mechanisms, reliance on administrative controls and lackof emphasis on international export competition. Most importantly, they cameto realize that the anticipated economic improvement from government planning
2

Executive Summaryand intervention had not materialized.
It is a pattern in development assistance that when a prevailing approachruns out of steam and anticipated results do not materialize, recourse is sought
to some countervailing approach, first among the theorists and then among thepractitioners. Thus, when disillusionment with the pioneers set in, a neoclassic
resurgence took place. Unlike the pioneers, neoclassicists were market-oriented
economists for whom price was the key tool and the policy objective was to“get prices right.” This school strongly favored reliance on the market, an
open-economy model of development and more trade policies more liberalized
than ISI. Government policies were critical, but mainstream neoclassic
economists believed that correct government policy was a market oriented,
non-interventionist one that did not create trade barriers. A government witha good policy was a government that did not get in the way.
In time, this approach, too, came under criticism. One of its failings wasthat it could not satisfactorily explain the spectacular economic performance3of the East Asian tigers . Analysts, referred to as revisionists, demonstrated
that the economic success of these countries was not attributable to markets
and open trade but rather to that bane of the neoclassicists, government
involvement. Other criticisms came from economists who considered
neoclassicism to be too rigid. They emphasized institutions and humandevelopment, establishing and strengthening the theoretical links between those
aspects and economic development.
In addition to the pioneers and neoclassicists, there have been individuals
and schools of thought which, while out of the mainstream, strongly influenced
mainstream thinking. They focused on agriculture (rather than industrialization),
derived concepts such as structuralism and dependency, and envisioned
programs such as the New International Economic Order, and Basic Needs.
Of these, agriculture theorists have arguably exerted the greatest impact ontoday’s international assistance strategies, understandably since the great
majority and the most impoverished of the world’s poor are rural. The worksof Schultz (1964), Johnston and Mellor (1961) and Hayami and Ruttan (1985)
have been particularly important for their correction of early bias in theindustrialization-first strategy and for their early attention to technology,
institutions, and human development.
When first the optimism of the pioneers failed to be justified and then thetheoretical rigor of the neoclassicists lost credibility, the concepts of institutions
and human development began to move to center stage as factors critical to3Hong Kong, Singapore, South Korea and Taiwan.

3

economic development and therefore to development assistance. This bookrefers to them as “new views.” Approaches built on this foundation gained acredence and validity that continues today. The “new views” have proliferated
at a rate that almost surely dictates that there be a shake-out among them, or atleast a consolidation into the most operational.
The dominant development factor at the time of this writing is the institution,
generally couched as “policies and institutions.” Economists such as Coase(1937), Williamson (1975), North (1990), and Stiglitz (1989) documented theimportance of institutions in economics and began to point out that the difference
between the industrialized and developing countries could very possibly lie inthe presence or absence of salutary institutions. Related to this the idea began
to emerge that development was as much, if not more, qualitative thanquantitative. This was supported by the efforts of Amartya Sen and Mahbub
Ul Haq (at the UNDP) to devise a human development indicator so thatassessment could be broadened beyond the commonly used per capita
measurements of growth. The qualitative aspect of underdevelopment is also
reflected in the very comprehensive definition of poverty in use today.
Evolution of Development Assistance
From its beginning in 1946 the World Bank has shadowed mainstream
development theory, interpreting its mandate in ways corresponding closelywith the prevailing analytical approaches described above. During the periodof the pioneers there was belief in the effectiveness of government-led
development and large infrastructure projects. That can be called the era of
the engineer and most World Bank assistance financed that sort of project,frequently power (dam) or transportation (road) construction.
When this approach became suspect, it was replaced by the belief in the
power of open markets championed by neoclassicists. This can be called theera of the economist and culminated in the “Washington Consensus,” theassistance pattern of the 1980s according to which international financial
institutions made loans conditional on market-liberalizing policy changes.
These loans, called “structural adjustment loans (SALs)” and “sectoral
adjustment loans (SECALs),” were devised mainly for African and Latin
American countries suffering from huge debt burdens resulting from oil shocks
compounded by bad macroeconomic management. In accordance with theneoclassic view, adjustment loans were designed to encourage the state to retreat
from economic life and facilitate a more open economy, especially in agriculture.
The incentives were called “conditionalities,” measures whose adoption must
4

Executive Summary

be agreed before the loan would be approved.
As with the pioneers so with the neoclassic resurgence— the results weredisappointing. This was especially true in terms of economic development
and poverty alleviation for low-income countries, although significant
contributions were achieved for several middle-income countries.
Neoclassicism came under severe criticism for the meagerness of its results
and the harshness of its conditionalities. It eventually yielded before anadvancing emphasis on poverty reduction and the new views incorporating
human factors and institutions. This is the emphasis which holds sway today
and underlies a wide ranging poverty reduction strategy by the assistancecommunity at large, including the World Bank. This is the “post-Washington
consensus,” the agreement that the true goal is poverty reduction and the key
to achieving it is institutions. This can be called the era of the social scientist—pro-environment, pro-poor, and focuses on institutions.
The World Bank came on the scene as the International Bank for
Reconstruction and Development (IBRD), financing projects by lending moneythat would be repaid with interest. In 1960 the International Development
Association (IDA) was created and the World Bank became the World Bank
4Group . IDA is the concessional loan window, to make financing available atextremely generous terms to low income countries who could not afford IBRD
terms. The World Bank is not strictly a development agency, it is a developmentbank and its policies and strategies are reflected in its lending pattern overtime.
The Bank’s lending trends by sector over the past decade reflect a shift tothe post-Washington consensus: substantial increases in loans for public sector
development, environment, finance and social protection; and notable declines
in agriculture, education, mining, oil and gas, industry, telecommunications
and transportation. The sectoral declines can be traced to several direct causes
but among the most important is a disengagement by the Bank from projects
that can be undertaken by the private sector5. This has probably affected projects
geared toward hard infrastructure such as irrigation, communication andtransportation. Another cause may be the increasingly important considerationof environmental impact, which particularly affects agriculture, mining, andoil and gas. The reasons for the decline in education, ostensibly a high priority
area, could include reluctance on the part of recipient governments to shoulder
4

In later years, other units were established.
IFC, the International Finance Corporation, established in 1956, is the World Bank Group’s financing unit
for private sector investment in developing countries. www.ifc.org

55the long pay-back period entailed and/or competition from other donors.
Though proximate causes may vary, changes in lending trends also reflect apattern by the Bank of shifting out of areas which attract criticism because ofcontroversy or unsatisfactory results.
One increasingly important factor in the Bank’s lending level is the deterrent
to recipients posed by the high cost of the lending process — termed “the costof doing business.” In addition to interest payments on loans and conditionalities
for adjustment lending, there are high non-monetary costs connected with thelengthy loan-appraisal period and heavy paperwork requirements. The poverty
reduction description and strategy process can absorb major portions of agovernment’s scarce resources. Meanwhile, there are other donor organizations
whose requirements are less stringent or who provide grants that do not require
repayment. Onerous requirements coupled with the existence of potential
alternatives has reduced or stagnated demand for Bank loans in some sectors,
even where, under its current strategy, it should be investing more.
World Bank lending is also constrained by “absorptive capacity,” the abilityof the client country to fulfill its responsibilities as loan recipient. Many
countries lack the means to fund the domestic currency component of a projectthat is required of it and/or to fund operational and maintenance costs after a
project is completed. Simply making funds available to a needy party by nomeans insures that the money can be used effectively, let alone that it will be.
Thus, even when the Bank is willing to provide the foreign exchange component,
projects may not go forward.
The World Bank: Poverty Reduction Strategy
Today’s World Bank is the product of the pressures exerted on it over its
50 year history as well as of its own tendency to shadow theory and react toevents. Criticism, competition, experience and research have all compelled it
to continuous modification of its image, processes, strategies and lending
instruments. In searching for the most appropriate and effective alignment,
the Bank has listened to concerned voices and weighed the priorities. It has
turned its attention to issues of wide social concern and now declares its purposeto be the reduction of poverty most recently defined as “deprivation in wellbeing.”
To attack poverty, a mission which is not directly provided for in its
underlying Articles of Agreement, a broad strategy has been devised comprisedof intersecting themes, processes and lending instruments. The themes arebenchmark concepts that should be incorporated into assistance programs if
6

Executive Summary

they are to be successful. These themes include the following:• Sustainability, initially implying a healthy interrelationship among
poverty, development and the environment but since considerably
expanded;• Participation, meaning that the many stakeholders in the development
process are encouraged to join in and be heard;• Ownership, insuring that the client government is fully committed tothe development program; and• Institutions, identifying the fundamental and essential enabling
framework within which development occurs and then determining
which potential recipient countries have them.
The processes constituting the poverty reduction strategy are new or reemphasized. Taken all together, these are referred to as the PRSP process of
IDA-eligible countries in recognition of the central importance of recipient
government involvement. They include the following:• Poverty Reduction Strategy Paper (PRSP), a document through which
the client government describes its own strategy for poverty reduction;• Country Assistance Strategy (CAS), a business plan that has been andcontinues to be the main forum for Bank-client interaction; and• Comprehensive Development Framework (CDF), a mapping of thetotal development plan for a country including all sectors andincorporating all donors.
The new lending instruments were devised to support this process. They
include the following:• Programmatic Structural Adjustment Loan (PSAL), an IBRD
instrument to assist governments in implementing poverty reduction
measures; and• Poverty Reduction Support Credit (PRSC), an IDA instrument
specifically to fund the strategy set out by the government in its PRSP.
On-going Issues
Although there is currently apparent general agreement on development
thinking and strategy among the various stakeholders of international assistance,
the Bank continues to face a number of difficult issues, including the following:• Portfolio problems; the “high cost of doing business” and competition
from other organizations and the private sector — discussed in Chapter
III;
7

•

•

•

Issues related to the poverty reduction strategy: measurement/
assessment. LICUS, middle-income countries — discussed in Chapter
IV;
Dissent and disagreement within the greater development community;
other development professionals, donors, the US administration, NGOs
and other observers — discussed in Chapter V; andThe question of compliance with the Article of Agreement — discussed
in Chapter V.

The World Bank and Japan
Japan was an early recipient of World Bank lending as it rebuilt from thedevastation of World War II. In the terminology of today, Japan had bothabsorptive capacity and suitable institutions to benefit from Bank loans,technical assistance and expertise. It went on to become a World Bank donor
and the second largest shareholder.
Japan’s successful reconstruction came during the period of the pioneers.
During the subsequent neoclassic resurgence, however, policy differences
emerged because of different views of the value of government involvement to
the development process. Japan firmly supported appropriate government
guidance to development, a position which the neoclassicists just as firmly
rejected.
Despite its prominent position within the donor community Japan has notbeen a forceful voice in setting international development assistance policy orin designing strategies. To change that, it can begin to adopt some of thecurrent approaches that are part of the post-Washington consensus, coordination
with other donors, attention to the social aspects of development, andincorporation of the important concepts of sustainability, ownership,participation and institutions into its own aid programs.
Concluding Remarks
Looking at the critical elements of development thought and assistanceover the past five decades, this book suggests that there is ongoing counterpoise
between two positions: One position is that development is best pursued throughgovernment involvement and by income redistribution (historically the UN
position); the other is that development is best pursued by way of the private
sector and by expanding the economic pie (historically the Bretton Woods
position). Over the years the pendulum has swung between these two
possibilities. If historical patterns hold, there could well be a move back toward8

Executive Summary

neoclassicism.
The US administration is a major factor in this because it is a major influencein the international development community in general and on the World Bankin particular. It has the biggest voting share and, possibly more importantly, it
impacts significantly the prevailing thinking through its policy positions andthrough its selection of people to fill important Bank posts. The present
administration is stressing development “results,” and is creating a new medium,the Millennium Challenge Account to channel its own increased funding in a
“results” oriented direction. Japan, with the second biggest voting share, has
not exerted its influence in the past, but may be set to do so in the context of the
post-Washington consensus.
The post-Washington consensus is largely a convergence of the traditionallydiverging views. The poverty reduction emphasis of the international financial
institutions and the adoption of Millennium Development Goals by the United
Nations General Assembly have put the financial and the political organizations
on complementary trajectories. If these positions should again diverge, it isunlikely that development strategies in general and World Bank ones inparticular will revert back to those of 1980s because the concepts of institutions
and human development have taken wide and strong hold. More likely dialectic
between neoclassic ideas and the current prevailing thought will work to produce
a new paradigm is yet to be seen.
Unfortunately, the problem that development assistance tries to address,
the situation that earlier shifts in approach attempted to resolve, remains
entrenched still today. In spite of the evolution of ideas, strategies andapproaches over the last five decades, in spite of billions of dollars in assistanceand untold man-years of effort by skilled and committed practitioners, thefundamental issue remains — many countries and billions of people mired inpoverty. Efforts to unravel this knotty problem continue. The overarching
challenge now is to create situations in which assistance can be extended andwill be effective.
Perhaps the most serious threat to future efforts to solve the development
conundrum is discouragement on the part of the donor community. There is a
critical need for some positive results. This would not only signal that
underdevelopment was being eased, but would do a lot to counter donor fatigue
and re-invigorate the struggle.

9

Overview

CHAPTER I

Overview

The area of development economics, and the development assistance towhich it is applied, is infinitely complex. Its raw material is people, theirmotivations and perspectives, and it tries to connect them to quantifiable
outcomes. As theory, it is a mélange of the orthodox and the heterodox, thework of established analysts and of those still building their reputations. The
variables it must consider are similarly extensive, essentially economic but
also social, cultural, political and historic. It is an applied social science whose
theories are constantly being tested in the real world. Those that do not work
are often abandoned in the search for ones that will. Consequently, theories
have evolved in tandem with what is actually taking place on the ground. The
approaches and strategies of international development assistance since theend of the Second World War have also evolved over time. There have been
constant interactions among the development theories, actual world events andthe assistance effort.
Historically, evaluations of the effectiveness of international development
have varied significantly depending on who has done the evaluating and what,
specifically, was evaluated. A decidedly pessimistic view was expressed
recently by the Development Assistance Committee (DAC) of the Organization
for Economic Cooperation and Development (OECD) after a review of projects
funded by international and bilateral donors:
There is very little evidence that the projects have been particularly helpful,or effective, in reducing poverty. Studies of project experiences have few
successes to report. As few as only one in five projects combating poverty
can be characterized as highly targeted at the specific issues which incombination define the situation of the poor. Few project interventions
are sustainable when donor funding ceases. Successful projects are hard
11

CHAPTER I

to replicate. (DAC, 2000: 45)
This view was echoed by former US Treasury Secretary O’Neill. who took
direct aim at the World Bank in criticizing the development bottom line,
accusing it of having driven poor countries “into a ditch” (Economist, 2002).
Conversely, the larger international assistance community seems to hail theaccomplishment of international assistance and be quite positive regarding aid
effectiveness. This view is evident in a recent speech World Bank President
Wolfensohn made just before the UN Conference on Financing for Development
held in March 2002.
Over the past 20 years, the absolute number of people living on less than
$1 a day, after rising steadily for the last 200 years, has for the first time
begun to fall, even as the world’s population has grown by 1.6 billion
people. Driving much of this progress has been an acceleration of growth
rates in the developing world - more than doubling the income of theaverage person living in developing countries over the past 35 years…Morethan ever today, a new wind is blowing though the world of development
transforming our potential to make development happen. (Keynote Address
delivered at the Woodrow Wilson International Center, March 6, 2002)
Analyses of past experiences and the results of past approaches have been
undertaken regularly over the last five decades and they have always revealed
shortcomings. Argument can be made that past efforts have been too expensive,that they have caused unnecessary misery for millions by imposing
conditionalities and/or supporting failed regimes, that ultimately they have not
improved the lives of ordinary people. It is undeniable, however, that theefforts and theories of the past half century are the source of invaluable data,
the proper use of which is indispensable if effective development assistance isever truly to move reliably from hopeful projection to hard reality.
Presently an evaluation process new in the history of development assistanceis underway, with much attention being paid to “aid effectiveness.”
Development specialists are striving to distill lessons from past efforts forincorporation into innovative and practicable theories and paradigms. This ishealthy for future endeavors because it makes repetition of blunders less likely.
The frank admission of past failure that is now being made is a part of a current
and on-going campaign to declare that the lessons of the past have been truly
learned and the way forward is clear. Optimism is the bedrock of development
12

Overview

assistance efforts, however, and it is cautionary to note that this is not the firsttime that high hopes have been lavished on new approaches; it has always
been hoped that they would work.
The task of evaluating history and gleaning lessons from it is daunting.
The most innovative approaches are untested and there is much uncertainty on
how to incorporate them operationally. True and balanced evaluation ofeffectiveness is probably far into the future. According to the Chairman of theCommittee on Development Effectiveness of the World Bank’s Executive
Board, Pieter Stek, “sound judgment” can be reached about development impact
eight to ten years after approval (not necessarily commencement) of aninvestment project (Stek, 2002)6. Useful evaluation of less clearly defined“program” assistance may be even less accessible. Nonetheless, the mood oftoday’s donor community favors shorter term assessments that are based on“measurable results.”
This book describes current international development strategies andinstruments and explains their historical and theoretical roots. It examines
controversial issues facing the development community today and ventures
some speculation as to what lies ahead. And it analyzes some implications ofthese issues for current development assistance strategy as pursued byinternational organizations and major donors. The following chart shows the
Official Development Assistance (ODA) for the five largest donor countries7.
More detailed ODA data is available in Appendices 9 and 10.
Figure 1: ODA from Major Donors(New York Times website)
6

This is in Mr. Stek’s second contribution to an on-going exchange in the Letters to the Editor column of the
Financial Times begun on March 6, 2002 with a column by Adam Lerrick, Director of the Gailliot Center for
Public Policy and a professor of economics at Carnegie Mellon University,
7
The official definition of ODA by DAC was written in 1969 and refined in 1972. “ODA consists of flows todeveloping countries and multilateral institutions provided by official agencies, including state and local
governments, or by their executive agencies, each transaction of which meets the following test: a) it is administeredwith the promotion of the economic development and welfare of developing countries as its main objective, andb) it is concessional in character and contains a grant element of at least 25 percent (calculated at a rate ofdiscount of 10 per cent). In the World Bank context, only IDA assistance is concessional and therefore ODA.
IBRD lending is not ODA (Fuhrer, 1996).

13

CHAPTER I

The strategies and instruments are the products of an interplay of theory,
event and assistance experience that is more organic than planned and thepaper attempts to describe this process. A major part of the book looks at thehistory and current strategies of the World Bank. This is done, not to judge theBank, but because it offers a convenient and instructive focus and because it is
the most prominent development assistance organization. That prominence isdue not only to the size and diversity of its portfolio, but also to its welldeserved status as an intellectual leader in the field. The Bank has beenenormously influential within the development community and on developing
countries. Its current direction is at once very narrow, improving the quality oflife of the world’s poorest people, and very diffuse, defining poverty in everwidening circles of complexity. As will be explained later, this narrowing of
focus toward a highly diffused objective is both a result of and a magnet forpressure from many directions. Some thought is given in this volume to thepotential ramifications of this situation.
The book depends heavily on discussions presented through various otherpapers and books. Through review and synthesis, it tries to disentangle thevarious strands interwoven into development theory and to illuminate thedynamic interactions between theory and on-the-ground operation.
One of the salient facts that has emerged from this process is that a few
prominent individuals have had disproportionate influence on either the thinking
or the doing of assistance, or both. These include W. W. Rostow, Raul Prebisch,Anne Krueger, Amartya Sen, and Joseph Stiglitz among the thinkers and Robert
McNamara, James Wolfensohn and Clare Short among the doers. More often
than not, these “movers and shakers,” with their enormous energy, passion andstrong political backing (frequently from the US government but sometimes
from elsewhere) seem to have simply overwhelmed other views. This “greatman” syndrome may well have rendered the development assistance strategy
of any given period unbalanced, with excessive emphasis on some trendy aspect.
This may have been unavoidable, given the fragile political support fordevelopment assistance in key industrialized countries compounded by theperception of wasted resources. But it raises the intriguing question of whatmore balance might have accomplished.
The question of balance is highly relevant in today’s environment. Currently
there is a laser-like focus on poverty, individual and collective. Although capital
accumulation, infrastructure and economic growth continue to receive mention,
the refrain of every major conference, speech or book on development assistanceis poverty reduction and the institutions that might make it happen. The current
14Overview

environment may even be described as one which discourages, belittles or
ignores views other than those that accentuate poverty reduction and associatedstrategies. Within the World Bank, for example, it is entirely possible that
support for the poverty reduction focus is strong because proponents of otherviews have left, willingly or otherwise, or work in silence8.
If so, the development community could be repeating a mistake it has madebefore. The early development establishment was almost single-mindedly
focused on physical capital accumulation until the late 1970s when it turned
similarly focused attention to minimizing governmental interference with theeconomy until the late 1980s. As is pointed out in Chapter II, on the history ofdevelopment theory, while those themes predominated within the establishment,
analysts with alternative ideas were continuing to work out of the limelight onless fashionable concepts. Some of those concepts have ended up nowhere,
but others emerged from the sidelines to considerable prominence, impact andrespect.
Currently the broad development community is very self-congratulatoryon the congruence of its strategies and rather hopeful on prospects for achieving
its common goals. There is a wide agreement on approach and wide acceptanceof analysis of past mistakes. There is, however, reason for skepticism andunease on several grounds:••

To a considerable degree, the identification of what will work has beena negative, reductive process; that is, methods that have not beeneffective have been discarded. This is referred to later in the book, as a“reactive” tendency on the part of the World Bank. Unfortunately thishas not necessarily meant that what is left will be effective, nor eventhat what was ineffective in the past cannot be useful in the future. This
process depends on correlations that are not necessary causations andit leaves loose ends that must be tied up in convoluted ways. Treatment
of incorrigible governments is one such. It has been packaged as“LICUS,” (Low Income Countries Under Stress, described later in
Chapter IV).
There is potential for the emphasis on poverty reduction to tend toward
a huge international welfare system, with governments of developing
countries spending time and resources designing and implementing

8

An exemplar of that is William Easterly, a senior economist who took “leave” from the World Bank after
writing a book critical of aid effectiveness. Mr. Easterly now works out of a newly formed think tank, theCenter for Global Development in Washington, D.C., from which he frequently makes statements critical of theWorld Bank (Ringle, 2002).

15

CHAPTER I•

welfare projects under the regulatory oversight of development agencies.
The enormous task of preparing the PRSP (Poverty Reduction Strategy
Paper), and sector strategy papers (such as for rural development) is
one example of this. Is this sustainable and desirable? Is there reason
to believe that this approach will work? The great risk is to be seducedby the logical fallacy post hoc, ergo propter hoc, that a country succeeds
because it has a strategy, and not vice versa. The performances ofVietnam and Uganda are cases in point.
The belief that a reduction in the poverty level will percolate out isquestionable. Development specialists all accept the indispensabilityof economic growth to truly successful development. The question iswhether a broad reduction in poverty will foster growth. If not, thenthe engine that will drive development, as opposed to driving poverty
reduction, will be stuck in neutral.

The international development community, sometimes referred to as theinternational development industry, has become a large group whose
membership consists of those with a development mandate and those for whomdevelopment is a collateral issue. They range from the very large World Bank,
with thousands of staff members to very small NGOs (non-governmentalorganizations9) with three people “a director, a secretary and a driver” (Onishi,
2002). A look at the participation in the March, 2002 UN Conference on
Financing for Development gives an indication of the current breadth of theoverall community. There were more than 800 participants from governments,
civil society and the business community in twelve separate roundtablediscussions on global issues.
The weightiest members of the community, apart from the World Bank, arethe regional multilateral development banks (MDBs)10, the EuropeAid programof the European Community, the United Nations family of organizations
including UNDP, and the main donor countries.
The NGO component of this community is extremely diverse, from verylarge organizations, such as Oxfam or Bangladesh’s BRAC (Bangladesh Rural
Advancement Committee), which are huge businesses in themselves, to verysmall, local, grass roots organizations focused on one issue in one locale. As
9These are interest groups that research and campaign on specific issues, usually, ostensibly in the hope of
improving conditions for all rather than the few.
Asian Development Bank (ADB) in Manila, Inter-American Development Bank (IADB) in Washington,
African Development Bank (AfDB) in Abidjan, European Bank for Reconstruction and Development (EBRD)
in London.

10

16

Overviewa group, NGOs have become increasingly influential, as their very vocal,
committed and informed individual units have insisted on being heard. The
legitimacy of NGOs is not entirely unquestioned, however. Their lack of
accountability, their self-selection, and their essentially adversarial stance create
some distrust and skepticism. They are discussed further in Chapter III.
Japan has long been a major player in the area of development assistance.
It has been both recipient and donor, until recently the largest source of ODA(a position it ceded to the US in 2002). No other country has played themultiple significant roles in the story of development assistance that Japan has
played. For this reason special attention is given to it in Chapter VI. The
Japanese situation is additionally instructive because the changing trends inaid approaches detailed in this book, as well as strains in the domestic economy,
are prompting a serious intra-governmental review of foreign aid priorities.
Because of the complexity of its subject and in order to achieve its objectiveof shedding light on the dynamics of development theory and actual practice,
this paper draws from several disciplines: economics, history, political economy
and journalism. It has been eclectic in its sources, which include books,
published and unpublished papers, newspapers, magazines, websites andpersonal interviews with many individuals especially those currently andpreviously working at the World Bank.
The Chapter II will trace the historic progression of key thinking startingwith the theorists of the post-World War II era of 1950s to mid-1970s. It
moves on from there to cover the contributions of the neoclassicists who
dominated the period mid-1970s to late 1980s after which it presents the ideasof some of those who disagreed with them. It then looks at “others,” thedivergent and reformist ideas of thinkers who were contemporary with thepost-war and the neoclassic theorists but do not fit their categories. Following
that, it considers “new views,” emerging approaches that have the most currency
today. As will be shown, the latter are centered on institutions and humandevelopment.
Chapter III looks generally at the evolution of development assistancepractices with particular focus on the World Bank, first over the period fromthe Bank’s establishment in 1946 to the late 1980s and then over decade of the
1990s to the present. Bank policies have always been heavily influenced bytheorists both on and off its staff as well as by topical socio/political/economic
currents. The first part of Chapter III describes the historical context in which
the Bank has reacted and which, in turn, has impacted it. Next is an explanationof the “post-Washington Consensus,” the environment which defines its current
17

CHAPTER I

objective and shapes its current strategies. The final part of that chapter gives
detail on lending trends to clarify how actual disbursements have related topolicy.
The Bank’s objective, its strategies and the lending tools tailored to themare presented in Chapter IV. These are many and diverse, organized aroundthe objective of eliminating world poverty. And if that objective is still distant,or not yet clearly in sight, that is because the development picture and theWorld Bank’s place in it remain very unclear. The lack of clarity has impelled
the Bank most recently to re-invent itself as a moral force, a situation somewhat
11
at odds with its legal mandate .
Chapter V deals with key issues and challenges facing the Bank within thecontext of the broader international effort to confront the development dilemma.
The chapter leads with presentation of the substantial agreement among thedevelopment community with the post-Washington consensus. Then it looks
at the disagreement, negative issues which include criticism of the Bank’s
effectiveness and strategy, competition from other donors, and doubts about
the depth, breadth and appropriateness of its activities. There has been adiscernable pattern to the Bank’s reaction to negative feedback, and that is
described next. Following that there is discussion of the fungibility of aid
money, the suitability of multilateral development banks for dealing with thedevelopment problem as it now being defined, and the problem of measuring
progress. Finally, to conclude the section, there are some brief comments on
the Articles of Agreement.
Chapter VI explores the relationship between the World Bank and Japan.
Japan was the second largest recipient of the Bank lending (after India) in theearly 1960s and obtained loans in many areas. These loans had significant
impact on the Japanese economy, not only in terms of capital accumulation but
also in terms of technology transfer. Lending for physical capital accumulation,
stressed during the pioneer era, had an important beneficial impact on Japanese
economic growth. This experience probably was the basis for the later Japaneseemphasis on infrastructure building in its own development assistance program.
Though there is some public criticisms of the purposes and effectiveness ofJapanese ODA, if addressed properly this could provide an excellent
opportunity for strategic thinking on the future direction of assistance and ways
to make it more effective and sustainable.
11

The legal basis of the organization, its Articles of Agreement, is referred to throughout the book. Relevant
excerpts from the Articles of Agreement, and a brief description of the World Bank Group, are presented inAppendix 1.

18

Overview

The final chapter, Chapter VII, offers concluding remarks and some thoughts
as to the future. Historically international development assistance has fluctuatedbetween axes: growth vs. distribution, free market vs. government intervention,
Bretton Woods development/financial institutions vs. UN social/political ones,
and US Republic party vs. Democratic party control. The former/later in eachpair have tended to coalesce and form an extreme such that at any given time,
thinking and strategy gravitate toward extremes. History suggests that shifts
from one extreme to another in search of success create their own failure because
they lack balance. There appears to be an abeyance in this dichotomous
situation, a melding of the extremes into the post-Washington consensus andthe PRSP process. The durability of this abeyance is debatable, especially if
the hoped for results are not forthcoming. The conclusion is that thedevelopment and development assistance are as susceptible as ever to paradigm
changes and pendulum swings as the search continues for something that will
work.

19

CHAPTER II

CHAPTER II

Evolution of Ideas on Development12

This chapter offers a brief review of the key thoughts regarding international
economic development with particular attention to those ideas that continue toinfluence today’s thinking. (This section should be read with reference toFigure 1.) While there is not unanimity of opinion on which ideas those are,the ones presented below are generally considered standard, though even thiscan vary from one development economist to another. With this caveat, there
are three main stages in the evolution of development thinking; the “pioneers”(post-World War II to mid-1970s); the neoclassic resurgence (mid-1970s tolate 1980s) and “new views” which emerged in the 1980s to supersede both ofthem. New views, as categorized here, continue to dominate today.
In this chapter the ideas of the pioneers and the neoclassic resurgence arepresented, followed by a discussion of divergent others who were theircontemporaries. Though in general the divergent others faded away, many did
succeed in impacting the mainstream. As becomes clear, all these thoughts
were informed by world events, prevailing political trends and, mostimportantly, by whether they satisfactorily explain the reality and yield policies
that are perceived to work. This section concludes with an extensive look at
the new views, covering the period from the early 1990s to the present.

1. The Pioneers
It is probably correct to say that the classical growth economists, Smith,Ricardo, Marx, explored the issues that lie at the core of development
economics. One can easily identify economists who contributed to the studyof this issue before the turn of the 20th century and into the inter-war years.
12

This chapter draws from an extensive bibliography but has relied heavily on certain works including thefollowing: Griffin (2000), Hayami (2001), Hayami and Ruttan (1985), Meier (various editions), Meier andStiglitz (2001), Oman and Wignaraja (1991) and Esho (1997).

20

Figure 2: The Flow of International Economic Development Assistance

THEORYWWII - mid 1970s

mid 1970s - late 1980s

late 1980s - present

PIONEERS
characterized by
Confidence in benevolent government
Historical perspective

NEOCLASSICISTS
characterized by
Reliance on markets & prices
Distrust of intervention

INSTITUTIONALISTS
characterized by
Human Capital
Pro-poor, Anti-poverty

Terms of tradepessimism
CentrePeriphery

Agriculture

NIEO

Dependency
SchoolEVENTS

END OF WWII
Marshall Plan and reconstruction
End of colonialism
Bretton Woods Institutions
Rise of theSoviet Union

Cuban missile
crisisGreen
Revolution

New Growth
TheoryInstitutions
Social and Human Capital
HDI

Technology

Human Development Index

MACROECONOMIC TURMOIL
Oil shocks, Debt crises
Commodity price collapse
End of fixed exchange rates
OPEC oilembargoLarge FDI
flows

East Asian
MiracleGovernance and policy
framework

Market reform failureof the former USSRCOLLAPSE OF USSR
Geopolitical change in Europe
East Asian economic crisis
Stagnation in Africa
Increased NGO
prominence

ACTIONPERIOD OF ENGINEERS
Aid for large-scale capital-intensive
infrastructure projects
ISI inLatin America

McNamara speechon poverty

Wolfensohn presidency of WB

PERIOD OF ECONOMISTSStructural Adjustment Loans
with policy dialogue and conditionalities
Basic Needs
RWG

Brundtland
Commission

PERIOD OF SOCIAL SCIENTISTS
Millennium Development Goals“Diffuse” strategy
WDR 1990“Attacking Poverty”

PRSP process

WRD 2000/2001“Poverty”

21

This chart is not intended to be a comprehensive depiction of development assistance over the past five decades. Rather, it is designed to capture the generalized flow of theory andaction with reference to events. The large boxes give the major occurrences for each cell. The small boxes contain specifics that had or continue to have significant impact.

Evolution of Ideas on Development

Cold War & US-USSR competition for political dominance

Events of
9-11-01

CHAPTER II

But development economics as a speciality concerned with improving
conditions in low-income countries actually emerged in response to theurgencies of the post-World War II situation.
The first generation of development economists was at the outset rather
confident (Meier, 2001b: 13). They will be referred to in this paper as thepioneers. They were macroeconomists and they focused on capital
accumulation and growth rapid enough to outstrip population increase. Until
the late 1960s industrialization was thought to be the primary engine of growth
and the agricultural sector was seriously overlooked. Hirschman (1958), a
proponent of this idea, claimed that the manufacturing industry has much more
forward and backward linkages and hence more importance for economic
development than agriculture. Agriculture and the natural resource sectors wereviewed as sources of funds to be extracted in support of industrial development.
Part of the thinking was that, after all, the difference between a developed
country and a non-developed country was that one was industrialized and theother was not.
Industrialization was pursued through infrastructure development andfrequently through a policy of “industrialization through import substitution”(ISI). ISI was adopted in many countries, though not always prompted by thesame causes. In India, the rationale was largely ideological. There, as well as
in several Sub-Saharan African countries, the model of the Soviet centrally
planned economy held sway. In Latin America it was influenced by the notion
argued by Argentinean economist Raul Prebisch (1950) that developing
countries, so long as they specialized in production of primary commodities,
would not be able to achieve economic growth because of the long-termworsening trend of commodity terms of trade against manufactured goods.
However one common underlying reason for ISI was a “[r]epulsion [by leadersof newly independent states of the Third World] against the colonial system
which imposed the role of the material supply base as well as the manufactured
product market on them.” (Hayami, 2001: 234)
The thinking among theorists was that if growth could be stimulated toreach a sufficiently high rate it would become self-sustaining, thereby liftingthat country’s economy out of its underdeveloped condition. The “stages ofgrowth” theory of Walt Whitman Rostow (1960) was particularly influential
to this line of thinking. Central to his theory is the “take-off” stage during
which investment increases from about 5 percent of national income to about
10 percent, and productive economic activity propels an economy into “thedrive to maturity” from its underdeveloped stage. The concept of the “take22

Evolution of Ideas on Developmentoff” was very appealing to providers of international economic assistance,
including the United States Agency for International Development (USAID),
because it foresaw a time when aid would no longer be necessary. Rostow’s
book is subtitled “A Non-Communist Manifesto.” His theory was directed at
the Soviet Union and its version of Marxism and used the experiences ofcountries such as the United States, Sweden and Japan for corroboration.
A theory complementary to that of Rostow was the “theory of balanced
growth” proposed by Rosenstein-Rodan (1943) and Ragner Nurkse (1952).
According to it, in order for developing countries to industrialize, various
industries should be simultaneously promoted so they can create markets foreach other. Because the domestic saving rate is typically low in these countries
and because they cannot expect large foreign direct investment (FDI), they
have no choice but to establish a mechanism of forced saving under governmentcommand. This view was strong within the early World Bank, where Paul
Rosenstein-Rodan, held a high policy position. He was one of the first to
advocate a “big push” development strategy involving government planningand major public investment. Most international assistance through the 1950s
and 1960s was directed toward large-scale, capital-intensive infrastructure
projects that would further industrialization and, it was thought, self-sustained
growth.
During this early period, concepts and concerns were identified that havereverberated through the development literature over the succeeding decades
to this day. One of these was poverty, although at that time it was not of central
concern. Growth proponents believed that unequal income distribution was
inevitable in the early stage of industrialization, as in the “Kuznets Curve”, aninverted U shape hypothesized by Simon Kuznets (1966: ch. 4), which predicted
an initial phase of increasing inequality as industrialization induced growth
took hold13. Another legacy of this period was “policy dialogue” between aid
donors and recipients, effectively the brandishing assistance as an incentive,
or carrot, for fiscal or other policy changes. The practice started in this period;
it re-appeared more strongly in the 1980s with policy-based structuraladjustment lending; and can be seen yet today in the emphasis on correct
institutions as eligibility criterion. Thus, institutions and their criticalimportance, so much at the forefront of international development thinking
today, are also a legacy of the pioneers.
A central characteristic of this early period was a belief that government
13

Kuznets’ hypothesis has been controversial and there is not convergence of opinions on this. See Hayami(2001: Chapter 7) for discussions on economic growth and income distribution.

23

CHAPTER II

intervention could facilitate growth and was therefore vital to the development
process. The market was distrusted. Many economists thought that market
pricing posed structural problems involving imbalances of factors, and besides,
memories of the Great Depression were still vivid. Exports and foreign direct
investment after World War II were not thought to be growth generators14.
Governments, on the other hand, were assumed to be benevolent and economists
believed that government intervention would further the objective of economic
growth (Meier, 2001: 15).
This was the prevailing view. It was not, however, the only one. Even inthis early, optimistic period, a number of economists were firmly advocating amore neoclassical, market-oriented approach. One of the firmest of these wasPeter Bauer. In a book written with Basil S. Yamey (Bauer and Yamey, 1968),
he argued against interference with the natural flow of economic activity that
he believed was based on comparative advantage. He argued against
regulations, restrictions, stabilization schemes and marketing boards to control
price fluctuations; and, hence, was very critical of UNCTAD (the United Nations
Conference on Trade and Development). Though out of mainstream thought
during this period, this line of thinking strongly affected the theories that came15
to dominance in the next period .
The generation of the pioneers tried to extrapolate economic history to theprocess of development, the prime example of this being Rostow’s stages ofgrowth theory (Crafts, 2001). Their attempt did not succeed and by the late1960s and early 1970s their tenets were being overturned: The emphasis on
physical capital accumulation yielded to a recognition of the importance ofhuman capital to productivity. And, most consequentially, it was realized thatthe economic improvement anticipated from government planning andintervention had not materialized. Instead in many cases government failure
had resulted in a worsening of economic conditions.
The “grand theory” (Leeson, 1988: 2) of economic development faded in
the late 1960s. Although adherents still remained, other threads of development
theory were emerging, sometimes intertwining, and being woven into thetapestry of international economic development thought. These will be
reviewed below, after a discussion of the dominant group that emerged in thetwilight of the government interventionists, the neoclassicists.
14

Unlike the belief prevalent prior to World War I (Nurske, 1952; 1959).
When Peter Bauer died in May, 2002, his obituary said in part [He] “challenge[d] the widely accepted
orthodoxy that economic development required a pervasive role for government bolstered by official “aid”. In
place of corrupting “aid”, he deployed the heretical idea that open markets were central to development…Yet a
decade — and many billions of dollars — later, his brave stand was largely vindicated.” (Financial Times,
2002a)

1524

Evolution of Ideas on Development

2. Neoclassic Resurgence
Government planning and intervention, import substitution and tradebarriers, all efforts devised by the pioneers for lifting underdeveloped economies
into the ranks of the developed, were ineffective. The assumptions underlying
their approach came increasingly to be questioned. They came under heavy
criticism in the late 1960s and early 1970s by economists who criticized the
distrust of market and price mechanisms, the reliance on administrative controls
and the lack of emphasis on international export competition.
A major problem with intervention, and a major contributor to its
ineffectiveness, was the propensity by elites in power positions to enrichthemselves and their political allies. Discretionary funding, tax revenue, andblack market opportunities were all available and were all conducive tocorruption and rent seeking (Krueger, 1974; Bates, 1981). Corruption, theabuse of public power for private profit, is a serious misallocation of resourcesthat should be put to productive purpose. The widespread nature of thisphenomenon prompted wary development economists to reduce theopportunities for such misallocation by turning to market mechanisms instead.
As the pioneers waned, the field of applied development economics became
more quantitative and more microeconomic. Methodological explanations were
found as to why the macroeconomic approach had not worked, among them
the following: 1) capital accumulation was stressed rather than capital
allocation; 2) inappropriate domestic policies were mistaken for adverse
external conditions; and 3) the growth process was oversimplified.
This marked the stirrings of what some refer to as the “second generation”
of development economists and others as the “neoclassic resurgence” (Omanand Wignaraja, 1991). These were market oriented economists for whom price
was the effective tool for resource allocation and the policy objective was to“get prices right” (Leeson, 1988: 17). This implied more open trade policies
as opposed to ISI. The predilection of these economists toward reliance on
the market was further encouraged by the experience of the newly industrializedcountries (NICs) of East Asia (i.e., the East Asian tigers) and by China’s deemphasis of central planning in favor of market forces starting in the early
1980s. This led to the theory that it was not a country’s initial conditions that
constrained economic progress, rather it was “wrong-headed policies” (Leeson,
1988: 14) and policy-driven distortions that were responsible for lack of
economic progress.
Here the example of the Soviet Union was illustrative as it had been earlier
with regard to intervention and ISI. Many of those “wrong-headed policies”
25

CHAPTER II

were actually attempts to replicate the Soviet state-dominated economic
development model that had produced rather respectable growth records prior
to the 1970s (Hayami, 2001: 132-33, 149-51; Akiyama et al., 2001: 7). When
the Soviet Union collapsed in the late 1980s, that model was discredited.
Instead of the closed, protective model of industrialization through importsubstitution, an open-economy model of development came to be favored.
Government policies were still important, but economists now believed that
correct government policy was market-oriented, non-interventionist, and did
not create trade barriers. The now-prevailing neoclassic open-market
framework prompted the Bretton Woods Institutions (World Bank andInternational Monetary Fund) to come up with Structural Adjustment Loans(SALs), discussed in the next section. One of their main focuses was an
16
expansion of trade liberalization, advocated strongly by Krueger (vicepresident of the World Bank in the mid-1980s), Bhagwati (1978) and Balassa(1978), all of whom were important influences on these organizations.

3. Criticism of and Alternatives to the Neoclassic ApproachWith time, the neoclassical approach and the validity of its assumptions
came to be questioned from several quarters. Criticism came from privileged
and elite interest groups who favored an increased active role for government
because their positions gave them access to personal benefit. But much of the
doubt centered on the example of the NICs in East Asia. While market-oriented
economists claimed that the “East Asian Miracle” supported their view, theiropponents pointed out that neoclassical analysis could not satisfactorily explain
the spectacular economic performance of the East Asian tigers. So-called“revisionists” came forward to demonstrate that the economic success of thesecountries not only was not attributable to markets and open trade, but in fact
could be due to that very bane of the neoclassicists, government involvement.
Even some committed neoclassicists who still insisted that the market was the
explanation for the East Asia phenomenon wondered if it was the total
explanation and could it have similar effect in other countries (Meier, 2001b:21). Joseph Stiglitz produced an analysis that explained the phenomenon as
the result of a fortuitous balance of intervention, markets and institutions(Stiglitz, 1996). The work by Douglas North on institutions has relevancehere (North, 1990); in fact, the puzzle of the east Asian economies is as central
to the theories of the institutionalists as to those of the neo-classicists.
During this time, there continued to be advances and nuances in development
16

26

See, for example, Krueger (1978)

Evolution of Ideas on Development

theory. The existence of imperfect competition, transaction costs of acquiring
information and increasing returns to scale came to be recognized. New market
failures were identified and analyzed. Even though correction of such failures
was potentially a task for government, in the prevailing neo-classic environment,
the negatives of intervention and problems with policy reform continued tomilitate against any suggestion that government be involved (Meier, 2001b:
21).
The clear lack of tendency toward income equality and equality in growth
rates among developing countries, as was assumed under neoclassical growththeory, supported a “New Endogenous Growth Theory” (Srinivasan, 1998:
127) which appeared in the late 1980s. One of the endogenous growth factors
it isolated was differences in technology, from which was extrapolated thecentral importance of knowledge and ideas. Knowledge is a form of capital,
human capital. Although its importance had been recognized previously17, the“new growth theory” refocused attention on the use of human capital to stimulate
18
economic development .
Similarly in the area of trade, faith in free trade was overtaken by “new”
trade theory that relaxed the neoclassical assumption of international trade
driven by comparative advantage. For a time, the policy of strategicallyprotecting industries held sway, encouraged by the transformation of Japan
from a lagging exporter to a leading one19. Paul Krugman (1984) developed avariant of the strategic infant-industry protection argument which concluded
that under certain circumstances, protection can actually promote exports. There
were many negatives to strategic trade theory, however, including vulnerability
to misuse by special interests, the fact that costs can easily exceed benefits,
and the difficulty in matching assumptions and real-world situations. By thelate 1980s, the strategic trade theory had lost its luster.
The dramatically sharp decline in world commodity prices between 198020
and 1993 , and its disastrous impact on the terms of trade of the commodity
exporting countries, was also problematic for neoclassic theory. Commodity
price collapse seemed to confirm and revitalize the “export pessimism,” theory
argued at an earlier time by Prebisch (1950), Singer (1950) and Nurske (1952).
From the point-of-view of implementation, the neoclassical approach was
17

The importance of human capital had been emphasized by a number of economists including Schultz (1964)
and Denison and Chung (1976).
18
This is a focus which continues to be very active today and is further described later in this paper. In fact,
human capital is considered by some to contribute more to economic expansion than natural and physical capital
combined (Griffin, 2000: 17).
19
The Japanese experience is covered more fully in Section VI.
20
Until recent rise, even the petroleum prices were at historically low levels in real terms.

27

CHAPTER II

criticized for the harshness of the SALs, which many claimed harmed the poor
disproportionately. The “reformists” (discussed below) were especially critical,
arguing that development should be focused on the human impact rather thanon economic growth as the neoclassicists appeared to believe. Both pioneers
and institutionalists criticized the neoclassical approach as disregarding reality
for theory. As one observer put it “by resolutely walking away from the facts,
neoclassic theory suffered a self-inflicted wound” (Hirschman, 1981: 60).
Others observed that the neoclassicists’ concern with “fundamentals” ignored
institutions, history, and distribution of wealth, all of which were at the “theheart of development economics” (Hoff and Stiglitz, 2001: 360).
Such criticism and disagreement notwithstanding, the assumptions at thecore of neoclassical, market-centered development economics continue today
to be reflected in international assistance lending, particularly that by the World
Bank. However, because many of the policies creating structural distortions
in developing countries have been corrected, the areas for application of thisapproach have reduced significantly in recent years. At the same time, publicattention has been drawn away from the harsher, business-like side of Bankloans toward a gentler concern with uplifting the downtrodden, toward a focus“on individuals, their crushing needs, and their soaring potential” (Einhorn
2001).

4. Others“First generation” pioneers and “second generation” neoclassicists are useful
categories for lumping development economists who subscribed essentially tothe same theoretical school and accepted the same assumptions. But there
have been highly influential groups and individuals out of step with themainstream of their time whose thinking exerted significant impact on themainstream and become increasingly relevant as mainstream theories withered
for lack of effect. These economists had different perspectives which havevastly enriched the understanding of what constitutes lack of development and,to a lesser degree, what enables development.
A. Agriculture and Trade
Agriculture
The importance of agriculture to development was recognized by classicaleconomists of the 18th and 19th centuries, including Adam Smith, Thomas
Malthus, John Stuart Mill and David Ricardo. But the mainstream economists
who created the field of development economics in the mid-20th century gave28

Evolution of Ideas on Development

it little attention. Agriculture was viewed as backward and generally overlookedin favor of industrialization until the early 1960s. Its chief interest was as asource of revenue (through taxation schemes, including commodity export
taxes) to finance the urbanization and industrialization which they believed
were the keys to development.
This view of agriculture as a source of input to industry is apparent in the
dual economy model propounded by Arthur Lewis (1954) and the more
extended and formalized version of J. Fei and G. Ranis (1964). These theories
consider agricultural to be the traditional sector and a supplier of low-wagelabor required for industrialization. Ricardo, an English-born Dutchman (17721823), had developed a model that foresaw increases in population and labor
supply putting such pressure on land that increases in food prices and land
rents would hinder industrialization and decreases in wage rates would result.
This constraint on the economy caused by the pressure of population on landis termed “the Ricardian trap.” This theory informed in that of Fei and Ranis.
Such downplaying of agriculture was despite the clear reality that in nonindustrialized countries the agriculture sector was by definition the center of
economic activity and the locus of employment for most of the population. Achange came in 1961, when Johnston and Mellor (1961), in a landmark analysis,
explored the role of the agricultural sector within the larger economy. Theysaw the same bottleneck that Ricardo had seen, but they also saw anunappreciated resource and suggested that in the push for development,
agriculture should be attended to as a complement to industrialization not as
an adversary. While they agreed that economic development would increasedemand for agricultural products and that lack of agricultural supply could
inhibit development, they also theorized that rising income in the rural sector
could stimulate industrial expansion by supplying labor, capital, foreignexchange and food, as well as markets for domestically produced goods.
Johnston and Mellor introduced the concept of agricultural modernization
through technological change which posits a theoretical escape from the pressure
on land posed by the Ricardian trap (Hayami and Ruttan, 1985: 324). The
benefits of technological change was supported in the Schultz-Hopper
hypothesis (Schultz, 1964) which maintained that traditional agriculturalists
were efficient resource allocators who were capable of recognizing and utilizing
innovation that was useful. Hayami and Ruttan (1985) expanded on this by
responding that innovation would not create economic return if appropriate
institutional support were not present21. They stressed the importance of public
21

The importance of institutions to development is a theme that has waxed and waned over the years and istoday very much at the forefront, as is more thoroughly discussed later in the paper.

29

CHAPTER II

agricultural research and experiment systems appropriate to the environmentof the developing countries.
One stellar example of technological innovation was the “green revolution,”
which is the term applied to the discovery by an international research institutein the 1960s of successful methods for dramatically increasing agricultural
output, through high yielding varieties and through carefully managed
application of inputs. Eventually the “green revolution” process came undercriticism for several reasons. Its technologies work only under certain conditions
so that many farmers in many parts of the world reap no benefit. Sub-Saharan
22
Africa, for example, has seen little benefit . Some argue that the breakthroughs
favor larger, more capital intensive farms over smaller, more labor intensive
ones, although Hayami and Ruttan (1985) rebut these charges. Criticism has
also been aimed at the negative environmental effects of the chemical inputs
required23.
Through the work of these and other agricultural economists the sector
gained prominence during the neoclassical resurgence. Many of the SALs
which were the hallmark of that period carried conditionalities directed atstructural adjustment of agricultural sectors. This was especially so for SubSaharan Africa, the least industrialized and most agriculturally dependent
region. More recently, when the World Bank shifted its development strategy
to emphasize poverty reduction, the sector attracted renewed attention becauseof the fact that the majority of the poor live in the rural sector24. The WorldBank estimated in 1984 that of 800 million people living in absolute poverty
in the less-developed countries, 640 million (some 80%) were rural25.
Despite this interest and awareness, the resource that Johnston and Mellor
had recognized continued to be underutilized. Many rural poor remained
underemployed and unable to contribute economically. The considerable
consumer demand they represented continued to be unrealized. Instead, they
were a drag on the industrialized sectors for which they should have been
supplying food. At the same time, they continued to produce the primarycommodities that were the economic bedrock for most developing countries
and a source of vital foreign exchange and tax revenue.
22

In early 2001, the creation of a strain of rice called NERICA (New Rice for Africa) was announced by theWest Africa Rice Development Association, a research center connected with the World Bank coordinated
Consultative Group on International Agricultural Research (CGIAR). http://www.cgiar.org/index.html
23
The environmental ramifications of many aspects of development efforts are a continual magnet for criticism
and controversy.
24
However, as is noted later, this renewed interest in the poverty of agriculture did not translate into increased
lending.
25
Recent Bank estimate is 70% (World Bank, 1997c).

30

Evolution of Ideas on Development

Structuralism and Dependency
Structural analysis, or “structuralism,” attempts to identify rigidities or otherstructural limitations in an economy that impede the changes that development
policy measures are meant to bring about. It has been applied to various
countries in various regions of the world, but the Latin American version is themost notable, primarily for historical reasons. Historically Latin America washighly dependent economically on the export of primary commodities and has
experienced unstable growth26. This instability was due to low price elasticity
of demand and fluctuating production as well as to world events such as thetwo World Wars and the Great Depression. Because of the low income elasticity
of demand for their products, they also faced low demand growth.
But there is another reason why Latin America is closely associated withstructuralism, the work of Argentinean economist Raul Prebisch who ismentioned above in connection with “export pessimism.” He was an early
Latin American structuralist whose analytical work and position at the UN
Economic Commission for Latin America (ECLA) is largely responsible forthe prominence of this concept. He perceived declining terms of trade forprimary commodities and argued that industrialization was required for
economic development. In 1950 he became Executive Secretary of ECLA
and led its economists in wrestling with actions that would accomplish this.
They put forward the “center-periphery” concept. It stipulated a world
economy in which peripheral sectors characterized by low income co-exist inan economic system with central sectors characterized by high income. The
periphery’s products are agricultural and primary commodities, undifferentiatedgoods subject to market competition. The center, on the other hand, produces
industrial goods that can be differentiated and therefore marketedmonopolistically. These differences result in worsening terms of trade andexternal deficits for the periphery and consequent structural unemployment.
The dominant center is able to maintain its relative advantage so that the benefitsof industrialization remain out of reach of the periphery. According to this
scenario, persistent underdevelopment is a structural condition in the peripheryresulting from its interaction with the center. The periphery requires protection
because of its lower industrial productivity levels relative to those of the center.
To provide this protection and counteract the structural disadvantage ofthe periphery, the ECLA economists endorsed ISI, discussed above, and argued
that the main policy instruments should be high tariffs for industrialized goods
and “industrial programming.” “Industrial programming” was an approach
26

Even today, Latin America seems to be struggling with this problem (Hausmann and Gavin, 1995).

31

CHAPTER II

constructed around investment planning and coordination. Effectively thiswas state intervention through investment planning. ECLA economists also
were opposed to anti-inflationary advice and conditionalities imposed by the
IMF because they believed that strict monetary policy sacrificed growth infavor of stability, a trade-off they did not like. Their willingness to accept
monetary expansion and associated inflation as a price of structural change
was a defining characteristic of the Latin American structuralists.
This orientation, inward-looking and conducive to severe inflation, could
not stand up to the macroeconomic dislocations of the late 1970s and 1980s,
including oil shocks and debt crisis. The impact of hyper-inflation and external
debts on the Latin American economies was so severe that the 1980s are
sometimes referred to as “the lost decade.” Eventually Chile broke with thestructuralist approach and accepted the neoclassicist approach under technocrats
called “Chicago boys27.” Soon, other countries followed, signaling the end of
structuralism.
Dependency theory is closely related to structuralism and emerged
somewhat as a reaction to perceived limitations of the Latin American
structuralists. Like structuralism, dependency theory assumed a center and aperiphery, but unlike the structuralists, dependency theorists characterizedinteraction between them in terms of power rather than trade. They were attuned
more to ideological than to economic facts, paying explicit attention to thepolitical economy effects of capitalist development on the periphery. This28
approach is associated most commonly with Fernando Henrique Cardoso , aBrazilian sociologist whose work dates from the mid-1960s 29. Many
dependency theorists were sociologists and political scientists and their theories
had serious political, even ideological, overtones. They had strong elementsof the Marxian theory of capitalism. Some of their solutions required
transformation of international economic interaction; others advocated a “delinking” from the international system.
As with structuralism, there are variations to dependency theory andapplications to other geographic regions. German born Andre Gunder Frank(1969) became a well-known proponent, due perhaps to the access to Latin
American debate he provided through his English writings on the subject. Frankbelieved that underdevelopment in the periphery was consequent to ahierarchical chain of metropoles and satellites created by capitalism, each level27

The name derives from the fact that many of them were graduates of University of Chicago.
Mr. Cardoso was president of Brazil from 1995 until October 2002.
29
See, for example, Cardoso (1977).
28

32

Evolution of Ideas on Development

extracting surpluses from the one below. From this he hypothesized that the“development of underdevelopment” was inevitable within the capitalist system.
This thesis was explored also by Theotonio dos Santos, the Brazilian
theoretician who provided the most widely quoted definition of dependence:“Dependence is a conditioning situation in which the economies of one groupof countries are conditioned by the development and expansion of others...whensome countries can expand through self-impulsion while others, being in adependent position, can only expand as a reflection of the dominant countries,
which may have positive or negative effects on their immediate development”(dos Santos, 1970: 289-290).
An even more radical view was held by a Marxist Paul Baran, one of theearliest and most influential dependency theorists. He believed that dominantinterests in advanced countries were actually aware of, threatened by and adverseto the potential for economic development in underdeveloped countries (Baran,
1957). Historically, colonies were in the weak, dependent periphery andimperial powers were in the dominant center, later this was applied to thedeveloped west (north) as dominant and the undeveloped south as dependent.
Because of the power relationship between the dominant and the dependent,
dependency theorists did not accept the concept of “modernization,” thatdevelopment would spread from developed countries to the underdeveloped.
In fact, their belief was that the constraints on development in the peripherywere more accurately explained by the role of pheripheral countries in theinternational capitalist system rather than by their domestic situation. The
concerns of the center-peripheral and dependency theorists can be heard today
in the vehement opposition to “globalization.”
New International Economic Order
Concurrent with the neoclassicist thread with its distrust of government
involvement and its efforts at structural reform, the proponents of structuralismand dependency were creating a countervailing movement. Advocates ofmanaged primary commodity markets were organizing to promote serious
government intervention. These were the low-income countries themselves
who were influenced by “pessimism” theories regarding deterioration of termsof trade for less developed countries (LDCs) (Prebisch, 1950 and Singer, 1950).
At a summit meeting of non-aligned nations in Algiers in1973 they initiated apolitical drive to improve their conditions under the rubric “The New
International Economic Order” (NIEO). The measures they proposed included
establishment of international buffer stocks, the creation of a common fund for33

CHAPTER II

commodities to finance those stocks, multilateral trade commitments, andcompensatory financing to stabilize export earnings. The NIEO was designed
to counter the long-term declining terms of trade predicated by the structuralists.
The intention of the low-income countries (the “south”) was to act jointly as a
power block to insist on international measures that would favor theireconomies, for the most part primary commodity based.
The NIEO that took form in the early 1970s was actually a coalescence of
the ideas and campaigns of Raul Prebisch, who became the first SecretaryGeneral of UNCTAD in 1964 after leaving ECLA. He was a driving force
behind its formation and a main factor in turning it into a standing organization
rather than a one-time event30. Many, though not all, of the NIEO concepts
were brought by Prebish to UNCTAD and the international trading arena from
ECLA. Through the 1950s and the 1960s he had developed theories and a
program based on them which were influential among Latin American
governments31. These theories, modified by political constraints and the lessonsof experience, were transformed into the New International Economic Order.
The NIEO was formalized by UN resolution at a special General Assembly
session in spring 1974. Three separate resolutions were adopted, one of which
was the Declaration on the Establishment of a New International Economic
32
Order . UNCTAD, a unit set up by the UN to help developing countries by
exploiting the link between trade and development, adopted the NIEO at its
fourth conference (UNCTAD IV) in Nairobi in 1976 and established thebureaucratic machinery for implementing an integrated program forcommodities. The community of development economists was from the outset
unenthusiastic about the NIEO. In addition, it became clear that the eventual
costs would be prohibitive. For these reasons, and because of divergent interests
among the countries in the “south,” the NIEO withered away. The Common
Fund for Commodities headquartered today in Amsterdam is a truncation of
33
NIEO . The NIEO concept currently only lingers in such milieu as commodity
organizations34.
30

Mr. Prebish left UNCTAD in 1968, he died in 1986.
In the 1960s he recruited top economists Alfred Maizels of Britain and Jan Tinbergen (future Nobel Laureate)of the Netherlands to work on commodity agreements, starting with a buffer stock agreement for cocoa (Love,
2001).
32
Yugoslavia, Algeria, India and Iran drafted a position paper for the special session which effectively became
the NIEO resolutions (Johnson, 1987)
33
It was established in 1980 to finance the projected Integrated Program for Commodities. It came into force
in 1989 but was never put to the purpose intended. Its focus remains on commodities and currently it provides
funding for research and project work on a commodity rather than country basis. At this time its declared aim
is to assist developing countries and countries in transition transform from regulated to liberalized market systems
and participate in the global economy. Another aim is to address market failures.
34
The recent (failed) attempt by the Association of Coffee Producing Countries (ACPC) to institute a retention
scheme is one example.
31

34

Evolution of Ideas on Development

B. Reformist/Basic Needs
Working alongside the mainstream economists, both the pioneers and theneoclassicists, there were analysts who were uncomfortable with development
orientations overly focused on growth. Growth-oriented theories posited a“trickle down” effect by which the poor would be lifted out of poverty as a byproduct of growth. But some observers noted that in spite of high growth in
the period of the 1960s, the first UN Development Decade, “trickle-down”
was unsatisfactory. To this group this meant that emphasis on growth was
missing the point. Gunnar Myrdal (1956: 47-51), who shared with Prebischand Singer a pessimism about the impact of market forces on equality, deviseda world anti-poverty program that emphasized equality rather than growth as agoal (Myrdal, 1970). A 1969 speech by Dudley Seers, a Cambridge
development theorist, sums up the concern:
The questions to ask about a country’s development are therefore: What
has been happening to poverty? What has been happening tounemployment? What has been happening to inequality? If all three ofthese have become less severe, then beyond a doubt this has been a period
of development for the country concerned. If one or two of these central
problems have been growing worse, and especially if all three have, itwould be strange to call the result “development,” even if per capita
income had soared (Seers, 1969).
This view shifted and broadened in perspective from a concern withinequality among countries to encompass inequality among people withincountries as well. Framed this way, the problem took on dimensions that it had
previously lacked but which have remained and are very much in the forefront
today. The economic impact of environment, education, employment, healthand inequality came to be integrated in this concept. This attention to living
conditions as opposed to growth generated three directions of thought: 1) an
attempt to improve standards of living in the absence of an enlarged economicpie, the “Basic Needs” approach; 2) a reinvigorated emphasis on institutions
and social capital; and, 3) attention to the role of human capital in thedevelopment process. “Basic Needs” is considered here. The other two
directions are presented in the “New Views” sub-section below.
The underlying hypothesis of the “Basic Needs” campaign was that a highlevel of basic needs can be satisfied at a relatively low level of per capita
income. The term was first mentioned in the early 1970s and gained prominence35

CHAPTER II

as part of an International Labor Organization (ILO) proposal in 1976. It
became best known when Robert McNamara adopted it as a World Bank
strategy in the 1970s. “Basic Needs” was defined as two elements: 1) the
minimum requirement of a family for its own consumption, including but notlimited to food, clothing and shelter; and 2) essential services provided by andfor the community, including drinking water, sanitation education, and healthfacilities. Satisfying this would require significant government involvement
and was compatible with the prevailing emphasis on the role of the state as aprovider of services to improve the conditions of the people. The experiencesof several countries were cited as support, but the Chinese economic experience
under Mao-tse Tung is thought by some to have been the most influential.
This concept helped bring international attention to the issue of poverty
and served to encourage important research on it. The World Bank was at thistime embracing poverty reduction as a strategic objective, it did not really pickup the “Basic Needs” concept until the late 1970s. Its initial program responseto the interest drawn by “Basic Needs” was the introduction in 1974 of an
income enhancement program called “redistribution with growth” (RWG).
Unlike “Basic Needs” which was consumption based, RWG was an incremental
program whose results were gradually to be felt over time. It was intended toattack poverty and encourage development through integrated urban/ruralprojects, but the associated complexity produced disappointing results. Spurredby the resultant criticism, the Bank turned to the “Basic Needs” approach which
was more direct and was thought to be quicker and more efficient than income
enhancement.
The World Bank’s stated aim became “to increase and redistributeproduction so as to eradicate deprivation that arises from a lack of basic goods
and services…The demand now is to put man and his needs at the center ofdevelopment” (Streeten and Burki, 1978: 411). Under “Basic Needs”, as with
RWG, the World Bank effort continued toward integrating rural and urban
development programs. However, as with RWG these programs werecomplicated, involving various segments of the government and having multiple
35
objectives . As with RWG they were not very effective. As will be explained,
the intent to alleviate deprivation that drove these programs is once again being
again proclaimed by the Bank. Achieving it at that earlier stage could not be
successful. Research was carried out in 1978-80 on strategic design but it
seems that the Bank was not able to fully come to grips with implementation
before the tide turned.
35

36

Often called “Christmas tree” projects.

Evolution of Ideas on Development

By the early 1980s, the concept was fading. Among those who supported
it, fundamental differences appeared as to the preferred definition of basic
goods and how the program should be applied in the urban and rural sectors.
Among those who did not support it, strong criticism was voiced, such as thisaccusation by A. de Janvry, “The basic needs approach…has absolutely no
theoretical foundation” (de Janvry, 1981: 258). At this time also, specificproblems were being identified: The institutional context was inadequate, aproblem common to approaches requiring government involvement. It wasexcessively oriented toward agriculture yet failed to achieve a reliable foodsurplus. Beyond this, deeper analysis was confirming serious theoreticalproblems; for example, that improvements in domestic terms of trade could
benefit the poor more effectively than could direct consumption intervention(Oman and Wignaraja, 1991: 115-120).

5. New Views
When the optimism of the pioneers failed to be justified and the assumptionsof the neoclassicists lost credibility, concepts that had been hovering aroundthe edges of development economics began to move to center stage. Institutions,long recognized as significant but never really spotlighted, and humandevelopment, advocated by “reformists” as an alternative to growth as theobjective, emerged as hitherto under-appreciated, fundamental elements ofthe development process. Approaches built on these foundations gained
credence and continue to resonate strongly in the field of international assistance,
both theory and practice.
A. Institutions and Social Capital
Analogous to the pioneers’ assumption that the difference between
developed economies and non-developed economies was the presence orabsence of industrialization, there are those in the very forefront of development
thinking who postulate that the difference lies in the presence or absence of
salutary institutions. This line of thinking is very forceful today, as will beseen in later chapters.
Reference to institutions, to the importance of institutions, and to obstacles
posed by unsuitable institutions is scattered throughout the history ofdevelopment economic thought. Perhaps one of the earliest modern references
is in the book The Protestant Ethic and the Spirit of Capitalism written by
Max Weber and published in 1905. Agriculturalists referenced institutions in
the context of technological innovation (Hayami and Ruttan, 1985). The
37

CHAPTER II

pioneers did so in the context of government planning. The neoclassicists didin the context of government interference. Institutions are the very core issue
for the reformists, with their emphasis on education, health, employment andequity. And the failure of the “Basic Needs” campaign of the 1970s was been
largely attributed to institutional inadequacy.
Over the course of fifty years, as theory yielded to new theory and practicalapplications disappointed, one after another, the realization took hold thatperhaps institutions were of an even higher order of importance than had beenthought. Perhaps, it came to be thought, underdevelopment is institutional
failure. There are a number of prominent economists who contributed to thisnew paradigm, including Akerlof (1984), Coase (1937, 1960), North (1990),
Olson (1965), Stiglitz (1989) and Williamson (1975, 1985). The success of
the East Asian economic miracle, mentioned above in the context ofneoclassicism, prompted economists to examine whether the institutions
characteristic of that region — trust, cooperative attitudes among economic
agents and effective judiciary systems — were elements key to its economic
growth36. This possibility was re-enforced by events in an entirely different
region, the former Soviet Union. When a coordinated, “big bang,” attempt
was made to introduce a market structure into those transitional economies, it
37
failed spectacularly . An analysis of the collapse clearly revealed that a lackof institutional support was the culprit. “The experience of transition, especiallyin the countries of the former Soviet Union, vividly illustrates that market
reforms in the absence of effective domestic institutions can fail to deliver
growth and poverty reduction” (World Bank, 2001e: 32).
A look at any dictionary will reveal multiple definitions for the word
‘institution.’ For development economists, however, the most influential
definition is that of Douglas C. North: Institutions are “the rules of the game”(North, 1990: 1). “Game” here is far-reaching but basically means written
laws and unwritten conventions sanctioned by members of society. Institutions
can include organizational rules, formal laws, and informal norms. Thisdefinition is supple enough to encompass constructive rules, destructive rules
and no rules at all.
Subsumed within institutions is the concept of social capital. Social capitalhas been defined as the coherence of a society’s values and the capacity theyafford for mutually beneficial interaction (Collier, 1998: 3). Trust, cooperation,
36

See, for example, papers in Hayami and Aoki (1998) and Stiglitz (1996).
In Russia this tactic was called “shock therapy” and was largely co-ordinated by Jeffrey Sachs, at that time
Director of the Center for International Development at Harvard University. From December 1991 until January
1994 he served as advisor to the Russian government on privatization of the economy.

37

38

Evolution of Ideas on Development

coordination and reciprocity are examples of civil social capital, as are norms,
informational networks and social sanctions (Hayami, 2001: 288-291). Civilrights and good governance are examples of government social capital. Social
capital can augment the positive effects of both human capital and physicalcapital, increasing their return38.
Capital is an economic input whose application increases value. Orthodox
economics traditionally ascribe the term “capital” to tangibles. There has,
however, been a growing awareness that some intangibles can create value andcontribute to economic growth. They have come to be called “social capital”
and “human capital.” (Human capital is discussed in the following sub-section.)
Some economists quarrel with the idea of social capital; firstly, because it is
not capital in a true economic sense; and secondly, because it is defined insuch a way that a negative effect on development can be assumed as readily as
a positive one (Arrow, 2000: 3). There is no question, however, that the ideasof social capital, institutions and culture interact and overlap. Cultural values
can be elements of social capital and North believes that cultural beliefs are abasic determinant of institutional structure (North, 1990). According to Landes(1998: 516-17), “If we learn anything from the history of economic
development, it is that culture makes all the difference.” A similar note issounded by Meier (1995: 83). To fully comprehend institutions, then, it may
be necessary to go beyond economics to an interdisciplinary approach involving
anthropologists, historians, political scientists, psychologists and sociologists.
As will be described below, the World Bank has adjusted its staff composition
so that now a significant percentage has social science expertise.
These concepts and theories opened a new way of perceiving, examining
and understanding economic development issues but their actual application
to development assistance is almost by definition not an easy task. What canbe derived is that institutions and social capital are primary elements underlying
economic development. This, in turn, suggests that development assistanceshould focus on inducing and strengthening institutions and, hence, on
increasing social capital. As for policies, they should be modified to encourage
appropriate technical and institutional innovation (Hayami and Ruttan, 1985:
416). How to translate this into projects on-the-ground is a paramount questionand unfortunately this question has not been satisfactorily answered. Promotingchanges in laws and regulations and in government bureaucratic structure aresome of the possibilities. This path, however, risks being construed as too
38

It can also do the reverse, and Collier recommends promoting those aspects which are most progressive andrectifying those that are regressive (Collier, 1998: 31).

39

CHAPTER II

intrusive and interventionist in the domestic political structure of developing
countries.
An avenue perhaps even more promising leads in the direction of ruralorganizations, such as cooperatives. Based on his extensive field work, andextending the analytical framework of institutions and social capital, Hayami(2001: Chap. 9) considers that communities, especially those in the rural areas,
could play an important role in economic development. This resonates with
the notion of Binswanger and Deininger (1997) that farmers need to organize
to acquire the political power to influence policies. Some development
organizations, including the World Bank, were reluctant to accept this becauseof failed attempts in the 1960s and 1970s to support cooperatives in Africa.
However this approach regained credibility39 with the recognition that the past
failures were due to the fact that most cooperatives in Africa had been
established for political purposes or to strengthen government marketing boards
and were not true “cooperatives.”
Despite such uncertainty about operations, the primacy of institutions,established theoretically in research dating back several decades, is currently
widely accepted within the development assistance community. Extensive
analysis is on-going to find effective, practicable ways of transforming
unsuitable institutions so that aid can work. More on this topic is presented
below.
B. Human Development/Human CapitalIn the view of its proponents, human development is the ultimate objectiveof economic development as well as “the best means available – for promoting
development” (Griffin and McKinley, 1992). Human development advocates
believe that human development not economic growth should be the objectiveof economic development and that increasing human capital is a better way toachieve development than increasing physical capital. Because of thisconviction they have been keenly interested in broadening economic
development indicators beyond the commonly used per capita measurementsof growth.
One of the first such systems was developed in 1970 by the United Nations
Research Institute for Social Development (UNRISD)40. Another was
39

The community-driven development (CDD) approach, which became one of the Bank’s main project types
since around 2000, is an application of this strategy.
Established in 1963, headquartered in Geneva, Switzerland, UNSRID is an autonomous United Nations
agency that carries out research on the social dimensions of contemporary problems affecting development.
http://www.unrisd.org/

4040

Evolution of Ideas on Development

developed by Morris D. Morris (1979). It was called the Physical Quality ofLife Index (PQLI) and was based on three indicators: life expectancy at age
one year, infant mortality and literacy. These did not gain wide currency but
they presaged the creation in the late 1980s of a system that did, the Human
Development Index (HDI). This was developed under the auspices of theUnited Nations Development Programme (UNDP)41 by Mahbub ul Haq(considered the architect of the HDI) in collaboration with Amartya Sen and
Meghnad Desai. It has four components:••••

life expectancy at birth,
adult literacy rate,
combined enrolment rate in primary, secondary and higher education,andreal income measured in purchasing power parity.

The HDI has become a widely accepted and respected indicator. It is very
influential because it provides a previously lacking measurement tool needed
by non-orthodox development theorists if they are to assert legitimacy. The
HDI epitomizes the human development approach and because it assesses
factors that fall within today’s definition of institutions, it adds weight to theargument that institutions are profoundly fundamental.
Human development was a new ingredient in development policy prior to1980 as a component of “Basic Needs” and it re-emerged after 1990 with the
publication of the World Bank World Development Report of 1990 subtitled“Poverty” (World Bank, 1990). During the decade of the 1980s, reformist
proponents who insisted on looking differently at the issue of underdevelopment,such as Seers (1983) and Streeten (1995), were forced to yield before the hardreality of international macroeconomic crises. The neoclassical resurgenceshouldered reformism out of the economic arena and into the sphere of otherorganizations, notably those within the United Nations family such as the United
Nations Development Programme (UNDP).
Although the pre-1980 effort by reformists to move human development
into the mainstream of economic analysis was stymied, it did have important
repercussions: It generated much discussion. In highlighting poverty rather
than growth as the essence of underdevelopment, it laid groundwork for later
attention to that issue. And it directed attention to an examination of thesignificance of human capital. Human development enhances the health,41

Beginning with the first issue in 1990, it has been a part of the annual UNDP Human Development Report.

41

CHAPTER II

education, skills, and other capabilities of people, thereby by increasing humancapital.
The importance of human capital received strong theoretical support fromthe “New Endogenous Growth Theory” mentioned above in the context ofalternatives to neoclassicism. According to this theory growth can come fromwithin a system (endogenously) when economic activity creates new knowledge;
thus, production functions would have increasing returns because of
specialization and investments in knowledge capital. (Romer, 1986, 1990,
Lucas, 1988). The key to this process is a cumulative magnifier effect of new
knowledge; it does not stay within the confines of the firm that creates or
exploits it but ripples through the economy so that the efficiency of labor of a
firm does not depend only on that firm’s investment but on the knowledge
produced from the investment of all firms (Hayami, 2000: 171-2). Thisemphasizes the contribution to economic growth of knowledge-producing,human capital-intensive sectors.
Amartya Sen influenced this thinking by contributing the concept ofcapability to function. He continued the line of economists (discussed above
as “Reformists”) who saw development in terms of quality of life rather thanquantity of growth. Sen used the term “deprivation,” a lack of access to entitledcapabilities which he described in the following words: “…what he can or
cannot do, can or cannot be” (Sen, 1995: 11). A genuine capability to function—
to choose and to react—is necessary to quality of human life and hence toabsence of deprivation. Imposed benefit or benefit offered without alternative
is not acceptable because there is no capability to function. Deprivation is not
relative, it is absolute. Sen’s entitled capabilities include nourishment, shelter,
community life, freedom to travel and freedom to associate and are clearly alegacy of the “Basic Needs” idea. When asked to characterize a successful
economy, he told an interviewer, “This concerns how the worst-off membersof society share in that society. Neglect of people at the bottom of the ladderwould indicate a failed economy” (Longworth, 1999).
The complexity and interrelatedness of development constituents is very
apparent here. Education is a key to capability because it is an entree toempowerment, the ability of people to influence forces that affect them. Thereis clear linkage here to the “empowerment” component of current poverty
42
reduction strategy, as discussed below . There is also relevance to institutions
as often the forces that affect people are “the rules of the game.” Sen looked
42

Appendix 2 and Box 5 in Chapter IV present an array of “Elements of Development” and deal further with
the interrelated complexity of the constituents of economic development.

42Evolution of Ideas on Development

closely at what creates social convention and has analyzed how the preferencesof society as a whole relate to the values of individuals. One of his conclusions
is that for capability to function to be realized, an environment of freedom,allowing free choice, is essential. For this reason he has equated developmentwith freedom (Sen, 2001: 506).
These concepts have enormous currency today. Within the community ofinternational organizations, after the hiatus of the 1980s, the concept of humandevelopment reappeared with considerable momentum. It has been adopted
by the World Bank and now figures prominently among its assistance objectives.

43

CHAPTER III

CHAPTER III

Evolution of Development Assistance43

Whether economic development can be induced by development assistanceis revealed in the results of implementation. A number of organizations areactive in the development assistance field at a number of different levels;
national, bilateral, regional, international, non-governmental and private.
Though some of them have ancillary expectations, perhaps related to ideology
or foreign policy, all of them seek improved economic conditions for the aid
recipients. This and next two sections discuss development assistance inpractice with a focus on the World Bank. This section will review the evolutionof the Bank’s development assistance practices, the trends in its actual lending
pattern and how and why those patterns have changed. The next section will
look at the current processes, strategies and lending instruments of the World
Bank, and Section V will consider on-going issues related to assistance.
The focus is on the World Bank because it epitomizes development
assistance and is the largest and most influential player. Tracing its lending
and strategies is a useful proxy for a survey of the evolution of development
assistance ideas and strategic thinking and the relationship between them. The
prominence of the World Bank somewhat obscures the fact that otherorganizations have participated significantly in framing the operative concepts
and continue to be very active in the field. These include the Organization for
Economic Cooperation and Development (OECD), the International Monetary
Fund (IMF), Department for International Development (DFID) of the UK,
United States Agency for International Development (USAID), and the United
Nations.
The United Nations, however, though very broad in scope, is not a43This section also draws from an extensive bibliography but has relied heavily on certain works including thefollowing: Shihata (1991, 1995); Kapur, Lewis and Webb (1997); numerous articles from the Financial Times
newspaper; and various World Bank publications including Annual Reports and World Development Reports.

44

Evolution of Development Assistancedevelopment organization. It is essentially a forum for debate and negotiation
and a conduit for social services. UN development related activities flow throughits conferences and commissions44, but also through programs, funds andspecialized agencies. The most prominent of these is United Nations
Development Programme (UNDP), but others explore various aspects of thedevelopment issue, such as the United Nations Conference on Trade andDevelopment (UNCTAD), United Nations Industrial Development
Organization (UNIDO) and the United Nations Population Fund (UNFPA).

1. Beginnings and Background
The World Bank and its sister organization the International Monetary Fund
were set up by the 1944 Bretton Woods Agreement. The Articles of Agreement
which constitute the legal framework of the Bank provide that it is to facilitate
capital investment in member countries for productive purposes through its
own resources or by supporting private ones45. One of its first concerns was
post-war reconstruction and one of its first projects was in France, but the
Bank also made funds available to non-European countries which hadparticipated significantly in the victorious war effort.
In the late 1950s and 1960s, as colonies gained independence, this role
was expanded to include international financial help for the newly createdstates. The World Bank was able to increase its loans substantially to very
poor countries, including Sub-Saharan Africa, after International Development
Association (IDA) was created in 1960. The cold war, ongoing at that time
between the US and the former Soviet Union, was important to the Bank’s
interest in assisting the newly independent countries because of the belief, on
the part of the US in particular, that poverty encouraged developing countries
to adopt a socialist stance. This belief was re-enforced by events in Cuba in
the late 1950s (the revolution) and early 1960s (the missile crisis).
The United States has been a strong influence on the World Bank since its
inception. To some degree, this influence results from its post-War “free-world”
leadership and the aura of its superpower status. More concretely, the US has
always been the Bank’s largest shareholder and by tradition the president of
the World Bank is an American, selected by the incumbent administration.
(The head of the IMF is traditionally a European, selected from among its
European members.) Less well known, but equally important is the prerogative
it enjoys by virtue of both of the above of placing selected people in important
44
45

The UN and its agencies sponsored more than 12 major conferences in the decade of the 1990s.
Relevant excerpts from the Articles of Agreement can be found in Appendix 1.

45

CHAPTER III

positions. Prominent economists of the US administration’s choosing can anddo mold the prevailing thinking 46. For this reason, changes in US
administrations, especially when they entailed changes in the incumbent politicalparty, have tended to mean changes in the World Bank. The effect has beensuch that, along with prevailing theory and reaction to project effectiveness,both discussed in this chapter, the sitting US administration has been a primarymolder of World Bank policy.
From its beginning, the Bank has shadowed mainstream development theory,interpreting its mandate in ways closely corresponding with the prevailing
approaches. It subscribed to the belief in government-led development andlarge infrastructure projects during the period of the pioneers. This was replaced
by a belief in the power of free markets in the neoclassic resurgence (theWashington Consensus). Currently, the emphasis is on social/cultural factors
and institutional design (the post-Washington Consensus).

2. World Bank 1950-1990
During the period of the pioneers, the World Bank consisted only of theInternational Bank for Reconstruction and Development (IBRD) and functioned
48
essentially as a bank . The principle guiding theory was that developing
countries were poor because they lacked capital. The prevailing development
thinking at the time (discussed in the preceding section and shown in Figure1), along with the success of the Marshall plan and the Bank’s own lending toWestern Europe, gave support to this strategy. The Bank worked closely withclient governments to provide financing for specific investment projects. Thishas been called the era of the engineer and large-scale project lending was theprimary assistance vehicle. The lending pattern deployed however, could not
address the crises that arose and the results were disappointing. Confidence inthe capability of central governments to foster effective development wasdiminished by disappointment and was replaced by a confidence in the workingof markets.
One of the prime success stories of the period of pioneers was Japan. As
did Western Europe, Japan faced serious economic problems with high inflationand diminished production after the end of World War II. Japan implemented
46

The position of Chief Economist is particularly strategic. For example, Anne Krueger in the 1980s, Lawrence
Summers in the early 1990s, Joseph Stiglitz in the late 1990s.
47
Currently at the Institute for International Economics in Washington
48
The IBRD unit of the World Bank raises capital through the sale of bonds on the international open market
backed up by callable capital. A description of the history and process of World Bank bonds is given in
Appendix 3.

46

Evolution of Development Assistanceindustrial policies and with loans from the World Bank managed to strengthen
its infrastructure, which coincided with the Bank’s lending strategy. During
the 13-year period of 1953-1966 Japan received total of US$860 million inloans and used it mainly for the development of power generation, ship building,steel mills, railroad and highways. The Bank’s loans were effective not only interms of alleviating foreign currency shortage Japan faced at that time but also
in terms of technology transfer. This relationship is the subject of Chapter VI.
The establishment of the IDA in 1960 marked a watershed in the Bank’s
scale and pattern of operations. IDA is the soft loan, or concessional, lending
facility of the World Bank Group and it makes funds available almost interest
free to non-credit worthy governments who cannot qualify for IBRD loans49.
Opposition to the creation of this unit and the inclusion of it within the WorldBank structure was opposed from both inside and outside the Bank because of
the likelihood that it would change the nature of the organization. The reasonsfor its ultimate incorporation included the following (Kapur et al., 1997: Chapter
5, 17):••••

There was a strong move by the Soviet Union to create an organizationsuch as IDA within the UN system which the Bank and the US wanted
to forestall;
India, the Bank’s largest borrower at that time, was experiencing a severe
foreign exchange shortage but could not afford IBRD loans beyond
what it had already received;
The Bank became increasingly interested in lending to developing
countries because loan volume to wealthier countries, such as Western
Europe and New Zealand, were declining; andNo loans at all were available to newly independent African countries
because they could not afford to borrow on IBRD terms.

IDA is funded differently than the IBRD. Rather than raising money oncapital markets through the sale of bonds and earning market-rate interest on
its loans, as does the IBRD, the IDA is subject to a triennial “replenishment”
by its donors. This means that funding must be recommitted by the donors
every three years. Each replenishment is concluded through negotiations on
all aspects of IDA financing. IDA 13 (the thirteenth replenishment) was
concluded in July 2002 (IDA, 2002).
49

As a matter of terminology, IDA sourced financing is referred to as “credits,” while IBRD sourced financing
is called “loans.”47

CHAPTER III

In this early period there was the genesis of later emphases and orientation.
McNamara, who became the Bank’s president in 1968 was influenced by thesocial programs of the Kennedy and Johnson administration and he set
employment creation and poverty reduction as objectives of the Bank alongwith economic growth. His thinking is reflected in a succession of speeches,in Stockholm in 1972, Nairobi in 1973, and Washington in 1974, in which hedeclared and reiterated that poverty reduction was a Bank objective. RWG
and then “Basic Needs” were the strategies.
However, as discussed above in Chapter II, this approach was fading by
the early 1980s and mainstream efforts toward economic development became
focused on markets. This focus was prompted by empirical and theoreticalstudies and by various world events. The change in government to a moreconservative one in the UK and especially in the US probably also encouraged
the neoclassical turn to market reform and privatization. The 1970s and 1980s
were periods of severe macroeconomic upheaval caused by two oil shocks,
debt crises which grew out of petro-dollar recycling, volatility in commodity
prices, the end of dollar convertibility to gold, and abandonment of fixedexchange rates. In the face of such turmoil, the belief grew within the Bank
that the rule of the markets should be honored. It is said that the engineers
were replaced by economists, and the major reorganization of 1986-87 (during
the presidency of Barber Conable) is the milestone for this change. The vicepresident at that time, Anne Krueger was a champion of neoclassical thinking
within the Bank, especially in the area of trade liberalization. The operative
belief was that structural dislocations would not correct themselves; therefore
structural adjustment measures were necessary and policy-based lending wasin order.
The dominant paradigm of this period was the “Washington Consensus.”
According to John Williamson, a former World Bank regional chief economist47
who coined the term, this specifically referred to the “lowest common
denominator of policy advice being addressed by the Washington-based
institutions to Latin American countries as of 1989” (Williamson, 2000). But
it generally has come to mean the assistance pattern of the 1980s according towhich the international financial institutions made badly needed assistanceconditional on market liberalizing policy changes. (See Box 1 below for theobjectives of the Washington consensus).

48

Evolution of Development AssistanceBox 1: The Washington Consensus
•
•
•
•
•
•
•
•
•

•

Fiscal discipline
Redirection of public expenditure toward education, health andinfrastructure investment
Tax reform – broadening the tax base and cutting marginal tax rates.
Interest rates that are market determined and positive (but moderate) in
real terms.
Competitive exchange rates.
Trade liberalization – replacement of quantitative restrictions with low anduniform tariffs.
Openness to foreign direct investment.
Privatization of state enterprises.
Deregulation – abolishment of regulations that impede entry or restrict
competition, except for those justified on safety, environmental, andconsumer protection grounds, and prudential oversight of financial
institutions.
Legal security for property rights.

Source: World Bank, 2001e

50

The goal became structural adjustment with growth, to the extent compatible
with stability. The Bank and IMF came up with innovative structural adjustment
instruments to address financial problems arising from severe debt. The debt
was due to oil price hikes and bad macroeconomic management in Africa andLatin America and the new instruments were designed to encourage client
governments to change or modify their policies in conformity with neoclassicalthinking. This was based on the idea that the economies of many developing
countries suffered from economic stagnation or even decline, especially interms of private investment, due to the adverse impact of excessive government
intervention. According to Mosley et al. (1991), these instruments were
designed mainly to encourage a “retreat of the state from economic life and theopening up of economic activity, especially in agriculture.” The Structural
Adjustment Loan (SAL) was introduced in 1980 and the Sectoral Adjustment
Loan (SECAL) in 1984. SALs and SECALs effectively were policy-basedloans extended for the purpose of supporting policy changes which had been
identified as being necessary to reform either the client economy as a whole orcertain elements within it. These were fast-disbursing loans in exchange for50

From Williamson, 199349

CHAPTER III

which the client country would implement certain policy changes, a situation
termed “conditionality.”
SALs were extensively implemented in agricultural sectors of Africa.
Because of their debt problem, many of these countries had no choice but toaccept the conditionalities imposed under structural adjustment loans. Muchof the prescribed action was directed against the arrangements for handlingprimary commodities from production through export, including marketingboards, state ownership of processing centers, and controlled domestic prices(Meerman, 1997 and Akiyama et al., 2001). Consequently, by the late 1980s,
in spite of their resistance to intervention, many governments had accepted theneed to change their agricultural commodity marketing systems and policies.
Some of the main conditionalities of SALs and SECALs are given in Box
2. As World Bank ventured into policy-based lending for adjustment purposes
it was moving from strictly investment finance into the broader arena of reformof national economies. This was not consistent with the Articles of Agreement
which explicitly restrict Bank lending to the creation of conditions and incentives
for the investment of capital for productive purposes. In order to satisfy thatlegal constraint, the severe balance-of-payments problems of the countries for51
which SALs were designed were defined as “exceptional circumstances ”(Shihata, 1991: 26).
Although not usually looked at this way52, the practice of policy-based
lending can be seen as a reprise of the “policy dialogue” of the pioneers and a
precursor of the institutional thrust of today.

3. The Post-Washington Consensus
Joseph Stiglitz, while a World Bank Senior Vice-President and Chief
Economist, characterized the currently prevailing international approach todevelopment as “the post-Washington Consensus” (OECF and the World Bank,
1997: 13). This can be summarized as follows: The explicit and overriding
goal of international development effort is poverty reduction, poverty being
defined in broad, multi-layered, holistic terms. To attain this goal, there mustbe broad-based cooperative/collaborative effort on the part of all stakeholders,
including development agencies, governments and civil society. This goalcannot be attained unless client countries and poor people are shifted out ofobject roles as aid recipients and into participatory subject roles as assistance51

The two volume work by Ibrahim F.I. Shihata (1991, 1995), long time General Counsel to the World Bank,
was largely devoted to explaining structural adjustment lending with reference to the Articles of Agreement.
52
Refer to Hoff and Stiglitz (2001: 360) quoted in on page 27.

50

Evolution of Development AssistanceBox 2: “Conditionalities”
Types of policy measures requested in return for SAL finance,
1980-1986
MeasurePercentage of SALs subject
to conditions in this area

Trade policy:
Remove import quotas
Cut tariffs
Improve export incentives, etc.

57
24
76

Resource mobilization:
Reform budget or taxes
Reform interest rate policy
Strengthen management of external borrowing
Improve financial performance of public enterprise

70
49
49
73

Efficient use of resources:
Revise priorities of public investment program
Revise agricultural prices
Dissolve or reduce powers of state marketing boards
Reduce or eliminate some agricultural import subsidies
Revise energy prices
Introduce energy-conservation measures
Develop indigenous energy sources
Revise industry incentive system

59
73
14
27
49
35
24
68

Institutional reform:
Strengthen capacity to formulate and implement
public investment programs
Increase efficiency of public enterprises
Improve support for agriculture (marketing, etc.)
Improve support for industry and subsectors(including price controls)

86
57
57
49

Source: Mosley (1987) cited in Mosley et al. (1991:44)

51

CHAPTER III

designers and implementers.
At this time there is throughout the donor community a very high degree ofofficial public acceptance of this approach. This section looks at how theWashington Consensus of the 1980s, summarized in Box 1 above, gave way tothe post-Washington Consensus of today.
Even while attention was fully engaged with the macroeconomic shocks ofthe 1980s and the neoclassic efforts to rectify them, things were happeningthat would significantly affect the tenor of development thinking in the 1990s
and beyond. There was serious criticism of adjustment lending. Some of itquestioned the theoretical rationale as mentioned in an earlier section. Other
criticism was directed at the lack of clear outcomes. Conditionality becamevery extensive, in some cases many more than 100 conditions were set for justone SAL. Still other criticism targeted the social costs exacted by the drastic
policy changes demanded.
Despite such criticisms, and while their effect on economic development
remains controversial, SALs seem to have had beneficial effects, at least in the
agricultural sectors of countries where price distortions were severe53. A recent
Bank study (World Bank, 1998) suggests that SALs are effective in countries
where the government is willing to make adjustments and where institutions
are adequate. However, there is an inherent limitation to a continuation of
SALs because distortionary policies usually can be adjusted only once54.
At the same time as the SALs were receiving criticism, large-scale
development projects were also being criticized as too expensive, misguided
and wasteful. The Sardar Sarovar Dam project on the Narmada River in India
in the early 1990s is a famous case in point55. In addition, it was coming to theattention of those who monitored economic development activity that too many
Third World elite were prospering and too many poor people were not.
In 1992 Willi Wapenhans, a former vice president at the World Bank,
conducted an analysis of the success/failure rate of the Bank’s lending portfolio
and issued a devastating report, known as the Wapenhans Report (World Bank,
1992a). He found that more than one-third of the projects were failures. He
found that the Bank operated in an “approval culture” meaning that pressure tosecure loan approval overrode considerations of a project’s potential for success.
According to the report, “staff perceive appraisals as marketing devices forsecuring loan approval (and achieving personal recognition).” The report
53

See, for example, World Bank (1994) and Akiyama et al. (2001).
There have been cases where the Bank provided more than one SAL, with essentially the same conditionalities
for some countries whose governments reverted back to the old policy after the initial SAL was disbursed.
55
NGOs were vehement in criticizing the negative impact of the project on environment and removal of people.
54

52

Evolution of Development Assistanceelicited a wave of calls for review, re-organization and re-orientation of thesituation. The Wapenhans Report gave birth to a series of annual reviews by
the Bank’s Quality Assurance Group (QAG). Entitled Annual Report on
56
Portfolio Performance (ARPP) , these reviews present clear, if generalized,
information on the composition and quality of the overall Bank portfolio57.
Another development that was to have a long-term impact was the 1987
report of the World Commission on the Environment and Development (1987)
entitled “Our Common Future.” The commission, better known as theBrundtland Commission after its chairman, Norwegian Prime Minister Gro
58
Harlem Brundtland , was formed under United Nations auspices in 1983 toconsider long-term environment strategies59. Its lasting fame comes from having
provided the definition of sustainable development: “satisfying present needs
without compromising the ability of future generations to meet their own needs.”
The work of the Club of Rome is germane here. That group’s 1972 publication,
Limits to Growth (Meadows et al., 1972), had directly linked industrial growthin the West to depletion of non-renewable resources. Although the term“sustainable development” had appeared previously in international meetings
and while there have been numerous variations since, the definition used by
the Brundtland Commission resonated socially, economically, politically andenvironmentally. It also reinforced the idea that growth as a goal should be
rethought; and, some reasoned, if that should be done then the market as arbiter
should be rethought as well (ul Haq, 1976).
Some donors were not happy with the neoclassical approach to the extent
that it had a libertarian bias. As with the theorists (discussed in Section II), soamong the assistance practitioners, the performance of the East Asian economies
became an issue. The Japanese considered that the phenomenal economic
success in East Asia was to a great extent attributable to beneficent government
intervention. To make this point the Japanese government asked the Bank to
conduct a study of the East Asian economic development which resulted in a
publication, The East Asian Miracle (World Bank, 1993). The study did notentirely endorse government intervention but it did find that under certain
circumstances government can play an important role in economic development.
This was a departure from the neoclassicist thinking of the time.
56

The most recent issue is World Bank (2001b).
It also includes information on the “net disconnect,” or discrepancy between the QAG evaluation and the
Bank operations staff perception of project effectiveness.
58
She is presently head of the World Health Organization.
59
A highly controversial project in the Amazon Basin of Brazil in the early 1980s, The Integrated Developmentof Brazil’s Northwest Frontier, galvanized NGO protest against environmental damage from the Bank’s activities.
57

53

CHAPTER III

East Asian economic growth highlighted another factor key to development,that of foreign direct investment (FDI). With FDI mushrooming in that region
in the 1980s and the first half of 1990s, World Bank lending for a time
significantly diminished and became minimal or even nil in those countries.
Foreign private money, mainly from industrialized and other East Asian
countries, was financing not only industry but also infrastructure in such sectors
as energy, transportation and communication. The FDI dwarfed official
development assistance60 (ODA) and brought into question the continued
existence of ODA and the role of development agencies.
The decade of the 1990s was a period of considerable activity among groupsinterested in the condition of the world’s disadvantaged. A series of UNsponsored conferences highlighted the global nature and effect of development.
After the Brundtland Commission referred to above, these included the Jomtien
Conference on Education for All in 1990, the Rio Conference on Environmentand Development in 1992, the World Conference on Human Rights in Vienna
in 1993, the World Conference on Women in Beijing in 1995, the World Summit
for Social Development in Copenhagen in 1995, the renewal of the 1978 Alma
Ata Summit on Health for All in 1995, the Habitat II Conference in Istanbul in
1996, the World Food Summit in Rome in 1996 and the Kyoto Conference on
Climate Change in 1997.
In 1996 the Organization for Economic Cooperation and Development(OECD), comprised of industrial countries, conducted a review of the lessonsof 50 years of international economic assistance. The review was carried out
by the Development Assistance Committee (DAC) of OECD which, as part ofits report, defined a limited number of “indicators of success” (DAC 1996).
These were meant to be “ambitious but realizable” goals (DAC 1996), theidentification of which might re-invigorate the effort by clarifying and to somereasonable extent quantifying the objectives of international economic
assistance. These goals came to be called the International Development Targets(or Goals) (IDT). They were in the areas of poverty, education, gender,mortality, health and the environment. The Department for International
Development of the United Kingdom (DFID) adopted them in 1997. The
World Bank initially found some problems with the IDTs, mainly because it
thought the list to be too limited, too general, or too unrealistic. Its development
strategy is much more comprehensive and extensive than the IDTs. However,after weighing the advisability, in 1998 the Bank incorporated them into its
poverty reduction program.
60

54

See various issues of Global Development Finance by the World Bank.

Evolution of Development Assistance

These goals, somewhat modified, were adopted by the United Nations
member countries at the Millennium Summit in New York in 2000 and renamed“Millennium Development Goals” (MDGs) and as such provide a rallying
point for current international development efforts. They were at the heart of
the United Nations Conference on Financing for Development (FfD) held inMonterrrey, Mexico in March 2002, and central to the World Summit on
Sustainable Development (WSSD) held in August 2002 in Johannesburg. The
eight Millennium Development Goals are given in Box 361. Associated withthem are eleven “targets,” and thirty-one identified “indicators” against which
to measure progress.
Box 3: Millennium Development Goals62
•
•
•
•
•
•
•
•

Eradicate extreme poverty and hunger.
Achieve universal primary education.
Promote gender equality and empower women.
Reduce child mortality.
Improve maternal health.
Combat HIV/AIDS, malaria and other diseases.
Ensure environmental sustainability.
Develop a global partnership for development.

Source: UN website

Meanwhile, as was described above, in the late 1980s to early 1990s theinstitutional framework in developing countries became an issue and institution
building moved into the center of development theory. There was recognition
that the problem of the former Soviet Union and in particular the RussianFederation (which joined the Bank in 1992) was mainly that of inadequate
institutions. The “shock therapy” of market immersion referred to earlier had
not had the hoped for effect; this was significant because it demonstrated that“[m]arket economies cannot function well where the institutional and incentive
environment permits…corruption to flourish” (World Bank, 2001e: 65). In
61

It is instructive to compare these goals with targets set by the Bank early in the McNamara presidency. Over
five years to 1973, the targets (which were met) were as follows (World Bank, 1997a: 14):
• To double the global total of Bank and IDA lending. (The total increased 128%)• To triple lending to Africa. (It rose 214%)• To double lending to Latin America. (It grew 128%)• To quadruple lending for agriculture. (It increased 317%)• To triple lending for education. (It expanded 362%).
62
This entire schema of the MDGs is presented in Appendix 4.

55

CHAPTER III

another region, Sub-Saharan Africa, economies were stagnant or in long term
decline, often because of the issues related to governance.
The almost universal endorsement of the fundamental importance ofinstitutions to economic development is due to the fact that it offers solutions
to the development conundrum that are compatible to development economistsof all persuasions, from the most human development oriented to the mostmarket oriented. The following reveals why this is so:…if the basic institutions for the creation of capital and the full participationof the whole society in economic activity are not in place, investments ininfrastructure, education, or health or economic reforms, or public sector
reforms will not be effective, and will likely only increase income
inequality…Building roads and bridges or undertaking agriculturalresearch will not increase incomes…if people do not have secure property
rights to farm land; education and health improvement projects will not
promote income growth for the poor unless there is the generation of capitalwith which the healthier and better educated labor force canwork;….(Duncan and Pollard, 2001:8)
Also having a forceful impact was the perception, dawning throughout thedevelopment community, that whatever positive effects there might be,
development assistance was not reducing the number of poor people in theworld nor, in most cases, was it improving their lives. Poverty as a target ofWorld Bank concern was first suggested by Robert McNamara in a speech in1972 to the United Nations Conference on the Human Environment in
63
Stockholm when he concluded by saying that “The leading edge of that[practical] action must be to protect man from the one hazard which can injure
not only his habitat and his health—but his spirit as well. Poverty. Cruel,senseless, curable poverty” (McNamara, 1981: 14). The poverty reduction
envisioned by Mr. McNamara at that time was expected to result from increasing
the productivity of poor people “thereby providing for a more equitable sharingof the benefits of growth” (McNamara, 1981: 269). This was the orientationthat produced the “redistribution with growth” and “Basic Needs” campaignsof that era.
This is in contradistinction from poverty reduction as it is on the Bank’s
agenda today. The post-Washington consensus reflects a clear shift of emphasis
63

This conference was the predecessor for all of those others mentioned above and set the pattern for subsequentinternational conferences on global socioeconomic issues.

56

Evolution of Development Assistancefrom growth to poverty alleviation. It accepts a new, broad, “multi-layered”
definition of poverty and the need for new, broad, multi-layered approaches.
Events, theory and sentiment have come together to proclaim that development
is a complex “highly nonlinear and highly multifaceted” process. (Adelman
and Morris, 1997: 833) Donor countries and the development community
actively seek some effective method for grappling with the situation. As has
been shown above, throughout the fifty years of development effort each of
the pieces constituting this multi-layered approach had already been recognized
as relevant, either singly or in combination.
A major source of the momentum pulling them together at this point intime was the unrelenting insistence of NGOs. As mentioned earlier, in Chapter
I, with reference to the development community, NGOs as a group have become
an increasingly influential presence. They present themselves as championsof the poor and of sustainable development. Their insistence and persistence
has garnered their inclusion as legitimate stakeholders in the development effort.
Beyond that, the participatory nature of current development strategy and the“pro-poor” and community focus it espouses means that often NGOs, whohave experience with that strategy and work at that level, are well positioned
to play a key role in programs financed by more established agencies, whether
multilateral or governmental. That role may be as advisor or source of
information for an area where it has long worked and knows well, or it may beas the actual agent on the ground working with communities of which it isalready an accepted member.
Their lack of accountability, self-selection, and adversarial stance, referred
to in Chapter I, causes some to doubt their credibility. Other critics fear that
their grass-roots, community level work creates a dependency on them in thosecommunities, for whom they may provide such services as food, health careand educational support. Further, there is concern that through fungibility(discussed at length in Chapter V) provision of services by NGOs in somecountries enables the central government to spend its money unproductively(Onishi, 2002; Béjar and Oakley, 1996).

4. Lending Trends
With changes in strategies over the years, the Bank’s lending has changed
as well. This subsection examines these changes and discusses how and why
they occurred.
The World Bank has two main categories of lending: investment lending
and adjustment lending. There is also a third category of assistance, termed57

CHAPTER III“non-lending assistance.” This includes any non-financial aid, generally
technical support, training in institution building, or access to World Bankknowledge resources. It is intended for situations where financial assistance isdeemed unsuitable, usually because the institutional environment is
unsatisfactory. This type of aid is becoming more important because, as will
be seen later in this paper, it provides some means for helping countries thatneed assistance but cannot reliably use money well.
Investment, or project, loans have a long-term focus (5-10 years) and provide
financing for specific development projects. Adjustment loans provide quick
disbursing funds for policy or institutional reform. They come in two varieties:“structural” adjustment loans designed to target some existing distortion in theeconomy; and “programmatic” adjustment loans intended to forestall potential
distortions by pre-empting them. Other multilateral development banks have
similar instruments; in the case of the Asian Development Bank (ADB)
programmatic lending is called “policy based lending.” The Inter American
Development Bank (IADB) has “sector adjustment loans.”
The structural loans were conceived in the late 1970s in response to
macroeconomic dislocations mainly caused by the heavy external debts due tohigh petroleum prices, as described above. They have a shorter-term focus
than investment loans, 1-3 years. The programmatic loans are part of an ongoing poverty reduction strategy, described in the next section. They haverenewable tranches, continuation generally being contingent on satisfactoryuse of the previous tranch.
Investment lending is and always has been the predominant mode andcurrently accounts for about 70% of the total. In recent years adjustment lending
has hovered around one-quarter of the loan total. Its share increased
substantially in 1998 and 1999 but this reflects emergency loans made to East
Asian64 countries to assist them with the effects of their financial crisis. For
similar reasons, the 2001/2002 share of SALs is high because of financial
crises in Argentina and Turkey.
The parameters for each category of assistance have changed over time,
generally becoming broader so as to include situations that had not beenenvisioned at first design. As discussed above, when adjustment lending was
first widely used in the 1980s, the desired reform was that which would reduce
market distortions and encourage retreat of state involvement in the economy.
Now, however, the main objective of reform has shifted to poverty alleviation.
Currently an investment loan can be used to finance social development as
64

58

The Bank’s classification considers Southeast Asia to be a subset of East Asia and the Pacific.

Evolution of Development Assistance

Table 1:World Bank Lending by Instruments, 1991 – 2001
(Average for Two Fiscal Years)(US $ millions)

Instruments
Adjustment
DRL
PSL
RIL
SAD
SAL
SubTotal
Investment
APL
ERL
FIL
LIL
SIL
SIM
TAL
SubTotal
Other
PRC
Overall Total

FY91/92 FY93/94 FY95/96 FY97/98 FY99/00

FY01

108
0
0
2,791
2,828
5,727

225
0
619
1,708
1,508
4,061

203
0
730
2,440
1,545
4,917

134
20

1,397

65
2,411
5,577
8,188

3,146
7,052
10,218

1,659
2,307
5,363

0
472
1,030
0
12,2062,388
373
16,4690614
984
0
14,1182,021
470
18,206

0
175
1,014
0
13,635
1,569
628
17,020

715
343
117
68
13,649851
331
15,683

1,099
1,123
197
119
8,653
297
430
11,919

1,067
782
151
78
9,000
277
134
11,48822,19622,266

21,93723,870200
22,136

17,250Source: World Bank Annual Report (various issues), World Bank.
Abbreviations defined after Table 2

well as more traditional physical infrastructure development and an adjustment
loan can finance legal and regulatory reform as well as the originally intended
macroeconomic policy reform. Whichever the category of assistance, the Bankhas become increasingly and actively involved with client governments’management of rules and policies.
Tables 1 and 2 (World Bank Lending by Instrument in terms of US dollars
and in terms of percentage) and Table 3 (World Bank Global Lending by Sector)
show within lending categories how lending instruments and sector allocations
have changed over the past decade. New instruments have been introduced
since the late 1990s to allow more suppleness in targeting objectives, such as
Learning and Innovation Loans (LILs) and Adaptable Program Loans (APLs)
in the investment category, and to intensify the focus on poverty reduction,such as Programmatic Structural Adjustment Loans (PSALs/PSLs) and Poverty
Reduction Support Credits (PRSCs/PRCs) in the adjustment category. (These59

CHAPTER III

Table 2:

Lending Shares by Instruments, 1991 – 2001
(Average for Two Fiscal Years)(percent)

Instruments
Adjustment
DRL
PSL
RIL
SAD
SAL
SubTotal
Investment
APL
ERL
FIL
LIL
SIL
SIM
TAL
SubTotal
Other
PRC
Overall Total(Mill. US$)FY91/92 FY93/94 FY95/96 FY97/98 FY99/00

FY01

0.5

1.0

0.9

0.6
0.1

8.1

12.6
12.7
25.8

2.8
7.7
6.8
18.2

3.3
11.1
7.0
22.4

0.3
10.1
23.4
34.3

14.2
31.9
46.2

9.6
13.4
31.1

2.1
4.6

2.8
4.4

0.8
4.6

55.0
10.8
1.7
74.2

63.4
9.1
2.1
81.8

62.2
7.2
2.9
77.6

3.0
1.4
0.5
0.3
57.2
3.6
1.4
65.7

5.0
5.1
0.9
0.5
39.1
1.3
1.9
53.8

6.2
4.5
0.9
0.5
52.2
1.6
0.8
66.6

0.9
100.0

100.0

100.0

100.0

100.0

100.0

Source: World Bank Annual Report (various issues), World Bank.
APL = Adaptable Program Loan
DRL = Debt Reduction Loan
ERL = Emergency Recovery Loan
FIL = Financial Intermediary Loan
LIL = Learning and Innovation Loan
PSL = Programmatic Structural Adjustment Loan
PRC = Poverty Reduction Support Credit

RIL = Rehabilitation Loan
SAD = Sector Adjustment Loan
SAL = Structural Adjustment Loan
SIL = Specific Investment Loan
SIM = Sector Investment Maintenance Loan
TAL = Technical Assistance Loan

last two are discussed in detail in a later chapter.) The new adjustment vehicles
are critically important to the strategy developed by the Bank for attacking andreducing world poverty. Devising these instruments is an ongoing activity,65
and new variants emerge frequently .
In terms of sectoral shares of loans, there has been significant change overthe past decade. (See Table 3). Notable declines are in agriculture, education,
65

60

A full list and explanation of lending instruments in use at the time of this writing is presented in Appendix 5.

Evolution of Development Assistanceelectric power and other energy, mining, oil and gas, industry,
telecommunications, transportation and urban development. In the cases ofagriculture and education, these declines seem inconsistent with the Bank’s
poverty reduction thrust: agriculture because it touches the vast majority of
the world’s impoverished people; education because it is key to empowerment,
participation and improvement in many (even most) elements of deprivation.
Conversely, the Bank has succeeded in substantially increasing its loans on
public sector development, environment, finance and social protection in recent
years. This reflects the current strategy, which is to strengthen institutions andbe pro-environment and pro-poor.
The causes of the sectoral declines are several. Possibly the most important
one is a shift by the Bank away from projects that can be carried out by theprivate sector. This posture is provided for in the Articles of Agreement and is
the agreed position within the donor community. Private sector preference
Table 3:

World Bank Global Lending by Sector*

FY
FY
FY
FY
FY
%
90/94 1995 1997
1999 2000
changeAgriculture
3,216 2,205 3653 2,508 1,337-58
Economic policy
9,890 1,287
Education
1,811 2,052 1,017 1,344
684-62Electric power and other energy 2,466 2,242 1,889
440
994
-60
Environment
622
824
227
539
514
-17
Finance
1,477 2,930 1,179 2,322 1,677
14
Industry
634
178
196
Mining
106
25
321
315
55
-48
Multisector
3,034 3,152 2,186
641
655
-78
Oil and Gas
843
603
136
18
167
-80
Population, health, and nutrition 1,037 1,101
920 1,107987-5
Private sector development
1,337
164
Public sector management931 1,098941
963 2,443
162
Social protection
337 1,051 1,390 2,679
990
193
Telecommunications
437
325
111
109
-75
Transportation
2,803 2,253 3,832 3,022 1,690-40
Urban development
1,141 1,502
668
707
622
-45
Water supply and sanitation
1,031
982
683 1,053
904
-12
TOTAL
21,925 22,522 19,147 28,996 15,276-30* Regional Lending by Sector is presented in Appendix 6.
Source: World Bank Annual Report (various issues), World Bank

61

CHAPTER III

probably has affected industry, mining, oil and gas, telecommunications andtransportation. Concern for environmental impact is another factor and .has
affected agriculture, mining, and oil and gas. Competition from other donor
countries and organizations, discussed further below, may also explain someof the sectoral declines.
With specific regard to agriculture, lending has been affected by the needto develop a new rural development strategy that extends beyond agriculture
to all aspects of rural life, in World Bank terminology, the “rural space.” The
new strategy, subtitled “Reaching the Rural Poor” was approved in November
2002 (World Bank, 2002e). It aims to incorporate job creation, infrastructureand services while honoring the safeguard policies and accommodating thecurrent Bank interest in its strategic elements. There is great constructive
possibility to the new strategy, given the potential for institutional change
inherent in rural organizations. Perhaps the finalization of the strategy will
permit that potential to be realized. However, some observers believe that the
proposals for implementation may be overly idealistic.
There are several possible explanations for the decline in education lending
after 1990.66 One is that school construction has slowed because there is anample supply and the need now is for other, less tangible, inputs. Another isthat some governments, India being one, are reluctant to accept aid for education.
A third possibility is that competition from other donors who offer assistanceon less onerous terms is attracting potential clients away from the World Bank.
This last is a consideration which may, in fact, be affecting the Bank’s
portfolio as a whole. World Bank lending has hovered in the $20 billion range
since 1990. While the Bank presents its historic lending trend as remaining“fairly stable for the past five years” (World Bank, 2001b: 2), the figures inTables 3 and 5 reveal a declining portfolio with FY00 lending well below the
FY92-97 average. The FY01 total is somewhat higher than FY00 but still67
significantly lower than the longer-term trend . Analysis in the Annual Reporton Portfolio Performance (World Bank, 2001b) implicitly ascribes any decline
to a healthy portfolio of improved quality and reduced risk. There are otherlikely explanations, however.
An increasingly important factor affecting the Bank’s lending level is thedeterrent to recipients of the high cost of the lending process, termed “the costof doing business.” Apart from interest payments on loans and theconditionalities to adjustment lending, there are high non-monetary costs
66

It is important to note that lending to education had doubled between 1980 and 1990.
As was previously mentioned, high lending in 1998 and 1999 was anomalous, due to huge adjustment loans
to Southeast Asian countries.

67

62

Evolution of Development Assistanceconnected with the lengthy loan-appraisal period and heavy paperwork
requirements. As mentioned above with reference to education, there are other
donor organizations whose requirements are deemed less stringent, including
regional development banks. In addition, most donors provide large amountsof grant aid for projects such as education and population, health and nutrition.
The existence of these potential alternatives has reduced or stagnated demandfor Bank loans in some sectors where, under its present strategy, it should be
investing more. The fact is that the Bank faces stiff competition and savvy
client governments can go elsewhere for assistance.
There is another constraint on World Bank lending called “absorptive
capacity.” This refers to the quality of the client as a recipient of project(investment) lending: can it fund the domestic currency needs of the project;
can the government be relied on to fulfill the goals of the project; and can therecipient handle operation and maintenance of the project once it is completed
so that its effects can be sustained. Countries which might otherwise be eligible
may lack absorptive capacity and any country may choose to use its available
domestic currency for some other purpose. Thus, even when the Bank is willingto provide the foreign exchange component, projects may not go forward.
Lending can also be classified according to the insertion point. One strongly
emerging view holds that development effort can be accentuated by directing
it to the most effective level, community, national, or global/regional.
Traditionally the Bank deals with governments, but it has become increasinglyinterested in targeting recipient communities and, at the other extreme, inaddressing global issues. At the traditional, country-wide level, the mostappropriate areas are those responsive to formulated policy, such as education,
employment, private investment, and capacity building. At the community
level, areas having primarily local impact and demanding on-the-ground action
are appropriate, such as sanitation, health and local institutions. At thetransnational level, the Bank would expand its activities and lending into anarea referred to as global public goods. These are poverty and quality of life
issues that transcend national boundaries and are defined as commodities orservices that, once provided, can be obtained without payment by others(Stiglitz, 1996: 155). Their benefits are not restricted to any geographic region
and are not diminished by increased use. Five global public goods have been
identified by Stiglitz: international economic stability, international security,
the international environment, international humanitarian assistance andknowledge (Stiglitz, 1995)68.
68

Agriculture provides an example of an area demanding attention at all three levels. Refer to Appendix 2.

63

CHAPTER III

A contrasting view is that insertion points other than at the national
government level tend to weaken its institutions, the very ones that should be
strengthened. This occurs when donors seeking to administer aid through NGOs
and/or other civil society bypass the government, thereby undermining its
authority, preventing its scrutiny of the aid objective, and undercutting its“fledgling institutions of representative democracy” (UNCTAD, 2002b)69. The
effect on the NGOs also is potentially damaging as it could compromise their
independence and credibility. A clear instance of these potential stresses is in
the assistance program for post-Taliban Afghanistan. The United Nations iscoordinating the effort which is financed by all the major donors andimplemented by a plethora of international non-governmental organizations.
Senior Afghan officials have criticized the UN for setting up what is, in effect,a parallel government, saying: “As long as you continue to work the way you
are accustomed to operating, the government can never establish itself70.” The
specific problems include the effect on the local society and economy of an
influx of peace-keepers and aid workers, conflict between the priorities of the
newly installed government and the donor community, and monopolization by
the aid agencies of the available funds (Financial Times, 2002b).
Geographic region is a useful parameter for lending because to some degree
issues faced by the developing world have regional characteristics and might
be addressed most effectively by narrowly tailored assistance. Asia is home to
the greatest number of impoverished people, so that despite its impressive
reduction in poverty levels, poverty is major problem. In Latin America, asignature issue is income distribution. In Russia and other transitional
economies, it is the suitability and quality of institutions. In Africa, the problems
are widespread and systemic, with the living conditions of most people and thehealth of the different economies in serious straits71.
When the US administration of George W. Bush took office, the spotlight
was turned to another method by which the Bank can extend financial aid, thatis by giving grants which would not have to be repaid. The Bank’s largest andmost powerful shareholder began advancing arguments in favor of replacing
fifty percent of IDA loan assistance with grant assistance, a huge jump fromthe current five percent (Beattie and Wolffe, 2001: 1). The grants would be
69

The specific reference here was to Africa.
Of $1.3bn given in aid, only ten per cent had gone directly to the government. The government was reportedly
considering seeking a limit on the amount of Afghan funding UN agencies could bid for in an effort to gain abigger share of next year’s estimated $2bn in aid (Financial Times, 2002b).
71
The World Bank divides the developing world into six regions. Regional lending by sector tables is in
Appendix 6.
7064

Evolution of Development Assistancegiven in support of facilities and services that are best provided by a public
sector, such as education and health care leaving economic infrastructure to
the private sector to fund, an arrangement in keeping with the position thatprivate investment be included in the development paradigm. This change inaid pattern was strongly opposed by other major donors, including Japan andthe UK, for two reasons: It would be an undesirable change in the nature andfunction of the IDA, duplicating too much the aid programs of UN agencies;
and, it would eventually require that the IDA seek increased contributions
from the donors. As part of the IDA 13 agreement, a compromise was reachedof boosting the grant dispersal to a range of 18 to 21 percent (International
Development Association, 2002: 27).
The apparent source for this position by the incoming Bush administrationis the report of the International Financial Institution Advisory Commission(US Congress, 2000) established by the US Congress in 1999 to explore therole of international financial institutions in the new world economy. The
main recommendations of “the Meltzer Report,” as it is informally known
because the commission was chaired by economist Allan Meltzer, were thatthe organizations be significantly scaled back (or even abolished) and that theWorld Bank shift from loans to grants. The Report was submitted in March,
2000, during the Clinton Administration. It received initial wide publicity andthen it quickly faded from view.
Another lending concept being discussed within the international
development community is that of a common pool of aid money, to be disbursed
to individual countries in accordance with plans they have drawn up and whichhave been accepted by pool contributors. The British DFID supports it as72
does a high-level United Nations panel on financing for development (FfD) .
If this system were adopted, bilateral aid and related conditionalities would
diminish or cease altogether. This is theoretically in harmony with theComprehensive Development Framework (CDF) process of shared strategy.
It is also consistent with the theme of “ownership” in that the burden of using
the pooled funds effectively would fall on the recipient government.
Actual adoption of a development common fund is not close, however,
because some major donor countries will not readily cede total control overtheir money and interests while others are reluctant to totally entrust the recipient
government with allocating the money. In answer to the latter concern, the UN
72

This blue ribbon panel, chaired by Ernesto Zedillo, former Mexican president, examined financing fordevelopment for the United Nations conference on that topic held in March, 2001, in Monterrey, Mexico. The
conference is discussed in the final chapter of this book.

65

CHAPTER III

FfD panel has said: “…a part of ownership is the right to make mistakes…A
new relationship…will never be established if donors put safety first” (Beattie,
2001b). This thought is echoed in an influential World Bank publication, whichstates “The important question is whether developing countries are
systematically gaining knowledge from such experiments. Failed projects canoften teach as much (or more) than successful ones” (World Bank, 1998: 91).

66

The World Bank: Poverty Reduction Strategy

CHAPTER IV

The World Bank: Poverty Reduction Strategy

To comply with the post-Washington consensus as described in the previous
section, the World Bank has been compelled to change its image, processes,
strategies and lending instruments. This section discusses the Bank’s current
main strategies and instruments with a focus on new trends, especially that ofpoverty reduction.
The Bank’s development strategy since the early 1990s is to a large extent
a response to criticism directed at its structural adjustment loans and its
neoclassical approach to development. To address this criticism and toaccommodate the emerging new views, the Bank revitalized the dormant poverty
issue, looked at the complaints voiced by interested parties, and started tofocus on issues of wide social concern73. This shift occurred during thepresidencies of Barber Conable (1986-1991) and Lewis Preston (1991-1995)
and it was continued and accelerated by the current President, James
Wolfensohn. Mr. Wolfensohn felt that unless the Bank changed, its survival
was in doubt. He has vigorously promoted poverty reduction as the Bank’s
overarching objective and he is responsible for the Bank’s current slogan, “OurDream is the World Free of Poverty.”
Although the World Bank today identifies its fundamental objective as the
reduction of poverty very broadly defined, poverty reduction is not one of the
purposes stipulated in the Bank’s Articles of Agreement. Poverty is not evenmentioned there. The Bank has addressed this inconsistency through a creative
redefinition of the term “development,” which the Bank is mandated to promote.
To some degree, as with structural adjustment lending, it has also used the“special circumstances” loophole in Article III, Section 4, Paragraph vii toincorporate poverty. (Relevant excerpts from the Articles are presented in73

WDR 2000/2001 devotes a number of pages to a discussion of the effects of market reform and acknowledges
that sometimes market reform fails (World Bank 2001e: Chapter 4).

67

CHAPTER IV

Appendix 1.)
Since the 1990s, the view that economic development is a matter of
improved living conditions rather than increased Gross National Product (GNP)
per capita has become widely endorsed but there are some nuances of opinion
as to the ultimate objective: the Organization for Economic Cooperation andDevelopment (OECD) favors sustainable development, and at least one Nobel
laureate believes that it is freedom (Sen, 2001: 506). For today’s World Bank,
however, it is unequivocally poverty reduction. To attain that objective, theBank under Wolfensohn has seriously adopted the theories of the institutionalists
and incorporated the concerns of the human development advocates. This
began the era of the social scientist and their influence is manifest in its programs
and projects (Refer to Figure 2).

1. Poverty and Institutions
Though poverty has not always been in the forefront, the awareness ofpoverty as an issue separate from growth has existed and persisted. As discussed
previously, the shift in the development paradigm toward a focus on poverty
has been championed by several UN organizations and donor countries.
However, within the Bank, it was not until the publication of the World
74
Development Report 1990 (World Bank, 1990) that the issue of poverty reallycame into its own. Subtitled “Poverty,” the WDR of 1990 was written during
the presidency of Barber Conable. It declared that the “principal elements ofan effective [poverty reduction] strategy are well understood” (World Bank,
1990: 6) and presented them as follows. First, rekindle economic growth,particularly labor-intensive growth. This would provide opportunity to thepoor to be more productive. Second, increase government expenditure on
human capital to equip people to take advantage of that opportunity. Third,provide a social safety net for those unable to enter the labor force.
On the surface, this is little different from recommendations of the World
Development Report 2000/2001 (World Bank, 2001e), subtitled “Attacking
Poverty,” written during presidency of James Wolfensohn. That also
recommends three actions. First, promote opportunity. Second, facilitate
empowerment. Third, enhance security (World Bank, 2001e: vi). The majordifference between 1990 and 2000/2001 is how the problem is defined. In
1990 poverty alleviation was still considered in economic terms and the strategy
74

The annual World Development Report was first published in 1978. Each turn of the decade edition spotlights
the subject of poverty – 1980 was subtitled “Human Development and Poverty”; 1990, “Poverty;” and 2000/
2001, “Attacking Poverty.”68

The World Bank: Poverty Reduction Strategy

was based on growth, productivity and income distribution. In 2000/2001 it
was considered in human development terms. This reveals a new focus on
people and has resonance with the Human Development Index (HDI); as such,it reflects the influence of economists such as Amartya Sen and organizations
such as UNDP.
The [2000/2001] report accepts the now established view of poverty as
encompassing not only low income and consumption but also low
achievement in education, health, nutrition, and other areas of humandevelopment. And…it expands this definition to include powerlessness
and voicelessness, and vulnerability and fear. (World Bank, 2001e: v)
In terms of Bank policy the 1990 WDR can be seen as the turning point.
That publication heralded the impending change in development orientationfrom an economic emphasis to a human one and foreshadowed a dramatic reorientation toward addressing poverty and economic development in all its
complexity rather than in narrow terms of growth. In noting that poverty isoften accompanied by other forms of deprivation including reduced life
expectancy it presaged the direction toward which the Bank was turning. It
declared “[a]ttacking poverty is not primarily a task for narrowly focused
antipoverty projects…[i]t is a task for economic policy in the large. (World
Bank, 2001e: 4) And it acknowledged the importance of access to basic social
services, of improved status for women and girls, of security, of politicalinclusion and of the role of NGOs.
This reorientation was solidified in 1997 when Mr. Wolfensohn, two years
75
into his presidency , entered into a “Strategic Compact” with the Bank’s Boardof Governors (representatives of each of the 183 member countries). The
Compact, subtitled “Renewing the Bank’s Effectiveness to Fight Poverty,”offered changes in organization, changes in skill mix, and a change inorientation. Many of the measures it promised are part of the current Bank
poverty reduction strategy. With the compact, decentralization of staff (locating
more Bank staff in the client countries) and restructuring of the administrative
system occurred, with much responsibility put on a newly-established position,
country director. Through the strategic compact76, Mr. Wolfensohn put his
stamp on the World Bank.
In placing poverty reduction at the center of its efforts, the World Bank
75
76

He is now into his second five-year term.
Fuller details on this Compact are in Appendix 7.

69

CHAPTER IV

gave the term the widest possible definition, “pronounced deprivation in wellbeing” (World Bank, 2001e: 15). There is almost no aspect of human existencethat cannot be included within this definition: health care, sanitation, education,
gender equity, job opportunity, freedom from fear, empowerment, responsive
government, etc. Following is the Bank’s definition:
Poverty is hunger. Poverty is lack of shelter. Poverty is being sick and not
being able to see a doctor. Poverty is not being able to go to school andnot knowing how to read. Poverty is not having a job. Poverty is fear for
the future, living one day at a time. Poverty is losing a child to illness
brought about by unclean water. Poverty is powerlessness, lack ofrepresentation and freedom. (World Bank, undated-b)
An examination of the distribution of jobs among World Bank staff overthe past decade reveals the re-orientation (See Table 4). The most significant
increase in staff positions, quadrupling over the past decade, was in the area ofenvironment and social development. Other areas of marked increase havebeen external affairs, doubling over the past decade, (6.9% p.a.), humandevelopment, about 60% increase (5.2% p.a.), legal, about 60% increase (5.2%
p.a.), public/private sector development more than tripling (12.9% p.a.), mostof which is public sector development. Most other categories either stayed
relatively stable or declined. The most significant decline was of staff positions
in rural work, two-thirds reduced (9.1% p.a.), probably a reflection of the lending
decline in that sector discussed above.
Even while poverty reduction is the ultimate objective of a broad, multilayered web of development assistance, it is accepted that there is one layerthat undergirds and supports all the others, that of institutions. The WorldBank recognized that the ideas of the institutionalists could have useful
application in addressing the poverty issue. As discussed above in Chapter II,
the relevance of institutions to economic functioning has been widely
acknowledged over time, and by 1990 with the work of Douglas North,institution building had been identified as a desirable goal. In the new paradigm,
however, institutions are not simply useful and relevant, they are critical andimportant. The belief is that without appropriate institutions, development
will not occur and that, in fact, the character of institutions defines a country’s
readiness for adjustment lending. This is explicit in the position of the World
Bank:

70

The World Bank: Poverty Reduction Strategy

Table 4:

World Bank – Staff/Skills Distribution at Headquarters,
Fiscal Year 1989-2001(Biannual Averages)

JOB FAMILIES
Accounting/Admin &Budgeting/Auditing
Board Operations
Economics
Editorial Publication
Energy/Mining/Telec
ommunications
Environment &Social Development
External Affairs
Finance
General Services
Human Development
Human Resources
Information
Technology
Infrastructure
Investment
Legal
Management
Non-Regular Staff
Operations &Evaluation
Office Support
Other
Public/Private Sector
Development
Rural
TOTAL JOBFAMILIES

FY
FY
FY
FY
FY
FY
FY
Change89/90 91/92 93/94 95/96 97/98 99/00 2001* (% p.a.)
178

198

233

236

228

230

226

2.1

11
806
12

12
826
11

12
850
14

14
805
11

9
693
9

10
708
15

9
697
15

-2.2
-1.7
1.3

115

105

113

100

86

93

104

-1.8

31

54

87

109

135

195

214

18.3

20
279
50
86
69

29
295
49
119
76

32
289
44
142
87

33
262
33
142
91

37
253
36
132
84

44
327
38
170
91

49
368
39
166
93

6.9
1.2
-3
5.2
2.3

182

202

234

240

225

213

186

0.9

133
173
93
521
2

154
223
100
559
2

166
267
122
584
1

152
278
132
555
5

141
299
140
595
2

163
373
161
644
0

172
386
151
621
0

1.2
6.9
5.2
1.6
N. A.

319

346

388

381

403

481

475

3.6

1
85

1
106

1
121

3
117

0
137

3
214

4
225

N. A.
8.6

42

47

80

121

112

154

131

12.9

144

136

127

98

65

64

51

-9.1

3345 3643 3989 3912 3815 4386 4382

2.1

Source: World Bank

Development is a process of societal transformation that takes place overtime…[And] lasting development and poverty reduction require a truetransformation of society…A transformation of this magnitude will entailchanging institutions so that they are accountable to all, including thepoor…(World Bank, 2000a: 2)71

CHAPTER IV

As has been mentioned, the term “institution” is very broad and extends
beyond the public sector. It encompasses an amorphous concept meant toinclude organizations, associations, informal groupings and unspoken
understandings. Among the institutions critical to development, public sector
institutions77 are the most critical and governance is the most important. This
has already been mentioned with respect to investment (project) lending in thecontext of absorptive capacity. It is now an increasingly significant factor in
the newer adjustment lending vehicles as well, not only in terms of the recipient’s
capacity to participate, but also in terms of the honesty and reliability of those78
entrusted to handle hard-to-monitor program loans .
The World Bank and its sister Bretton Woods organization, the International
Monetary Fund, explicitly incorporate an assessment of governance into theirlending decisions. The IMF adopted guidelines on governance issues in 1997
as it came to understand the importance of governance to economic efficiency.
Its guidelines limit the organization to involvement with the economic aspectsof governance but they also permit the use of funding conditionalities “tosafeguard the use of IMF resources” (IMF 1997: 6). For the IMF, the issue
seems to be one of corruption and misuse of its funds. For the Bank governanceis an essential ingredient to aid effectiveness and it is a component of79
development itself . It is a target as well as a lending consideration. For thisreason, the Bank takes a more complex and comprehensive approach to theissue. It is currently piloting a new instrument of governance assessment called
the Institutional and Governance Review (IGR) to provide CAS input on
institutional weaknesses that affect governance80.
It has been pointed out earlier that a recognition of the need for changes ingovernment policy dates as far back as the “policy dialogue” of the pioneers
and can be seen in the policy-based lending of the neoclassicists. Today’s
preoccupation with achieving good governance is a clear, if unacknowledged,
continuation of that effort. The role of government, in today’s view, is tosecure an effective state, one which both invites investment and protects thevulnerable. There are several essential pieces: tax administration, expenditureand budgetary systems, legal and judiciary systems, civil service, public
infrastructure, basic social services, non-distortionary policies, and77
78

Defined as “any institutions that shape the way public functions are carried out.” in World Bank (2000b).
These program loans are described further in the sub-section on “New Lending Instruments” and in Appendix

5.
79

Refer to Box 5 and Appendix 2.
An undated exposition on IRGs can be found at http://www1.worldbank.org/publicsector/PREMweek/
PREMNoteIGRs.doc.

80

72

The World Bank: Poverty Reduction Strategy

environmental protection (World Bank, 1997b). Appropriate public sector
institutions are also key to controlling corruption.
While the need for appropriate institutions seems clear, how to create themremains a challenge. Efforts to change institutions or to reform them is now
called by the World Bank “capacity building.” Capacity building means“building effective and accountable institutions to address development issues
and reduce poverty in borrowing countries.” (World Bank, 2000b: 6) This isat the core of Bank strategy with particular emphasis on building capacity ingovernance and in legal and judicial reform. This sensitive area, the essenceof sovereignty, is ostensibly to be approached at the request of and with thesupport of the government81. The actual approach is somewhat different,
however, it is more insistent. The following statement justifies the difference.
Reform will proceed only when a country’s leaders are committed and in
the driver’s seat. But changing the internal rules of government is usually
not enough to achieve reform. To be effective, we need to work with ourpartners to understand and address the broad range of incentives andpressures—both inside and outside of government—that affect public sector
performance. (World Bank, 2000b: 7)
Not all development assistance observers and practitioners agree that thepresence or absence of enabling institutions is the point of departure for financial
aid. UNCTAD differs significantly (UNCTAD, 2002a). It finds through its
analysis that emphasis on institutions, policy and governance will be ineffective
without resolution of problems related to protectionism, aid and debt.
Furthermore, governance related conditionalities can create and/or exacerbate
poverty and economic stagnation, especially in Sub-Saharan Africa.
One study analyzed the situation of a group of countries which UNCTAD
82
characterizes as in a condition of “generalized poverty .” For such countries(49 in total), institution building, governance, and the World Bank’s poverty
reduction process in general are inappropriate and perhaps even destructive(UNCTAD 2002a: 199). The report suggests that without first attaining
economic growth and increased consumption, institution building andgovernance cannot be addressed successfully.
81

The earlier discussion on Afghanistan in the context of aid insertion points is also relevant here.
Generalized poverty is absolute, persistent poverty, defined as “a situation in which a major part of the
population lives at or below income levels sufficient to meet their basic needs, and in which the available
resources in the economy, even when equally distributed, are barely sufficient to cater for the basic needs of the
population on a sustainable basis” (UNCTAD 2002a: 39).

82

73

CHAPTER IV

A subsequent report, focusing on Sub-Saharan Africa, questions moreacutely the prevailing assumptions. Entitled Economic Development in Africa,
subtitled From Adjustment to Poverty Reduction: What is New? (UNCTAD,
2002b), this report makes the case that the poverty reduction strategy positedby the post-Washington consensus and adopted by the Bretton Woods
organizations, both the World Bank and the IMF, is in actuality structuraladjustment of the 1980s in a new guise, complete with conditionalities that areburdensome and detrimental to the poorest countries of the world.
A close examination of the macroeconomic and structural adjustment policy
contents of PRSPs shows that there is no fundamental departure from thekind of policy advice espoused under what has come to be known as the“Washington Consensus.” Current policy advice continues to contain all
the main elements of the first generation of economic reforms, designed to“get prices right.” The second generation of reforms now advocated,rather than revising and improving the economic policy framework so far
pursued, adds new elements, emphasizing the importance of “getting
institutions right” or simply “ good governance” (UNCTAD, 2002b: 6).
UNCTAD is highly critical of conditionalities, which in their view continue
to drive development assistance strategy: They are too numerous, averaging
114 for each of 13 sub-Saharan countries over the period 1990-2000, 82 of
83
which were governance related (UNCTAD, 2002b: 17) ; they exceed the properareas of competence of the international financial institutions (UNCTAD,
2002b: 17)84, and they are inconsistent with the themes of country ownershipand participation, so that “…it is unlikely that a reconciliation [of country
ownership and participation with conditionality] will be possible without aconsiderable roll-back of conditionality” (UNCTAD, 2002b: 16).

2. Strategy
A. Themes
At this point-in-time, then, the World Bank (and the larger development
community) is focused on a target that has proved elusive over half a century,
poverty, and has defined that target all-inclusively. In order to grasp thisunwieldy concept analytically and practically, the Bank has developed a“poverty reduction strategy.” This consists of an array of what may be termed
83
84

74

Citing Kapur and Webb, 2000.
Citing US Congress, 2000.

The World Bank: Poverty Reduction Strategy

themes which serve as the organizing principles supporting new processes andlending instruments. It is a strategy designed to incorporate a wide range ofpoverty reduction elements in a way that recognizes and builds on their85
interrelatedness .
The themes are benchmark concepts which the Bank wants to incorporate
into individual projects and overall strategy. They are the following: 1)
Sustainability, a legacy of the Brundtland Commission report of 1987 that isbeing broadened to encompass a wider range of concerns; 2) Participation
which means that there are many stakeholders in the development process allof whom should be heard because each is affected; 3) Ownership, which refers
to the commitment of the client government to the development activity, acommitment that continues even after project completion; and, 4) Institutions,thought to form the essential and fundamental enabling framework within whichdevelopment occurs.
1) Sustainability is a concept introduced into the international lexicon by
the Brundtland Commission and originally had strictly environmental
implications. In development language it signified the nexus between poverty,
inequality and the environment. The link is a bit murky, but the position is thatenvironmental degradation is a poverty issue because poverty exacerbates
degradation and degradation exacerbates poverty by diminishing well-being.
Therefore environmental health is important to the alleviation of poverty andpoverty reduction is to be achieved through sustainable development.
We also believe, with the Brundtland Commission, that meeting the needsof the poor in this generation is an essential aspect of sustainably meetingthe needs of subsequent generations. There is no difference between thegoals of development policy and appropriate environmental protection.
Both must be designed to improve welfare (World Bank, 1992b: 8).
This interpretation is weakened by the fact that it excludes the significant
environmental damage caused by industrialized rich countries. The conclusion
is inescapable that the World Bank wanted to include sustainability in its strategy
but could not on its own merits, rather it had somehow to be tied to the declaredtarget of poverty reduction.
The term “sustainability” is no longer restricted to the environmental context.
85

Further information is available on the “Overview of Poverty Reduction Strategies” page of the World Bank
web site, www.worldbank.org.

75

CHAPTER IV

It has been extrapolated beyond environmental impact to encompass social
impact. “Social sustainability” has been identified as important to development
and Social Assessments (SA) as well as Environmental Assessments (EA) are
increasingly conducted (World Bank, undated-a). Like environmental
sustainability, social sustainability is largely a matter of ensuring non-destructive
measures that can be supported over time. This has allowed the terms to be
applied to a broadening range of concerns as is clear from a perusal of“sustainability” on the World Bank web site: There has been work onsustainability in Guinea worm eradication86, sustainability of investment in87
88
education , sustainability of government targeted credit programs ,89
90
sustainability of immunization ; transportation sustainability as well as fiscal,
financial and debt sustainability91 (World Bank web site).
2) Participation distills up the prevailing idea that there are many
stakeholders in the development effort and input from all of them can only
strengthen the process. This theme emerged in part as a reaction to criticism
that the conditionalities of the structural adjustments loans were excessively
Bank-driven and insufficiently receptive to input from the borrower. It is now
thought that in a sense everyone is a stakeholder; the development community,
the recipient government, donors, civil society including NGOs, and the poor
themselves. The active participation of those who are targeted, people living
in poverty, is considered paramount but the inclusion of stakeholders who
previously were sidelined, such as non-governmental organizations and civilsociety (defined as affected or interested parties outside the government) is
also important.
There are several reasons why wide-spread participation is now consideredhelpful. The most fundamental is the belief, espoused by institutionalists, thatparticipation elicits cooperation and willingness to sacrifice for common
objectives (Griffin, 2000: 21). With regard to the poor, social scientists believethat unless the recipients of assistance are part of the process, they will not be
86

Nigeria Guinea Worm Eradication Programme (NIGEP) began in 1988 with the goal of eradicating theparasite by1995.
87
Presentation by the Bank Human Development Network Education Team (HDNED) and Social Protection
Team (HDNSP) at Brown Bag Lunch, February 28, 2001.
88
World Bank Discussion Paper 316 reviewing a project by the Bangladesh Rural Development Board forprovision of credit and ancillary services , 1996.
89
Terms of Reference for a consultant to review a program by government of Nepal to immunize children
against Hepatitis B, 2001.
90
Specifically, transportation indicators for sustainability, subject of a World Bank Conference, 1997.
91
Many may be found on the Bank web site; for example, Sustainability of the Farmer Field School approachto agricultural extension.

76

The World Bank: Poverty Reduction Strategy

motivated to help that process succeed. This also applies to the NGOs, manyof which are well financed, well organized and well informed. They havebecome extremely vocal when opposed to actions affecting their particularsphere and the hope was that by bringing them into the process as stakeholders,
their opposition would be defused92. Beyond this, there is a recognition that
they, and civil society in general, can function very effectively within client
communities to render real help in program implementation.
The World Bank is avowedly “pro-poor” and believes that while
participation by all is valuable, that by the poor themselves is enormously
important. It believes that they are the real experts on poverty and can offer
valuable input to any assessment of their needs. At the end of the 1990s, theBank surveyed 60,000 poor people in 60 countries to gather some of that input
and it has issued a report in three volumes collectively entitled Voices of thePoor (Narayan et al., 2000 and 2002).
Another important facet of participation is the role of the client government
in the formulation and implementation of strategies and projects. This is closely
related to the theme of “ownership” discussed below. To enhance both“participation” and “ownership,” the Bank often takes the lead in organizing
meetings to communicate with the various stakeholders including NGOs andrepresentatives of the “poor,” especially during the process of formulating
strategies and projects.
3) Ownership has some similarity with participation in that it refers to
depth of involvement. In the new lexicon, ownership means the active, evenprimary, involvement of the client government. Imposed development has
been shown not to work. For development efforts to be successful the country
must “own” the process and it demonstrates ownership by engagement backed
by a significant level of national consensus. A specific instrument, the Poverty
Reduction Strategy Paper (PRSP) has been devised to create ownership. This
document is written by the client and it presents the government’s own strategy
for reducing poverty as it exists within that country. The PRSP is explained
more explicitly in the sub-section below on “instruments.”
In 1995 the Bank received stinging criticism on its attitude toward national
ownership in the highly influential Helleiner Report (Helleiner et al., 1995).
This report was commissioned by the Royal Danish Ministry of Foreign Affairs
and is officially entitled Report of the Group of Independent Advisors on
92

As is discussed in the next section, judging from increasingly antagonistic protests and demonstrations, thishope seems not to have been realized.

77

CHAPTER IV

Development Cooperation Issues Between Tanzania and Its Aid Donors. As
with other commissions, it is commonly known by the name of its chairman,
Gerald K. Helleiner. The Helleiner Report was a watershed document
presenting an independent and authoritative analysis of donor-client relations
that is applicable much beyond the specific situation of Tanzania. With regard
to ownership (Part II of the Report), it singles out the World Bank as particularly
egregious in its disregard for local ownership.
Then there is the World Bank…The perception is of an institution
encouraged by its superior manpower and other resources to be selfconfident to the point of arrogance, with little consideration of others’
views. Local ownership is the first casualty of such an attitude, as illustrated
by the fact, reported to us, that in the preparation of technical cooperation
projects, the Bank staff routinely drafts terms of reference, instead of leavingthat to the GOT (Helleiner et al., 1995: 15-16).
Despite the Helleiner Report’s severe criticism for failing to respectownership and the Bank’s own understanding of “the right to make mistakes,”
the central importance of PRSPs has caused World Bank staff to become heavily
involved in their formulation. It was foreseen that input from staff would be
helpful but in many cases it has been essential, so much so that routine advice
and assistance has been supplemented with special staff training in guiding theprocess. It is unclear to what extent this might dilute the sense of ownership,4) Institutions have been extensively mentioned. In the current climate,their importance cannot be over-estimated. It is widely held that they constitutethe enabling environment of a client country in the absence of whichdevelopment is difficult and assistance uncertain. Institutions can be discreteorganizations, such as commercial associations or religious organizations, but
as the term “the rules of the game” (North, 1990: 1) indicates, they are also theabstract but clear morés that give a society its coherence. There is a recognition
that strategies and projects will not be sustainable unless salutary institutions
exist to support development efforts. In particular governmental institutions
that control corruption, legal and judiciary institutions that protect rights andsocial service institutions that protect health and provide education are thought
to be fundamental.
While the importance of institutions is widely accepted, the sequencing ismore controversial. In particular, some UN family agencies, such as UNCTAD
78

The World Bank: Poverty Reduction Strategy(discussed above) and UNIDO believe that economic growth and increases inincome should set the stage for institution building while the international
financial institutions believe that appropriate institutions set the stage for growthand economic development.
B. Processes
The “Strategic Compact” of 1997, discussed earlier in this chapter, brought
into the Bank’s repertoire some new processes, often with corresponding new
documents, even while enhancing the importance of some existing ones. These
processes that the Bank and other stakeholders must go through often entail
analyses, discussions and negotiations to establish strategies, to identify
necessary institutional changes, and to formulate projects. Within theseprocesses, the Bank must ensure that the themes mentioned above are given
due attention.
Among the existing processes, the Country Assistance Strategy (CAS),the main forum for Bank-client interaction, is probably the most important. A
more recently devised document, the Poverty Reduction Strategy Paper (PRSP)
has become central for IDA-eligible countries as the client country’s own
detailed and comprehensive strategy for poverty reduction. Another new
process, the Comprehensive Development Framework (CDF) is designed tomap a total development plan for the client country, including sectors anddonors, and to incorporate within it both the CAS and the PRSP. A process toapply the poverty reduction strategy to middle-income countries where themajority of the world’s poor reside is still being discussed, although there areindications of the form it will finally take.
1) The Country Assistance Strategy (CAS) defines the Bank’s
relationship with the client government and is, in effect, a business plan. To
create it the Bank conducts an assessment of priorities for a particular country
and recommends the level and composition of assistance. In this way it
determines the form of assistance it will extend: investment lending, adjustment
lending, or non-lending assistance. Although it is to be prepared with theclient government in a highly engaged (and increasingly participatory) way, it
is not a negotiated document. Any differences that do emerge between the
country’s own agenda and that advocated by the Bank are highlighted in theCAS. CASs are updated regularly according to a rotating schedule, usually
every three years.
The CAS is well established as the central vehicle for assessing both IDA
79

CHAPTER IV

credits and IBRD loans and every Bank client country has one.
2) The Poverty Reduction Strategy Paper (PRSP), adopted in 1999,
has become the very heart of the poverty reduction program, such that the
program has come to be called the “PRSP process.” It is a document preparedby the client government in two steps. First, an Interim PRSP (I-PRSP) is
prepared and submitted to the relevant committee. The oversight committee is
the Joint Staff Assessment (JSA) Committee of the World Bank and the IMF.
After consideration by the committee, it is modified to become a final PRSP.
Before the final PRSP can be accepted, the government must have in placepolicy and institutional reforms sufficient to carry out poverty alleviation
measures.
The PRSP is a central element of the CAS and a basis for the CDF. It is a
decision point93 prerequisite to the HIPC Initiative. It is linked to the Poverty
Reduction Support Credit (PRSC) of the Bank (described in the next subsection) and the analogous Poverty Reduction Growth Facility (PRGF) of theInternational Monetary Fund. Written by the government, it formalizes“ownership” of and, presumably, “participation” in the process. Considering
its pivotal role and stringent requirements, it is not surprising that, as noted
above, Bank staff often become deeply involved in its preparation—offeringsuggestions, giving comments, and reviewing drafts—effectively acting as
advisors. The PRSP is only prepared by countries eligible for IDA credits.
Middle income and credit worthy poor countries, candidates for IBRD loans,are not included in this program.
Uganda submitted the first PRSP in March 2000. As of January 2003,
94
twenty-two countries had finalized PRSPs and 42 others had prepared Interim
PRSPs. As now planned, PRSPs are to be undated every three years, with
provision for yearly changes.
While PRSP and the process it epitomizes has been widely accepted by thedevelopment community, there is strong theoretical and operational
disagreement with it. This is most cogently presented in the UNCTAD reportcited earlier (UNCTAD, 2000b).

93

Under the two stage Highly Indebted Poor Country Initiative, the decision point is the end of the first stage,
when a determination has been made that the country’s debt level is sustainable.
Albania, Bolivia, Burkino Faso, Ethiopia, Gambia, Guinea, Guyana, Honduras, Kyrgyz Republic, Malawi,
Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Tajikistan, Uganda, Vietnam, Yemen
and Zambia.

94

80

The World Bank: Poverty Reduction Strategy

3) The Comprehensive Development Framework (CDF) is a newer
process (introduced in May 1998). It emphasizes the holistic but faceted natureof development; social, structural, human, institutional, environmental,
economic and financial. It also addresses the problem of coordination among
various international and bilateral donors, civil societies such as NGOs, andthe client government. It is a conceptual matrix with players in the development
effort on one axis and elements of development on other axis and is illustrated
schematically in Figure 3, below. The CDF is intended to display all the
permutations in the poverty reduction mix and provide, in the cells of the matrix,
concrete details as to which player is addressing which area of poverty reduction.
The Bank’s activities in the matrix would be those agreed under the CAS. In
this way overlap and duplication can be avoided and gaps made obvious. In
keeping with the “ownership” theme, the client country takes the lead in the
CDF process. It directs the development agenda, while the Bank and otherpartners defining their supporting roles within their respective plans. The CDF
is not always documented as such, it is essentially a process—in the words of
one involved Bank staff member, it is essentially “spirit95.”
All projects within the CDF are managed in-country and one of its criticalaspects is the coordination it is intended to facilitate. Analysis of coordination
problems was the mandate and main subject of the Helleiner Report mentioned
above in the context of ownership. The CDF effort can be understood as aresult of that report and its recommendations. Under the lead of the client
government and its departments, project or sector working groups develop a“shared strategy” to which donors can then align their assistance. Recently asector version of the CDF process has been introduced, the SWAP or SectorWide Approach Program. This process presents a problem for donors who
centralize their decision making at home because for them effective participation
in a multi-party, in-country based framework is difficult. This is particularly
the case for Japan, the world’s second largest contributor of ODA and thesecond largest shareholder of the World Bank. The Japan situation is discussed
in detail below in Chapter VI.
Like the PRSP, the CDF is designed specifically to raise the developmentlevel of IDA countries and is not relevant to IBRD borrowers. The public
information notice in Box 4, regarding Vietnam (World Bank 2001f), clarifies
the role of the CAS and its relationship to the CDF. This notice also highlights
the importance of the previously discussed themes, “institutions” and“participation”.
95

Personal interview.

81CHAPTER IV

Box 4: CAS Public Information NoticeWorld Bank Board Discusses Country Assistance Strategy Progress
Report for Vietnam
On May 30, 2000, the World Bank’s Board of Executive Directors discussed
a Progress Report on the Bank Group’s Country Assistance Strategy (CAS)Progress Report for Vietnam, covering the period up to Fiscal Year 2002.
Vietnam’s last full CAS was discussed by the Board of Executive Directors on
September 22,1998.
Country Context
A major new analysis on poverty in Vietnam confirms that poverty, however
measured, has been reduced impressively during the 1990s. Despite thisprogress, poverty remains widespread and deep. The driving forces of thegains to date, which are agricultural productivity and the small service sector,
cannot be expected to continue to deliver such gains, indicating rapid growthof off-farm employment is essential. For the last two years of the East Asiancrisis, Vietnam has managed to maintain macroeconomic stability, but theeconomy has recently performed at well below its long-run potential. In orderto maintain the momentum of poverty reduction and to bring Vietnam backonto the high growth path, the Government has recognized that structuralreforms in areas of banking and SOE (state owned enterprise) sectors, in trade
policies and in creating a private sector conducive environment are critical.
Good preparatory design work has been undertaken in all sectors. Nonetheless,Vietnam has not yet restored confidence by investors in its business environment,
which requires actual implementation of those programs. The World Bank,
together with the IMF, has been assisting the Government in formulating thereform programs, whose implementation will be supported by the World Bank’s
SACII (Structural Adjustment Credit II )and IMF’s PRGF (Poverty Reduction
Growth Facility).
The Government, together with all stakeholders in Vietnam, has been
adopting and implementing the CDF approach, which has already started togenerate results on the ground through better coordination and deeper policy
dialogue towards a share vision. It was agreed between the Government andall stakeholders that this calendar year would be used in an effort to reach acommon vision in key sectors and to engage together to support theGovernment’s preparation of its upcoming 10-year development strategy, which
will be discussed at the Ninth Party Congress in the spring of 2001.

82

The World Bank: Poverty Reduction Strategy

Bank Strategy
Vietnam’s last full CAS was prepared at a time when the effects of the East
Asian crisis were already being felt and there was a concern about the
implications of slower growth for employment generation, poverty reduction,and social equity. Under this backdrop, the CAS had the twin focus of restoring
the momentum and deepening the quality of development. It was also built
around the Government’s announced development agenda, which consistedof: (i) supporting the Government’s program of economic renewal, (ii) raisingproductivity through infrastructure, (iii) accelerating rural development, (iv)
investing in people and promoting social equity, and (v) improving public
administration, transparency and participation.
The Progress Report, jointly prepared by the IFC, suggests that the strategy
laid out in the last CAS remains valid, though progress on policy and institutional
issues has not yet been sufficient to bring Vietnam up to the “high case” lending
scenario (see footnote on next page). IDA credits to Vietnam for the last two
years remained about annual $300 million, and we expect it to be around $400500 million for the next two years. The World Bank Group will continue tostay engaged, with partners, in active support to the Government as it implements
its structural reform program, stand willing to finance their associated costs ofreforms, and assist its capacity building in project implementation, so that
Vietnam can benefit from the high case lending. While it is too early to specify
the impacts in detail, the implications of the CDF on the Bank Group’s strategy
are expected to be substantial and will be laid out in the next CAS.
Partnership
The CAS and its Progress Report is a joint strategy of the World Bank
Group. The CAS was formulated through very participatory process based on
full consultation with the Government of Vietnam, other donors including
UNDP, ADB and Japan, and NGOs in the field. The Bank has been working
closely with the IMF to assist the Government formulate and implement thestructural reform program for the last three years. Furthermore, within thecontext of the CDF, our strategy should become an integral part of theGovernment’s comprehensive development strategy, for which all stakeholders
96
are currently working together to provide inputs .
96

There are three lending scenarios for Vietnam: low case, $283 million per year; base case, $581 million per
year; and high case, $812 million per year. There are triggers that signal a move to a higher case, allowing a
graduated response to changes in the country’s policies and portfolio performance (World Bank web site:www.worldbank.org).

83

CHAPTER IV

Figure 3, below, is a schematic showing the matrix character of theComprehensive Development Framework and the positions of the CAS andPRSP within it. The cells are occupied under the horizontal heading by projects
and activities to be implemented by the donors in the vertical headings. The
PRSP is the basic policy document of the government and is noted in its cell;
the CAS is the basic document for the World Bank and is noted in its cell.
Though such a matrix is useful for conceptualizing, the CDF is unlikely toactually be charted in this way. The matrix is more of a “hook” on which tohang the process than an instrument for effecting it.
Figure 3:

Comprehensive Development Framework (CDF) Matrix
Structural/Institutional

Social/Human

Physical/Rural/Urban

Macroeconomic/Financial

Government
PRSP
PrivateSectorNGOs
Bilateral
DonorsWorld BankCAS
EU/IMF/
UN/others

974) An instrument to serve as a middle-income-country (MIC )counterpart to the PRSP is still under discussion. (World Bank, 2001c: 3).
The task force on middle-income countries of the World Bank Development
Committee has recommended a deferred drawdown option. This would allow
97

Middle income countries are divided into two categories, lower middle with gross national income (GNI) per
capita between $756-$2995 and upper middle income with GNI per capita between $2996-9265. China, thePhilippines, Egypt, Mexico, Brazil, Russia are all MICs.

84

The World Bank: Poverty Reduction Strategy

a country to access it or not depending on its situation and alternatives (World
Bank, 2000a). There are tentative indications that this will take the form of a
“Letter of Development Strategy (LDS),” or perhaps a “Letter of Development
98
Policy.” According to these indications, the LDS (or equivalent ) would allow
a middle-income country to set out its own development priorities. The actual
form would be less controlled than that of the PRSP and would vary inaccordance with the widely varied circumstances of this group of countries.
Middle-income countries, despite their relatively healthy economies, havelarge populations of very poor people. In fact, middle-income countries arehome to nearly 80% of the world’s poor (World Bank, 2001c; 3). Proponentsof poverty reduction as a goal see this situation as justification for targetingthem in the Bank’s poverty reduction strategy. Others, among whom are major
Bank shareholders, believe that MICs can attract sufficient private investment
and that development aid should go to countries who cannot. This is a clear
instance of poverty-oriented assistance colliding with growth-oriented
assistance. Some middle-income countries, themselves, reject inclusion in thepoverty reduction process because they don’t want the concomitant level ofinvolvement nor the onerous documentation burden demanded. While theissue is being resolved, the CAS has continued to be the main method forselecting Bank interventions in MICs.
C. New Lending Instruments
To assist its client countries in reducing poverty, the Bank has introduced
new lending instruments (briefly referred to above in the discussion on lending.)
They include the Programmatic Structural Adjustment Loan or Credit (PSAL/
99
C ) to support governments in implementing poverty reduction measures andthe Poverty Reduction Support Credit (PRSC) to fund the strategy set out in
the PRSP. These instruments are in principle available to IDA (concessional)
borrowers who satisfy eligibility requirements, generally having to do with
intact enabling institutions. As stated above, the counterpart poverty reduction
instrument for middle-income-countries has not yet been officially released.
All of these new instruments are controversial because monitoring theirdisbursement is very difficult.

98

Korea has prepared a “Letter of Development Policy,” Indonesia has prepared a “Statement of Development
Policy,” both in 1998. Turkey prepared a “Letter of Development Policy” in 2000.
99
Depending on whether it is an IBRD loan or an IDA credit. Refer to section on IDA, above.

85

CHAPTER IV

1) The Programmatic Structural Adjustment Loan or Credit (PSAL/C)
is to support long term reform that addresses systemic social, structural, andinstitutional issues. This reflects the importance the Bank places on institution
building which is thought to be an integrated process sequentially related overtime, with clear triggers and benchmarks to move the process along. The
PSAL/C will supply funds directly to the treasury of the client country once
criteria have been met, rather than sequestering it for a particular purpose, as
had been the practice before. The client government can then use the funds forpoverty reduction purposes as it sees fit. As with the PRSC, some Bank
shareholders are leery of this feature and the monitoring problems it presents.
2) The Poverty Reduction Support Credit (PRSC) is a newly designed
instrument of the World Bank in the early stages of implementation. The firstone was given to Uganda on May 31, 2001. The PRSC is extended in support
of a PRSP for the express purpose of enabling the country to pursue the poverty
reduction strategy it has laid out. The thinking is that once the PRSP has been
finalized and a suitable policy framework is in place, funds should be available
for the government to exercise ownership of its poverty reduction strategy bydeciding how to implement it.
The support credit is integrated into the client government’s annual budget
rather than scattered among separate lending projects. Several major donor
countries, including the UK, the Netherlands, and the Nordic countries, alreadyextend assistance this way. Even so, this aspect of it is quite controversial andthere is significant opposition to it as being difficult to monitor.
3) The Development Support Loan (DSL) is putatively the instrument
to support MICs and is extended in conjunction with the LDS or equivalent
document. It has been described in one publication as a series of one-year
adjustment loans extended over some three years, with the annual disbursements
based on completed reform actions and timed to coincide with the annual budget
cycle. (Globalization Challenge Initiative, 2001) According to the World Bank
web site, two such loans have already been approved; one to Brazil and one to
Georgia.
D. Problems in Employing the Strategy
There are a number of difficulties in implementing the World Bank’s poverty
reduction strategy, the PRSP process. As was made clear in the earlier section
on the history of development assistance, there have always been overwhelming
86The World Bank: Poverty Reduction Strategy

and even insurmountable hurdles to achieving the objective. This has notchanged and probably is exacerbated by the complexity of the current objective.
Internal Managing
Within the World Bank, itself, managing the complicated issue of broadly
defined poverty and monitoring the effectiveness of the poverty reduction
strategy has become almost a growth industry. The Bank has deconstructed
poverty into discreet elements for its own purposes and to formalize the“safeguard” policies that apply to private investment projects it supports100.
(The safeguard policies cover the environmental and social impact of the
projects and are monitored for compliance.) Most of these discreet elements
have become objectives in their own right, with their own home pages on theWorld Bank website (www.worldbank.org) and their own task forces or otherdedicated staff attention.
The discreet elements are mitigators or aggravators of deprivation (theoperative definition of poverty). These are the elements that the Bank wishes
particularly to attend to in designing and evaluating projects. Some of these
are concerns, others are specific problems, others require only a generalawareness. Most of them overlap, some are mutually subordinate to each other.
Some are not traditionally thought to be within the purview of development
activity. This welter is a consequence of the scope of the poverty issue and thelinkages within it. Following is a random list of elements, possibly incomplete
101
because the analysis is on-going .

100
101

The World Bank supports private sector investment through The International Finance Corporation (IFC).
More detailed information on them is given in Appendix 2.

87

CHAPTER IV

Box 5: Elements of Poverty

102

Agriculture:
http://lnweb18.worldbank.org/ESSD/essdext.nsf/11ByDocName/
AgricultureRuralDevelopment
Corruption:
http://www1.worldbank.org/publicsector/anticorrupt/
Conflict Resolution:
http://www.worldbank.org/wbi/communityempowerment/Modules/
Conflict_Consensus.html
Empowerment:
http://www.worldbank.org/poverty/empowerment/
Environment/Sustainable Development:
http://www.worldbank.org/wbi/sustainabledevelopment/
Gender:http://www.worldbank.org/gender/
Globalization/Marginalization:
http://www1.worldbank.org/wbiep/trade/
Governance:
http://www1.worldbank.org/publicsector/
Highly Indebted Poor Country Initiative (HIPC):
http://www.worldbank.org/hipc/
HIV/AIDS:
http://www1.worldbank.org/hiv_aids/
Human Capacity:
http://www.worldbank.org/ks/capacity.html
Institutions (legal):
http://www1.worldbank.org/publicsector/legal/
Knowledge/Information Technology:
http://www.worldbank.org/wbi/knowledgefordevelopment/
Participation:
http://www.worldbank.org/participation/
Private Investment/Private Sector Development:
http://www.worldbank.org/privatesector/

102

The elements of poverty are somewhat concentrated in the World Bank Institute – WBI (http://
www.worldbank.org/wbi/) and in the Environmentally and Socially Sustainable Development network - ESSD
(http://lnweb18.worldbank.org/essd/essdext.nsf/5ParentDoc/ESSDAdvisoryService?Opendocument)

88

The World Bank: Poverty Reduction Strategy

External Monitoring and Measuring
In addition to the challenges of internal management, monitoring of thepoverty reduction effects of investment loans extended directly by the Bank toclient countries has proven to be very difficult. According to a Bank report(World Bank, 2001b: i), due to “conceptual difficulties” and “data limitations,”
it is extremely difficult to identify poverty reducing features in most projects
so that, overall, monitoring the success of this effort cannot be meaningfully
done. For adjustment loans, whether structural or programmatic, monitoringis even more problematic because the funds are not tied to specific measures.
This problem has been augmented by a new campaign called “results-based
management.” This is an attempt to organize a system by which concrete
results, as opposed to project or program objectives, can be assessed. Resultsbased management was a by-product of the March 2002 UN Conference on
Financing for Development (FfD). It originated in the position of the UnitedStates that it would only increase its aid package if it were possible to measure
actual results, children educated, for example, rather than schools built, or
patients served rather than health clinics opened.
The World Bank created a new unit103, under a vice president, to work on
designing and building the system; a round-table hosted by the Bank andsponsored by the multilateral development banks was held in June 2002; andat the Annual Meeting of the World Bank-IMF in September 2002, theDevelopment Committee received and approved a progress report (World Bank,
2002f). According to the Bank, results-based management represents
advancement to a third stage in refining project/program evaluation: First
came evaluation in terms of loan quantity; next, following the critical Wapenhans
Report of 1992, there was a shift toward project/program quality; now emphasis
is to be placed on measurable results.
Measurement is also one of the exigencies of the Millennium Development
Goals (MDGs). The goals are largely couched in terms of targeted percentage
increases or declines so that determination of success will require statistical
data. Data availability and reliability are, however, weak links in the assessment
chain, most especially for those countries with poorly functioning institutions,high levels of poverty and low levels of development. Several statisticalorganizations are working on compiling data, to the extent possible in a timeseries, nationally, regionally and organized around goals. One of these is theUnited Nations Statistics Division104 which is a repository for data gathered by
103

Bettter Measuring, Monitoring and Managing for Development Results (BMMMDR) http://lnweb18.worldbank.org/MIP/BMMMDR.nsf/
http://unstats.un.org/unsd/

104

89

CHAPTER IV

105

UN member countries. Another is PARIS21 a statistical capacity building
consortium working with developing countries so that the necessary data canbe correctly gathered and analyzed. PARIS21 has created a task on “improved
statistical support for monitoring development goals” which held its firstmeeting in October 2002.
Results are also of key importance to the Millennium Challenge Account(MCA), a new aid program of US administration. That money, $5bn additional
per year, will go to countries selected according to criteria embodied in 16
indicators that will be used to assess national performance. The indicators
will be used to identify eligible countries (Bush, 2002).
Including the Ineligible
Another complication posed by the poverty reduction program is how totreat those countries which clearly lack policies and/or institutions that havebeen identified as prerequisite. The fundamental importance of governancehas been mentioned above. According to the currently operative paradigm,
countries which lack acceptable governance also lack the absorptive capacity
to benefit from financial assistance and should not receive any (World Bank,
1998). These countries have been grouped by the World Bank under theacronym LICUS (Low Income Countries Under Stress), implying that theirlack of governing capacity is both caused by and a source of abnormal stress.
There is considerable overlap, though not complete congruence between the106
UNCTAD least developed countries (LDC ) and the World Bank low-income
countries under stress (LICUS). The main similarity is the lack of developmentenabling institutions; the main difference is that not all the LDCs meet theWorld Bank criterion of being under stress.
Under its prevailing assumptions, the Bank cannot justify extending financial
assistance to these countries because the money could not be effectively used.
Instead, a task force has put together a complex strategy built on “capacity
building” at various levels. The strategy is complex both because it assumes
that each country under stress is different and because the course it charts is arather tricky one (World Bank, 2002b). The task force report was discussed
by the Board of the World Bank in March and July 2002.
Because governance is the underlying limitation with the LICUS, the basic
question is on the one hand how to work with an inadequate government and105

Partnership in Statistics for Development in the 21st Century, coincidentally headquartered in Paris: http://
www.paris21.org/index.htm
106
Refer to UNCTAD 2002a

90

The World Bank: Poverty Reduction Strategy

on the other how to bypass the government to work with other agents of change.
The direction recommended by the Task Force report is to create extragovernmental “Independent Service Authorities107.” These authorities would
provide channels for basic social service financing that would effectively bypass
the central government. At the same time, it recommends “highly selective
capacity building support targeted to critical public and/or private sector reformor change-agent entities…Where called for, it may also be effective to place
Bank staff in LICUS, providing direct assistance and advice to the central
government (World Bank 2002b: vii).” This would be a very judicious
modulation of the ownership theme.
The Task Force proposals are based on a separation of development aid
into two categories: knowledge aid and financial aid. Finance is in principle
excluded for the LICUS countries because of their poor governance, throwing
the weight of assistance onto the knowledge category. Socio-political analysis
must be applied here to design a public and/or private sector reform agenda,
identify the change agents, and to build the capacity. The conventional economic
analysis, which has been the World Bank’s great strength, would not be
sufficient. Specific strategies suggested are support for local leaders, so-called“champions of reform,” twining with successful organizations elsewhere, andexploiting the potential contributions from the emigrant community. (World
Bank, 2002b: 35-36).
The re-orientation of the Bank toward broader social science methodologies
mentioned early is again apparent here. Other development agencies, including
the UNDP, have greater expertise and experience in the socio-political approach.
The World Bank unit most concerned with knowledge and capacity building is
the World Bank Institute (WBI), a social science research and training unit. It
was created in 2000 from a merger of the Economic Development Institute(EDI) and the Learning and Leadership Center. Given the constrains of the
108
Bank’s “mandate and operational policies ,” the task force recommends thatthe Bank take a catalytic role, working jointly on the LICUS problem.

107
108

World Bank, 2002b: vi for the first of many mentions of this concept.
Refer to the Articles of Agreement excerpts in Appendix 1.

91

CHAPTER V

CHAPTER V

On-going Issues

The apparent convergence of development assistance perspectives toward
the post-Washington consensus does not obscure the reality that other strong
views exist. As during the period of the “pioneers” and during the “neoclassic
resurgence,” so at this time of wide-spread agreement, divergent voices arebeing raised. This chapter discusses this situation and its implications.

1. Consensus
The international community, development specialists, donors and others
seem to accept the philosophy underlying the current approach tounderdevelopment. This philosophy informs the programs of the World Bankas well as the relevant programs of the International Monetary Fund (IMF)
and receives declarations of support from organizations such as Organization
for Economic Cooperation and Development (OECD) and Department forInternational Development (DFID) of the UK. The philosophy is “pro-poor”
and considers poor people rather than their governments as clients. Its avowed
aim is to institute change in their clients’ condition from the ground up. This
is to be accomplished through participation and through ownership created byputting responsibility for people’s well being firmly in the hands of theirgovernments with technical and financial support from the development
organizations.
The essence of this, the post-Washington consensus, is summarized in thefollowing statement:
The development debate appears to be...coasting toward a consensus:
developing nations must not focus their energies on the growth rates of theGDP, NNP, GNP and the like but should instead try to achieve ‘humandevelopment.’ A remarkable feature of these new goals is that everyone
92On-going Issues

seems to be supporting them, although few know what the terms mean…One
may argue that it is better to be somewhat arbitrary but have your broad
objective right than to have a sharply defined but morally indefensible
objective (Basu, 2001).
European donors, in particular, strongly support linking economic
assistance, poverty reduction and institutional reform. As was noted above,
several European countries were already coordinating their bi-lateral aid tothe budget cycle of recipient countries at the time this policy was adopted by
the World Bank for the Programmatic Structural Adjustment Loan (PSAL).
Even without reference to a particular paradigm, Europe historically has
demonstrated a pattern of relatively strong support for development efforts.
This is attributable to some extent to cultural values. Entitlement to social
services and a social safety net has traditionally been more expected and more
protected within Europe than within the United States or Japan. Northern
European countries contribute the largest portion of their GNP to economic
assistance109 (UK DIFD website).
Beyond this tradition, however, the modern paradigm offers convincing
research linking institutional reform and poverty and suggesting that exploiting
the connection could actually help poor people (World Bank, 1998). The
regional multilateral bank for Eastern Europe and the former Soviet Union,
the European Bank for Reconstruction and Development (EBRD),
unequivocally accepts the importance of institutions, saying that “Lack of
democracy, corruption, monopoly and the absence of the rule of law go handin-hand with poverty and economic hardship” (Wagstyl, 2001a). It accepts aswell the importance of social justice as a business consideration. According to
its head110:
Beyond a certain threshold, inequalities are not just socially unacceptable,
they are also a threat to the economic security of the countries concerned(Wagstyl, 2001a).
Among other regional Multilateral Development Banks (MDBs) the AsianDevelopment Bank has also accepted the importance of governance institutions,
stating that “Governance issues, which have increasingly moved to the forefront
109

Denmark, Luxembourg, the Netherlands, Norway, and Sweden contribute 0.7% of GNP to official development
assistance (ODA), meeting the target set by the United Nations.
110
At that time, Laurent Fabius

93

CHAPTER V

in recent development debates, are important in virtually all areas ofdevelopment” (ADB website). At the Inter-American Development Bank(IADB) in 1996 the Board of Executive Directors formally considered111 theposition that “There is a direct relationship between economic development
and the quality of government. Economic reform and poverty reduction
strategies will not be successful without strong institutions (Inter-American
Development Bank Strategic Planning and Operational Policy Department,
1996: 3).

2. Dissension
Despite the wide acceptance of the holistic, multi-faceted approach, there
remains a measure of unease about the actual process and some distrust toward
the World Bank. There are several reasons for this:•••As discussed in the preceding chapter, there is a lack of clear
measurement and verification of result to back up the words.
International development and the field of development economics are
susceptible to political and ideological slant. Personal and professionalzeal, the amount of money involved, the alternative costs, the politicalramifications as well as personal egos and reputations are real factors
when development decisions are made.
There is a tension between “aid people” and “development people”
who are frequently at cross purposes. Aid people, typified by NGOs,
favor redistribution of income and other benefits targeted at the poor
(using “empowerment” as a code word), and development people
promote economic liberalization and growth (using “opportunity” astheir code word112).

These considerations are not necessarily isolated and clearly delineated,
they are more likely to blur and blend into each other. But in this section it
looks at some of the objections to the World Bank’s poverty reduction strategy
and they way in which they are presented.

111

According to the IADB website, this statement was adopted as a “mandate,” a statement of the Bank’s
priorities. (IADB website, http://www.iadb.org/exr/english/POLICIES/policies.htm).
This schism was exemplified in the resignation of Ravi Kanbur as lead writer of the World Development
Report 2000, Attacking Poverty, over the issue of how to balance opportunity and empowerment (Financial
times, 2000).

112

94

On-going Issues

Professional theoretical disagreement
There is a viewpoint that the poverty reduction strategy as embodied by
the Poverty Reduction Strategy Paper (PRSP) process is neither as innovative
nor as beneficial as purported. The analysts at United Nations Conference on
Trade and Development (UNCTAD), writing about the least developed
countries and Sub-Saharan Africa (UNCTAD, 2002a and UNCTAD, 2002b),
appear to be in the vanguard. They criticize the process generally as being
little more than old-fashioned conditionalities with a social overlay andspecifically as inappropriate or even harmful for countries in generalized
poverty. If, as the PRSP process continues, results are disappointing thisviewpoint will gain adherents.
Donor unease
The reluctance of some large donors to authorize unmonitored or weakly
monitored lending has been mentioned in Chapter III. There is also
disagreement from some of them with the scope of the poverty reduction goal
and the way it has been couched. The United States, the largest and mostconsequential shareholder whose influence was noted earlier, has been themost outspoken but has not been alone in this concern. When the current
administration, more conservative than its predecessor, took office Secretaryof the Treasury, Paul O’Neill, was quite clear on the subject: The priority of
the US Government is to enhance the overall economic performance of countries
rather than the welfare of particular groups.
The scope of the World Bank’s activities is now too diffuse, and this reduces
its focus on [its] core objective…In the case of each new loan and eachnew grant they need to ask: how is this decision going to raise income percapita, or raise productivity (Washington Post, 2001: E1)?
Apart from disagreement over the principles and mechanics of poverty
reduction, some donors feel disquiet at the attitude of the World Bank. There
are reservations about the transformation of society which its comprehensive
development strategy implies and requires. This was mentioned above in thediscussion on institutions and is also clearly expressed in a speech by the thenChief Economist Joseph Stiglitz in 1998:
Development represents a transformation of society, a movement fromtraditional relations, traditional ways of thinking, traditional ways of95

CHAPTER V

dealing with health and education, traditional methods of production, tomore “modern” ways. For instance, a characteristic of traditional societies
is the acceptance of the world as it is; the modern perspective recognizeschange, it recognizes that we, as individuals and societies, can take actions
that, for instance, reduce infant mortality, increase life-spans, and increase
productivity (Stiglitz, 1998).
The reservations are whether or not social transformation is within thepurview of this organization. Whether its vision is so correct as to justify
pursuit of such wide-scale change or whether it is being arrogant. Whether it
has grasped the complexity of the problem or whether it has failed to
productively prioritize? Doubts are reinforced by a discordant ideology andposture of righteousness. The World Faiths Initiative on which the Bank
embarked in 1998 is an instance of this, another is in a recently publishedstatement by John Williamson (the coiner of the phrase “Washington
consensus”) referring to criticism from the US Treasury Department: “That’s
a natural conservative view, which many of us think is morally wrong”(Washington Post, 2001). The morality perspective implies a messianic postureincompatible with the Bank’s core function which is to promote productive
113
development .
The United States administration
While the US administration did speak in favor of poverty reduction, it
initially appeared to be in terms quite different from those used by the World
Bank. The desirability of poverty reduction, according to President George
W. Bush, comes not from its human development implications, but from thepurchasing power that will result. In May 2001, Mr. Bush is quoted as saying“Conquering poverty creates new customers” (Washington Post, 2001: A18).
Furthermore, he took the position that the impoverishment of the low-income
countries (not the middle-income countries) should be addressed by giving
them grants which will not have to be repaid. The financial needs of the middleincome countries should, in the main, be left to private investment. As discussed
above in the section on lending patterns, this recapitulates the basic
recommendations of the Meltzer Report.
The Bush administration has put forward two aid initiatives, one in March
2002 and the second in December 2002. Both have a significant governancecomponent and there is speculation that they were prompted by the terrorist
113

96

Refer to Appendix 1.

On-going Issues

attacks of September 11, 2001 and the awareness that poverty might nurture
sympathy and/or haven for terrorism. This is reminiscent of the earlier cold
war concern about Communism.
The Millennium Challenge Account (MCA) was introduced by the President
at the Inter-American Development on March 14, 2002, just prior to the FfD
Conference held March 18-22. In the President’s words, it will be designed to“reward nations that root out corruption, respect human rights, and adhere to
the rule of law…invest in better health care, better schools and broader
immunization…[and] have more open markets and sustainable budget policies,
nations where people can start and operate a small business without running
the gauntlets of bureaucracy and bribery” (Bush, 2002). The MCA will beadministered through a new agency, the Millennium Challenge Corporation(rather than through USAID) and will disburse an additional $5 billion annually
over current levels114 to eligible, selected governments that:•••

Govern justly
Invest in their people, andEncourage economic freedom.

The second initiative is a “US-Middle East Partnership Initiative” announcedin December 2002 by Secretary of State Colin Powell (Powell, 2002). Thisinitiative commits an additional $29 million (beyond the $1 billion alreadyavailable) to promoting democracy in the Moslem world. The countries of the
Middle East are, with the notable exception of Yemen, middle income andhigh income countries by World Bank classification.
The initiative will have three pillars (US Department of State, 2002):•••

Education — scholarships, teacher training, girls education and female
literacy, and internet connectivity;
Economic reform and private sector development – help with meeting
World Trade Organization (WTO) criteria, financial sector reform, anticorruption measures and enterprise start-up assistance;
Strengthening civil society – judicial regulatory reform, support forNGOs and training for political candidates and journalists.

While their political overtones and foreign policy implications are clear,
114

Increases will be spread over a three-year schedule starting in 2003 so that the $5 billion annual figure will bereached in 2006.

97

CHAPTER V

and despite the bilateral nature of these programs, they appear quite compatible
with the human development and institutional focus of the post-Washington
consensus.
Other stakeholders and interested observers
The World Bank is a huge presence and offers a convenient target for
criticism and protest even when unwarranted. Vigorous, vocal and vociferous
objection to the World Bank comes from NGO protestors who loosely organizedbehind the slogan “Fifty Years is Enough.” This group appeared in 1994 andits slogan refers to the fifty years since the Bank’s inception. They have been
joined in their opposition to the Bank by various other protest groups under acoordination umbrella called Mobilization for Global Justice115. Theirobjections are to what they see as damage done to economically defenselesscountries. They demand a series of far-reaching reforms which would makethe World Bank less secretive and more accountable116, and would force it toundertake fewer and smaller projects and to involve local populations in project
development and implementation” (Multinational Monitor, 1994).
Thinking these demands to be unattainable, these critics advocate
dismantling the Bank as an easier alternative. However, the Bank has responded
to the protesters and the demands by NGOs have been very influential in defining
the Bank’s current strategy. As far back as 1987, during the presidency ofBarber Conable, cooperation with NGOs was expressly endorsed and from1989 this cooperation was graphically presented in the Bank’s Annual Reports.
In 1993, during the term of Lewis Preston, the Inspection Panel was created as
an independent body to receive and satisfy requests for inspection of projects
to ascertain their compliance with operating policies and procedures. The
participatory strategy of including NGOs as stakeholders has apparently not
succeeded in allaying their distrust of international financial institutions. The
broad, anti-globalization movement that has emerged, taking the form of street
demonstrations and parallel conferences, specifically accuses the Bretton Woods
institutions of being anti-democratic and unjust, with policies and practices
that “have caused widespread poverty, inequality, and suffering among theworld’s peoples and damage to the world’s environment” (Fifty Years is Enough
115

Website: http://www.a16.org/
Apparently to defuse impending demonstrations at the September 2001 Joint Annual General Meetings ofthe World Bank/IMF (which were ultimately cancelled due to terrorists attacks on September 11), the Bank
issued a revised disclosure policy on September 7, 2001. The new policy announced changes that “will bringgreater transparency and accountability to the Bank’s support for the development process.” (World Bank,
2001d).

11698

On-going Issues

web site: www.50years.org ).
Closure of the Bank is also advocated by those who believe that aid isunnecessary, that private capital markets can provide enough development
finance without public intervention and private consulting firms can provide
enough development advice. There is some suspicion among Bank supportersof an “unholy alliance between debt campaigners and political conservatives,”
especially in the United States, to dismantle multilateral organizations (Beattie,
2001b). The recommendations of the Meltzer Report, if implemented, would
effectively downsize the Bank by making redundant much of its loan making
apparatus, historically the bulk of its activity. The resurrection of this reportby the Bush Administration only fueled such speculation. A recent reportfrom the Bank’s vice-president for external affairs states, in part, that “Theopenness revolution and the anti-globalization backlash have brought the Bank’s
poverty reduction mission under global scrutiny…Support in the authorizing
environment for the World Bank and other multilateral agencies is weakening”(Beattie, 2001c). The World Bank’s Department of External Affairs doubled
in size over the past decade (Table 4), perhaps to counteract this perceived
wave of animosity.
On another front, respected international editorial opinion questions thescale of the organizations, as in the following excerpt:
It is quite right to ask…whether these bodies [World Bank and IMF] needto exist at all, exactly what purpose are they intended to serve, and just
how well they are discharging their duties, whatever these may be…To be
more effective, the Fund and the Bank both need to do less (Economist,
2001: 24).
Internal dissatisfaction
Concerned donors, impassioned activists, and impartial journalists are notthe only critical parties. From within the World Bank, itself, strong criticism
has been voiced (Allen, 2001; Fidler, 2001b and 2001c). There has been internaldissatisfaction with the organization’s direction among the professionals who
do the Bank’s work, misgivings among the staff that perhaps there is now a
new kind of “approval culture.” This one is not fixed on lending approval andproject marketing, as was described by Willi Wapenhans a decade ago. Rather
it is an atmosphere imbued with pressure to accommodate the “post-Washington
consensus” no matter to what degree or for what reason ill advised. For example,
as was explained earlier with reference to capacity building, legal and judicial
99

CHAPTER V

institutions are considered so fundamental to the poverty reduction strategy
that staff of the World Bank legal department report intense pressure to bringreform to those institutions even if it has not been requested. In the past,reform of legal institutions had been undertaken only at the request of theclient but currently this restraint is not being exercised117. Again, the urge tomodulate ownership, mentioned above with regard to the Helleiner Report
and to Low Income Countries Under Stress (LICUS) challenges, is evident.
Internal dissent has to some measure been eased through staff turnover.
Mr. Wolfensohn broadly replaced top level management and instituted a far
118
reaching re-organization of the Bank shortly after becoming President in 1995 .
That plus the changes in staff mix (illustrated in Table 4 above), which
effectively brought an influx of sociology, anthropology and political science(SAP) professionals and a diminution of economists, means that current Bank
employees are more supportive of their organization’s direction than were thosein place when the changes were introduced.

3. Bank Reactivity
Paradoxically in light of the breadth of its currently defined objectives, acharacteristic exhibited by the Bank over its 50+years has been a tendency toreact to impediments and/or criticism by redirecting operations into new orless contentious areas. In the era of the pioneers, criticism that it was too close
to governments and too biased toward big infrastructure projects caused the
Bank cut back on such projects and to began confronting governments on theirdistortionary policies. When the effects of SALs were challenged, the Bank
reevaluated the neoclassical approach and cut back on conditionalities. The
withdrawal of the “redistribution with growth” program when it came undercriticism in the 1970s is one specific example. Although seemingly incongruous,
given the World Bank’s size, scope and influence, this tendency to pull back
operationally has been repeated with respect to a host of issues such as theenvironment119, social safety net, culture, poverty and private sector investment.
Seeking to avoid criticism, the Bank has tried to accommodate all concerns.
As each criticism registered, it has shied away from that area or shielded itself
by creating a bureaucracy or task force to deal with it or to monitor it.
The quasi-political nature of the Bank has perhaps made suchaccommodation necessary. It can even be seen as a desirable attempt to117

Personal interview
Refer to the Strategic Compact in Appendix 7.
The experience of the Narmada Dam, in India, referred to above, and that of the Rosia Montana Gold Mine,in Romania (McAleer, 2003) are examples of this.

118
119

100

On-going Issues

recognize and respect the legitimacy of criticism. It can also been seen, however,as a lack of clarity of mission and/or a lack of commitment to it. On a lessspeculative level, steadily increasing filters and restrictions have contributed
enormously to the time, complexity and cost associated with doing businesswith the World Bank. As was explained above, this “cost of doing business”
has made the Bank uncompetitive vis-à-vis the private sector, individual donor
countries and other international development agencies.
A slightly different predicament faces the Bank with respect to its attempt
to condition lending assistance on appropriate institutional structure. It hasembraced recent studies that make clear what has been suggested throughout
the five decades of development assistance, that the success of economic
assistance is intimately tied to the soundness of governance (and otherinstitutions) in the recipient country. “Improvements in economic institutions
and policies in the developing world are the key to a quantum leap in poverty
reduction…Efforts to ‘buy’ policy improvements in countries where there is
no movement for reform, by contrast, have typically failed” (World Bank,
1998: 3). The predicament is that this has the effect of restricting lending
mainly to countries with acceptable governance and institutions, the best
candidates for private sector investment and withholding from those lacking
them, who have no other recourse. The problem of how to help impoverishedcountries with poor enabling institutions, such as LICUS, has not been solved.
There are similarities here with the issue of “absorptive capacity” referred
to above, in that client countries in need of help are not eligible for it forreasons that result directly from their disadvantaged condition. The problem
was flagged by the World Bank Quality Assurance Group (QAG) in its Annual
Report on Portfolio Performance, FY 2000 (January 17, 2001):
Since FY95, portfolio composition has seen a marked shift towards countries
with good policy and institutional environment... Another noteworthy
development of the past five years is a significant decline in the portfolio
share of the low-income countries.…It…reflects…reduced lending to someof the low-income countries due to poor performance. There is much tocommend about the increased focus on results in Bank lending. Howeverconsidering the overarching objective of poverty reduction, a challenge
for the Bank is to sharpen its assistance strategies, especially non-lending
services, to strike an appropriate balance between need and performance(World Bank, 2001b: 3).

101

CHAPTER V

Perhaps the new initiatives and lending instruments being introduced, thestrengthened coordination with other agencies, and the processes described in
Chapter IV above will resolve this dilemma. These measures are too recent
for their effects to have been properly evaluated so it is too early to tell whether
the strategy will work. Meanwhile, in the absence of reliable evaluation, theadvocation of these same processes is bolstering criticism that the Bank’s
activities have become too diffuse.

4. Fungibility, Program Approach and Sector Wide Approach
A recent study by the Bank (World Bank, 1998: Chapter 3) has drawn
attention to the fungibility of aid money. The essence of this issue is that
because money is fungible, there can be no assurance that financial assistancewill actually be used for the purpose the donor intended. For example, money
intended to improve education may, in reality, supplant money that the recipient
would have spent, allowing the recipient’s education funds to be used for someother purpose, such as tax reduction, debt repayment, or some other projectcompletely unrelated to education.
This situation has been recognized by the World Bank from its very earliest
days. The Annual Report for 1949-50 was quite direct on the issue: “TheBank recognizes, of course, that by financing one particular investment project,
it may be releasing resources already available to the borrower for some otherinvestment activity120.” (Kapur et al., 1997) In the intervening half century
fungibility was seldom referred to, let alone admitted. More recently however,the Bank has admitted the reality and has taken the position that in such cases“The safest assumption for donors is that they are, more or less, financing
whatever the government chooses to do” (World Bank, 1998: 74).
Once the fungibility of aid money is admitted, the question arises whether
there is any rationale for donor specification of sectors or sub-sectors for its
projects. Pursued a step further, it raises the implication that donors might justas well provide aid money directly to the recipient government treasury(program lending) or to the budget of some sector ministry (sector-wide
approach). Pursued to the ultimate, it leads to budgetary support; that is,
injection of funds directly into the treasury to be used at the discretion of the
spending authority. This in fact is the approach toward which DFID of the UK
is moving. DFID claims that such an approach has several advantages. It
would reduce the project costs to the donor for design, appraisal, monitoringand evaluation. It would more effectively accommodate basic development120

It need not have restricted the possibility to “investment activity.”102

On-going Issues

needs that require long term, recurrent funding, such as education and healthcare. It would also provide recipient government officials themselves theopportunity to take the lead in designing, implementing and evaluating projects
121(Lowcock, 2002 ).
There are clear shortcomings, however, to utilizing fungibility as a vehicle
for economic development. One problem is that the aid becomes “invisible”.
Even though they may understand and even appreciate the logic of fungibility,
some donor countries prefer to have clearly defined projects physically on the
ground. This is often to satisfy domestic constituents and for some donors it isa political necessity. Probably the most serious drawback to fungibility is thatthe donor loses touch with the project and related tasks, ignorant of and unable
to trace where its contribution is going and what it is buying. A specific variantof this problem is military expenditure (see Box 6), a situation not yet being
addressed in donor community discussions. In 1999, for example, the following
low income countries (according to World Bank classification) devoted greater
122
than 10% of central government expenditure to their military , for some it
was far greater than 10%.
Possibly this disconnect of donor from contribution could be overcome by
the donor providing technical assistance, in various sorts, for projects ofparticular interest. In spite of these shortcomings, fungibility is a strategic
issue and it can be used to increase and enhance program and sector wide
assistance. If adopted as a tool, fungibility could significantly change the way
aid is provided.

121
122

Mark Lowcock is DFID’s Director for Finance and Development Policy.
This is related to, though separate from, any link between conflict and development.

103

CHAPTER V

Box 6: Military Expenditure as percent ofCentral Government Expenditure 1999
AngolaArmenia
Azerbaijan
Bangladesh
BurundiCambodia
Cameroon
Central African Republic
Chad
Eritrea
Ethiopia
India
Kyrgyz Republic
Lao PDR
Mauritania
Pakistan
RwandaSierra Leone
Sudan
Tanzania
UgandaVietnam
Yemen
Zimbabwe

41.1
20.2
24.4
10.1
26.7
26.0
10.6
15.4
12.7
51.1
29.1
14.6
14.0
11.1
18.9
27.9
22.7
13.5
46.8
10.1
13.9
11.6
18.0
12.1

(World Bank 2002g: 304-307123)

123

The World Bank presents this data with the disclaimer that such data are often unreliable, for a variety ofreasons.

104

On-going Issues

5. Suitability of International Financial Institutions
The concept of development in currency today is significantly different
from that which prevailed when the Bretton Woods international financial
institutions were first envisaged and created. It may be that yesterday’sorganizations are not suited for today’s approach to development with its broad
definition of poverty and emphasis on institutions. The organizations are
skilled at assessing aid effectiveness in terms of traditional economic andfinancial cost/benefit analysis, which may be a wrong or inappropriate way toassess projects aimed at changing or strengthening institutions. Accomplishingthese new objectives will be difficult and efforts will be long in producing
tangible results which may finally be difficult to evaluate or measure
As one example of the potential mismatch, consider the freedom to associate
and communicate which is included in the new definition of poverty: Shoulda road project aimed at addressing this “poverty” issue be implemented even if
the economic return is low? Similarly, on what basis should a project aimed at
improving a judicial system be evaluated? Should assistance go to a country
with development-compatible institutions and an authoritarian government?
It is conceivable that such questions cannot be answered by applying themethods and skills of the established international development agencies. If
the poverty reduction approach continues to dominate and poverty reduction
strategies continue on their current trajectory, the international assistanceorganizations may be ill-suited to deal with the time frame and analytic tools
required.
As long as the World Bank remains, at its core, a bank which must earn areturn on its loans in order to continue operating, there will be an inconsistency
among its roles. In 1999 a task force commissioned by an independent thinktank strongly recommended a more circumscribed role, even while expressing
strong support for the continued operation of the Bretton Woods organizations
and for the poverty alleviation objective,:
Both the Fund and the Bank have tried to do too much in recent years, andthey have lost sight of their respective strengths. They both need to return
to basics…The World Bank… should focus on the longer-term structuraland social aspects of economic development. It should not be involved incrisis lending or crisis management, and it should refrain from publicly
second-guessing the Fund’s macroeconomic policy advice… One area
where the Bank can and should do more is in the design of social safety
nets… it is well to remind ourselves that financial stability is not an end in105

CHAPTER V

itself but rather a means to broadly shared global prosperity and that it isa fantasy to believe that financial stability can be maintained without
attention to the social aspects of development.” (Council on Foreign
Relations, 1999: 17).

6. Measuring Change
The World Bank has in place at least two units to evaluate its performance.
One is the Operations Evaluation Department (OED), started in 1973. This
unit is independent of Bank management and reports directly to the Board of
Executive Directors. It evaluates country programs, sector policies andoperational process and transmits its findings to the relevant parties with the
Bank as well as to the general public. The second is the Quality AssuranceGroup (QAG) already mentioned. It was created in 1996 to monitor
implementation of development activities, both financial aid and knowledge
services. The QAG reports to management.
Now results-based managing will require a third layer, focusing on what
assistance actually accomplishes. In addition to the theoretical and technicalhurdles to be surmounted in devising results-based management, it may bedifficult to reconcile a results-orientation with an increasingly sector-wide andprogrammatic approach. As was pointed out above, one problem with
programmatic lending is that it becomes “invisible,” due to fungibility or to
the way the funds are allocated. It will be difficult to measure something thatis invisible.

7. Compliance with the Articles of Agreement
The suitability of the Bank for the role it has assumed is related to its legal
underpinning. As noted in several places above, over the years many of theBank’s activities seem to have wandered from the provisions of the Articles of124
Agreement . When structural adjustment lending was introduced in the 1980s,
enormous legal expertise was called on to establish its compatibility with the
Articles. In recent years, however, less attention seems to be paid toincompatibility. Perhaps poverty reduction is such a sympathetic objectivethat its legal foundation can be ignored. However, the perception of a disregard
for conformity with its Articles of Agreement puts the Bank in a vulnerable
position as a legal challenge to its activities could come up any time. This isworrisome given that a number of groups exist that are inimical to and extremely
critical of the Bank.
124

Excerpted in Appendix 1

106

On-going Issues

A comparison between the World Bank and the European Bank for
Reconstruction and Development is illustrative. Both are multilateraldevelopment banks, but the EBRD has a commitment to foster democracy
written into its founding articles. The World Bank does not; it has a mandate
to foster economic growth.

107

CHAPTER VI

CHAPTER VI

The World Bank and Japan

Japan occupies a unique and important position on the development
assistance stage. It was one of the first recipients of World Bank assistance, asa war ravaged country striving to rebuild. It transformed from a devastatedeconomy in the aftermath of World War II into an economic powerhouse by
the end of the 20th century, changing its relationship with the World Bank
from aid recipient to major contributor. Furthermore, the extent of Japanese
economic success, echoed in the performance of the East Asian tigers, made ita role model for other countries seeking growth.
The Japanese aid program originated in post-World War II flows originallyintended as reparations for war damage. It was particularly directed to thecountries of East and Southeast Asia and to this time, the bulk of Japanese aid
goes to the countries of Asia. As Japan’s role in the international economy
grew, this purpose was expanded to include that of a disguised “tax” levied tomaintain the world economic and political order important to Japan’s continued
economic prosperity. In a sense it was also a membership fee, for inclusion in
the first circle of international relations. Because Japan is forbidden by its
constitution from the sort of international military participation that othercountries can use to establish their presence, foreign aid became the center of
its international role. This was critical during the Cold War era. The end of
the Cold War has meant that such a “tax” is less important and difficulties inthe domestic economy have made it more difficult for policymakers to justify
the aid outflows. These changed conditions are forcing the policymakers tocome up with concrete strategies that can convince not only the international
community but also, possibly more importantly, the Japanese tax payers of theimportance of its development assistance.
As an aid donor, Japan’s development assistance strategy, as that of theWorld Bank, shifted with the prevailing thinking and with international events.
108

The World Bank and Japan

In the period of “neoclassic resurgence,” when issues of external debt andstructural adjustment were central, Japan was experiencing significant current
account surplus. As the new views emerged, focusing on such concepts as
good governance, institutions, social capital and human development, Japan’s
development assistance policy also endorsed them, as is reflected in the ODA
Charter of 1992. During this period it increased its ODA sharply in recognitionof “interdependence among nations” with the objective of furthering a shared“humanitarian viewpoint.”
However Japan’s assistance has also been influenced by its own foreign
policy (as is bilateral assistance of all donor countries) and by its concern forinternational trade. This includes the strategic importance Japan places on
East and Southeast Asia and other developing countries as a source of natural
resources and as markets for its industrial goods. Japan’s own development
projects have generally focused on large scale infrastructure, establishment ofconditions attractive to foreign investment and export promotion.
With regard to Japan and development, the post-war era can be divided
into two periods: Japan as loan recipient is described in the first section of thischapter. It looks at Bank loan assistance for Japan’s post-war reconstruction,
presenting background, content, impact and reasons for the effectiveness of
the assistance. Japan as financial contributor is presented in the second section.
It gives an overview of situation since the mid-1980s. The third discusses
Japan’s current shareholder relationship with the World Bank. And the fourthand final section explores some of the implication of the current situation forJapanese ODA.

1. Japan as Recipient of World Bank Loans
Japan joined the World Bank in 1952, a year after it signed the San Francisco
Peace Treaty ending World War II. From 1953 to 1966 Japan implemented 31
World Bank financed projects with a total value of some 863 million dollars.
These projects were concentrated in capital intensive and large-scale
infrastructure including power, steel, automobile plants, shipbuilding,agricultural land development and transportation. The final loan was received
on July 29, 1966 and all were completely repaid by July 1990125.
A. Post-War Economy and the Impact of World Bank Loans
Japan was facing a number of economic difficulties in the aftermath of thewar. Among the most serious was the large unemployed population of
125

Refer to Appendix 8 for a complete list of World Bank loans to Japan.

109

CHAPTER VI

demobilized soldiers and former munitions industry workers, energy and foodshortages, and severe inflation. The level of production dropped sharply inalmost all industries with the decline in production of two basic industrial
materials, coal and steel, being especially serious. In 1948, the Economic
Stabilization Board 126 formulated a five-year program for economic
reconstruction, which aimed to restore living standards to the prewar level.
By the early 1950s, Japan had gradually improved its capacity to receive
foreign investment. Within this improving investment climate, a plan took
shape in 1951 for power companies to import high-efficiency thermal generatorsfrom the US. Originally the plan envisioned borrowing from the US ExportImport Bank but from the outset the World Bank insisted that it should handle
this kind of long-term development plan in a member country. When in 1953
the US government decided to reorganize and scale down the US Export-Import
Bank, it was agreed that the World Bank would handle long-term capital
investment loans to Japan (Japan Development Bank, 1963). Following on
the loans to power companies were loans to the steel industry, to the automobile
industry (including Toyota), and for land reclamation. In the 1960s, loans
were extended for highway construction and for the Shinkansen “bullet train.”
The World Bank loans had significant macroeconomic impact on Japan inseveral ways:••••

helped directly to overcoming financial difficulties;
induced private investment;
improved project quality through the appraisal process; andprovided technical assistance and project advice.

Direct Financial Input
The direct financial input was a crucial enabling factor making possible
the implementation of projects with large financial requirements. Although
the average of World Bank loans for the period 1953-1966 was only 0.12% ofJapanese GNP, it was 4.5% of Japanese foreign reserves (See Table 5). In thelate 1950s and early 1960s, the Bank provided 60% of the foreign funds raised
by Japan127 (Kawasaki, 1962).
Loans from the Bank [were] a very valuable source of finance for Japan126

The mission of the board established in 1946 was emergency planning of measures for the post-war economic
reconstruction and stabilization.
The rest came from investors including the US Export-Import Bank, private American banks and security
brokers.

127

110

The World Bank and Japan

until the early 1960s. When finance ministers went to the IMF/World Bankannual meetings, their mission was to obtain $100 to$200 million in loans
from the Bank. Japan had such a severe shortage of foreign currency
funds” (Yusuke Kashiwagi cited in Honda and Hata, 1998).
Table 5: World Bank Lending to Japan in comparison withJapan’s GNP, Current Balance and Foreign Reserves(US$ millions)

Year
1953
54
55
56
57
58
59
60
61
62
63
64
65
66
average

World Bank
Lending
40.20
0.00
10.25
27.45
7.00
164.0054.00
53.00
132.00
0.00
75.00
75.00
125.00100.0061.60

GNP
20,906
21,736
24,62527,642
31,24732,73637,80345,01955,14760,16771,08982,394
91,150106,719
50,599Current
Balance
-205
-51
227
-34
-620
264
361
143
-982
-49
-780
-480
931
1,251
-1.7

Foreign
Reserves
913
637
738
941
524
861
1,322
1,824
1,486
1,841
1,878
1,999
2,107
2,074
1,368

Source: Japan Statistical Association (1988).
Converted at the rate of 360 yen to the US dollar

Most World Bank lending to Japan in the 1950s went to the steel and powerindustries. (Refer to Appendix 8 for a list of World Bank loans to Japan.)
Production capacity of the steel industry expanded thanks to the successful
completion of the government’s First Rationalization Plan. The expanded
production scale necessitated further technological innovations and the Japanese
government implemented the large-scale Second Rationalization Plan. As thesemeasures went forward, the steel industry became increasingly dependant on
Bank loans to resolve financial constraints and to serve as a source of foreignexchange. From 1956 to 1960, the “share of foreign funds in the steel industry’s
fund for capital investment was 5.1%, 9.1%, 20.9%, 10.1% and 9.1%,
respectively (Japan Development Bank 1963). World Bank funds also helped
meet increasing domestic investment demand, necessary due to inadequate111

CHAPTER VI

domestic savings.
In the 1960s World Bank assistance was concentrated in major infrastructure
projects, a sector where the importance of this assistance was especially evident.
The loan to the Japan Highway Corporation for the construction of the Meishin
Expressway, signed in 1960, is one example, the Tokaido Shinkansen is another.
At a time when there was only 7.2 billion yen available in the budget, theMinistry of Construction estimated the total construction cost for the expressway
to be 114.2 billion yen (Fujimori, 1966).
Another area that received Bank loans was agriculture. Agricultural
production in Japan began to increase with overall economic growth in theearly 1950s. In order to expand agricultural land as part of its policies toincrease agricultural production, the government implemented large-scale land
reclamation projects, including drainage of wetlands, in addition to traditional
land improvement projects. In many cases large-scale development ofagricultural land would have been impossible without Bank funds.
Inducing private investment
As in other countries, World Bank loans had the important effect of inducing
private funds, both domestic and foreign, to invest in Japan. With regard to
steel, for example, the very fact that steel companies qualified for Bank loans
enhanced their creditworthiness. American securities companies obtained
information from the Bank on the Japanese steel industry and passed it on to
American investors. Such practices made the very existence of Bank loans
advantageous for Japan in raising funds commercially on financial markets(Takeda, 1995).
American private banks provided loans in conjunction with the first set ofWorld Bank loans to the steel industry in 1955128. With the second set of Bankloans to those same companies in 1958, private banks in the US were joined
129
by banks in Switzerland, Germany and other countries (Kawasaki, 1962 ).
Improvement in project quality
World Bank financial participation had the effect of improving project
quality through its appraisal process. The Bank attached quite stringent
conditions to its loans, demanding, for example, that companies strengthen
130
their financial condition by raising the capital-asset ratio . This rigor
128

Manufacturers Trust Co. funded Yawata Steel and Chase Manhattan Bank funded NKK Corp.
Those banks are Manufacturers National Trust Bank, Manufacturers Trust Company, Morgan Guaranty
Bank, Continental Illinois Bank, Geneva Bank, Frankfurt Bank, and Dusseldorf Bank.
130
Required lending conditions included the following: (1) the project must contribute to development orreconstruction; (2) the financing shall be of exclusively economic nature; and (3) the projects to be financed
must be designed independently and in detail.
129

112

The World Bank and Japan

contributed greatly to the modernization of finance management by the borrower
country.
Technical assistance and project advice
The technical guidance and expert advice provided by the Bank inconjunction with its project loans were as valuable to rebuilding Japaneseindustry as was the money, itself, and had an important impact on post-war
industrialization.
In terms of highway construction technology, for example, Japan lagged
far behind developed countries. It had paving technology for ordinary roads
but lacked the paving and construction technologies to build expressways. The
Japanese road authorities seized the opportunity presented by World Bankloans to upgrade technologies using technical guidance and advice from Bank
experts as well as transferring technology from other participants (Honda andHata, 1998). In the case of the steel industry, the principal objective at thattime was to increase the capacity of ironworks and to modernize aging facilities.
Because equipment embodies technology, the industry was able to upgrade
technology by purchasing and applying the most advanced equipment.
World Bank loans also triggered domestic debates on the lending policies
of Japanese private banks. As a condition for approving large loans, the WorldBank required borrower companies to raise their capital-asset ratio. Theseloans also included “elaborate provisions requiring improvement of finances
which were quite different from the common practice of Japanese banks”(Takeda, 1995131). Drawing from this “World Bank lending method,” theMinistry of Finance contemplated regulating Japanese bank lending based onborrower companies’ financial ratios. This plan was regarded by some asinternationalist and provoked fierce opposition from industrial groups such as
Japan Federation of Economic Organizations. It was never implemented andthe “World Bank lending method” eventually faded away. (The Society for
Industrial Studies, 1995; Ito, 1995132).
B. Explaining the Effectiveness of World Bank Loans
A main reason for the success of most World Bank loans to Japan is that131

The so-called “main bank system” was in common practice. Under this system a company has a key bankamong the several with which it holds accounts. This “main” bank provides large loans to the company, of
which it is also a major shareholder. This system assured companies of continued bank support even if theirfinancial condition deteriorated.
132
In retrospect, Japan probably missed an opportunity to enhance the financial fitness and competitiveness ofcompanies when its banks did not adopt the “World Bank lending method”.

113

CHAPTER VI

the projects were appropriate to the country’s needs. The loan for theconstruction of the Tokaido Shinkansen in 1961 is a case in point. In 1959, aJapanese delegation was able to convince skeptical World Bank officials that ahigh speed railway was necessary to compete with the road and air transport
for which expressways and airports were being constructed and that it wasconsistent with economic and social needs and feasible in terms of technology
and profitability.
Bank loans were also effective in helping clear constraints in several
important industries. In the early 1950s, electric power, steel, marine transportand coal were thought to cause bottlenecks to growth. The government’s policy
to address this problem was based on rehabilitation and on upgrading capital
equipment. The World Bank facilitated this by providing loans directly to thepower and steel industries and by providing indirect benefits to the maritime
transport and coal industries through support for shipbuilding and steel
production, respectively. Later, during the “Jinmu” boom133 years of 1956 and1957, power supply, steel supply and transportation network were considered
the bottlenecks (Economic Planning Agency, 1958).
The absorptive capacity of Japan and the appropriateness of its institutions
were also factors in the effectiveness of World Bank loans. As the East Asian
Miracle (World Bank, 1993) pointed out, Japan had sufficient absorptive
capacity, sound policies and development-compatible institutions134. Yusuke
Kashiwagi described the World Bank’s reaction to this in the following words:
The Bank…always considered that Japan had a great potential for growth,and [it] provided a maximum amount of loans that Japan could afford toborrow. I believe that our country achieved high growth because we didour ‘homework’ assigned by the Bank in each project and faithfully
implemented their recommendations on overall economic policies (Honda
and Hata, 1998).
It is impossible to directly compare aid to post -war Japan with current aid
to developing countries because, strictly speaking, aid to Japan was forreconstruction and not for development. However, its post-war reconstruction
experience indicates that selection of projects that meet socioeconomic needs,
attention to economic bottlenecks, and the existence of aid absorptive capacity
are important factors to aid effectiveness.
133
134“Jinmu” that is a name of the first Emperor, was used to call this historical economic boom.
The absorptive capacity was largely embodied in the institution of Japan’s very competent bureaucracy.

114

The World Bank and Japan

2. Japan as Financial Contributor to the Bank
Having achieved high growth, Japan, through its public and private sectors,
has supported the World Bank. Most of its contributions have been through135
provision of Official Development Assistance (ODA ) or through the purchaseof World Bank’s bonds.
A. ODA
Japan became the second largest shareholder of the World Bank (after theUS) in 1984 and in 1991 it surpassed the US to become the world’s largest
provider of ODA. Throughout the 1990s Japan provided $10 to $15 billion
per year in bilateral and multilateral ODA (See Table 6). About a quarter of
the amount was provided through international organizations136, the rest throughdirect bilateral assistance. Japanese ODA extended through the World Bank
Group hovered above 1 billion dollars in the early 1990s and peaked at $2.3
billion in 1995.
Table 6:

137

Japan’s ODA through International Organizations(Net disbursement basis; US $ million, %)International Institutions/
Calendar Year
1. Grants to international
institutions(1) UN agencies(2) Other agencies
2. Capital Subscriptions,etc. to international
financial institutions(1) World Bank group(2) Other institutions
Total
Percentage of total ODA(%)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
524

695

660

657

758

826

780

689

697

813 1,598

483
40

648
47

602
57

593
64

678
80

744
82

701
78

616
73

627
69

727 1,304
85 293

1,758 1,467 2,187 2,652 3,029 3,344

471 2,133 1,428 4,074 2,180

1,198 1,186 1,282 1,603 1,762 2,323
12 1,539 806 268 1,153
559 281 904 1,048 1,266 1,020 459 593 621 3,806 1,027
2,282 2,163 2,847 3,309 3,788 4,170 1,251 2,822 2,125 4,887 3,778
25.2 19.1 24.8 28.6 27.8 28.1 13.3 30.0 19.8 31.6 28.0

Source: Ministry of Foreign Affairs, Japan (2002)

For a number of practical and economic reasons138 most of Japan’s aid
money is given bilaterally. Nonetheless, financial assistance extended through
135

Refer to the definition of ODA in the Overview.
The two-year average share in 1997 and 1998 was 24.5% while the average among the DAC (Development
Assistance Committee) member countries was 32.8%.
137
Notes: 1) Includes contributions to European Bank for Reconstruction and Development (EBRD); 2) ODA
to Eastern Europe and contributions to the EBRD have not been included in the calculations of percentage of
total ODA
138
These reasons relate to reparations and compensation for damages from World War II, to financial interestsof Japanese companies, and to geopolitical pressures in Asia.
136

115

CHAPTER VI

international organizations enables it to leverage that assistance through theorganizations’ expertise, experience and global network. This is especiallyvaluable in addressing global problems such as the environment, narcotics,
refugees and infectious diseases. Japanese policy recognizes that thismultilateral approach can magnify assistance beyond that available within abilateral assistance framework (Ministry of Foreign Affairs, Economic
Cooperation Bureau, 2001).
B. The Japanese Investor in World Bank Bonds
Japan’s contribution to the Bank has also been through purchase ofInternational Bank for Reconstruction and Development (IBRD) issued bonds.
The World Bank opened its office in Tokyo in 1970. While its purposes included
liaison with the Japanese government, public relations and recruitment ofJapanese employees, its most important objective was to raise funds on theJapanese financial market. World Bank bonds have been well received by
Japanese investors. While the majority of the bonds issued in Japan arepurchased by institutional investors139, an estimated one-third has gone toindividual investors. Individual investors are probably attracted to the bonds
due to the inherent low risk as reflected in their credit ratings. Another factor
motivated them may be the conviction that through the purchase they are helping
developing countries.
Until 1986, with some hiatus periods, the Bank issued so-called samurai
bonds (yen-denominated foreign bonds). Following the internationalizationof financial markets and the yen, the Bank introduced daimyo bonds (yendenominated foreign bonds settled in Europe) and shogun bonds (non-yendenominated foreign bonds). There were only six issues of shogun bonds due
to various regulations in the financial market and to Japanese business practices.
This created some doubts within the Bank about the efficiency of the Tokyo
market (Gyohten, 1997). Since 1991 the Bank has launched global yen bonds
by coordinating markets in Tokyo, New York and Europe. Euro-yen structured
bonds were issued in 1994. Yen-denominated bonds had 19% share of total
IBRD bond issues in 2001, second after the 60% share held by US dollardenominated bonds.

139

Japanese financial institutions are well represented among the 47 international financial institutions amongwhom the World Bank distributes bonds. They include Nomura Securities, Daiwa Securities, DKB International,
Sanwa Bank and Industrial Bank of Japan.

116

The World Bank and Japan

3. Japan as World Bank Shareholder
In its shareholder relationship with the World Bank, Japan occupies aposition of significance. It is the second largest shareholder and the second
140
largest contributor of ODA (in both cases after the United States ). Its voting
power accounts for as much as 7.89% of the total vote in IBRD and 10.96% inInternational Development Association (IDA). It appoints a member of the 24
141
member Executive Board , the Bank’s policy making body for general
operations including approval of all lending. In 2002 Japanese nationals
occupied two out of the Bank’s 27 Vice President positions.
Officially Japan occupies a position of considerable power. It has not,however, been able to effectively use it to mold Bank policy and direction.
Perhaps for this reason, interaction between the Bank and Japanese nongovernmental organizations, including private sector companies and civilsociety, has been minimal. Nonetheless, it has worked effectively in partnershipwith the Bank through several channels.
A. Development Strategy Debate
Although Japan has generally maintained a low profile in Bank policy
formulation, it has had significant interest in influencing the organization’s
approach to development assistance. As is explained in Chapter II, the main
pillar of Bank economic theory has been neoclassic economics, but Japanese
economists have often reasoned differently. Extrapolating from their own
experience with economic development and industrial policies, these economists
have emphasized economic development through active government
intervention in the private sector142. The Japanese disagreement with theneoclassical approach included dissatisfaction with the structural adjustment
policies of the World Bank (and IMF) because of their heavy dependency onmarket mechanisms and their minimalization of any government role.
Starting in the late-1980s and continuing to the present, this divergence ofviews sparked debate on the role of government in development. Japanese
analysts were particularly critical of the Washington Consensus for disregarding
the successful development experiences of several East Asian countries
140

In 2001 Japan ceded the position of largest ODA contributor to the United States. Partly this was due tofinancial tightening by the government and partly to exchange rate movement.
Of the 24 people on the Executive Board, five are appointed by the member countries with the largest numberof shares and the rest are elected by groupings of other member countries.
142
Japan stresses long-term planning, an active role by the government and country specific strategies, none ofwhich is compatible with the Bank/IMF approach. Both do agree on the importance of macroeconomic stability,
control of global financial flows, human resources development, environmental protection, poverty reduction,
rural development, creation of institutions and good governance. For example, see Ohno (2003).
141

117

CHAPTER VI(Shimomura, Nakagawa and Saito, 1999). In 1991 the Overseas Economic
Cooperation Fund (OECF143) voiced this position in and argued for investment
promotion, protection of infantry industry, export promotion, financial market
policies and gradual privatization (OECF, 1992). This issue is a rare instanceof Japan taking a strong stand and insisting that its position be explored.
The Ministry of Finance funded research by the Bank on the economic
development of East Asia. This research lead to the publication in 1993 (under
the initiative of then Chief Economist Lawrence Summers) of The East Asian
Miracle - Economic Growth and Public Policy (The World Bank, 1993). As
was discussed earlier in Chapters II and III, this report contributed significantly
to the subsequent shift in international development strategy from neoclassicaltheory to emphasis on institutions144. More recently, in 1999, the Japanese
Government instigated the “East Asia Prospects Study” as a follow-up to theEast Asian Miracle. This study examines the direction of economic change in
East Asia with a view toward development approaches for the early 21st century.
145
Thus far two books have come out of this study, with more to follow .
B. Supplementary Aid Arrangements
Japan is the largest contributor of World Bank co-financing, by which the
Bank and other aid agencies jointly provide financing for a specific project orprogram. Co-financing has certain advantages for donors: one is that it enables
them to access Bank resources such as research and appraisals; another is that
it facilitates the donor in making recommendations to recipient countries thatare difficult because of political sensitivities in the bilateral framework (Imai,
2001). The Bank’s co-financing partners in Japan have long been OECF andthe Export-Import Bank of Japan, now consolidated into the Japan Bank forInternational Cooperation (JBIC).
There are also arrangements between Japan’s aid agencies and the WorldBank beyond co-financing. Recently the Bank and JBIC began collaborating
at the policy level, including the PRSP process146. Another growing area ofcollaboration is technical assistance. The Bank is expanding its technicalcooperation and grant facilities in addition to traditional loans. Consequently,
the Japan International Cooperation Agency (JICA), Japan’s technical assistanceagency, is gaining importance as a partner to the Bank and closer links are
143

OECF later merged with the Export-Import Bank of Japan to become the Japan Bank for International
Cooperation.
Refer to Ishikawa (1996) for details.
145
Shahid and Evenett (2002) and Shahid (2003).
146
JBIC has participated in the formulation of PRSPs in Vietnam, Laos and Bangladesh, among others.
144

118

The World Bank and Japan

anticipated.
Japan also supports the Bank through the following government sponsoredprograms:
Japan Policy and Human Resources Development (PHRD) Fund
PHRD was co-established by the Japanese government and the World Bankin July 1990 to facilitate the planning and implementation of policies that will
foster human resources and enhance the effectiveness of financial cooperation.
The fund encompasses technical cooperation, especially in the following areas:
•
•
•
•
•

Technical cooperation in environmental protection;
Women in Development (WID147);
Private sector development;
Education and health; andAgriculture

The size of the fund has been in the range of 10 billion yen per year148.
This fund is financing research for the ongoing East Asia Prospects Studyreferred to above.
Japan Social Development Fund (JSDF)
JSDF was established by contribution of the Japanese government in June
2000 for the purpose of alleviating poverty and negative social effects arisingfrom the global economic crisis of 1997-1999 which began in East Asia149. It
is intended to help developing countries achieve sustainable development.
Japan’s Contribution to the World Bank Institute (WBI)WBI is the unit of the World Bank charged with human resource
development and capacity building in developing countries. For this purpose
it conducts research and provides training. The Japanese contribution to WBI
includes general training, partnership programs with various development
agencies and the Brain Trust Program; which is a program aimed at applying
147

WID is based on the belief that the role of women is important, that their impact on development must berecognized, and that their active participation in the development processes deserves special consideration..
The total of 187 loans from the fund was disbursed in 2000 mainly in the sectors of agriculture, education,
environment, health and population, nutrition, and water supply and sanitation. The major recipient countries
were China, India, Thai and Guinea. (Ministry of Foreign Affairs, 2002)
149
The major projects that received JSDF loans include the northern mountain poverty reduction project inVietnam, the child development program in Bulgaria, and the community development program in Nicaragua(Ministry of Foreign Affairs, 2002).
148

119

CHAPTER VI

East Asia’s development experience to developing countries.
C. Private Sector Relationship
Currently Bank hires few Japanese firms for its projects due to an apparent
mismatch between Bank requirement and Japanese availability. Though there
are many Japanese project implementation experts with good practical abilities,
they tend to be unfamiliar with the academic-style discussions and reports
which the Bank emphasizes. Conversely, there are many Japanese scholars
knowledgeable about theory and policy planning but they lack practicalknowledge and experience. Education, training and re-orientation of the experts
are probably necessary to change this situation.
D. Social Sector Relationship
The World Bank actively promotes working relationships with NGOs
because they are usually knowledgeable, committed and able to provide
information on and access to impoverished communities in developing
countries. However, as was mentioned above, Bank ties with Japanese NGOs
are weak. Given the shared goal of international development, it should bepossible to remedy this and form constructive and cooperative arrangements.
Since 1996 the World Bank Tokyo Office has been working in this direction.

4. Implications for Japanese Development Assistance
Implications on Japanese development assistance strategy of the current
world thinking and prospects are critical especially given that there is relatively
less enthusiasm for assistance because of the prolonged economic stagnationof the country. It is unfortunate that the Japanese had to reduce its assistancefunding when the US and EU were increasing it by substantial amount at theMonterrey Conference.
There is, however, enormous potential for constructive engagement between
Japan and the World Bank. Japan’s importance to the Bank and the international
development effort in general entitles it to have significant input; and the Bankand the development community at large can benefit not only from Japanesefunds but also from its experience, expertise and perspective. In the past, thispotential has not been fully realized because Japan has preferred not to engage
in the international community for historical and cultural reasons, ceding theplatform to other voices150. Over the years this reluctance has left Japan
150

Following the formulation and adoption of its ODA Charter in 1992, there have been indications of change inthis policy. See Shimomura et al. (1999).

120

The World Bank and Japansomewhat ill-equipped to join in despite the resources it has to offer.
The current shifts in emphasis and direction in the international development
assistance make it opportune to review strategies and implementation methods.
A review of overall Japanese ODA should analyze the total program fromseveral angles including comparative advantage, foreign policy objectives andeconomic interests. A review should also consider what is one of the mostsensitive of issues, the balance between the interests of the donor and theinterests of the recipient. Realistically speaking, assistance should serve bothsets of interests, donor interests for political viability and recipient interests as
the ultimately objective. But the balance needs to be clarified. A good starting
point would be an in-depth critical evaluation of past Japanese financed projects
in terms of impact on growth, poverty, sustainability, ownership andparticipation. This is the approach DFID of the UK implemented to define
new assistance policies. While Japanese strategy should not necessarily besimilar to that of DFID, there may be lessons to learn from DFID’s experiencein the strategic evaluation of its assistance program.
In conducting such a review, it would be important to look into the following
key features:
•
•
•
•
•

Increased coordination among the various ministries and agencies
involved in assistance;
Intensified cooperation and coordination with other donors and clientsin both planning and carrying out projects;
Sustainability and ownership of the projects;
In-depth analyses of the impact of the assistance on the recipient
countries and Japan; andGreater emphasis on “software,” the social sciences factors such as
institution building, empowerment, and human development;

Attention to these features will require a re-orientation by Japan’s
development community. It will mean moving beyond “hardware,” orinfrastructure, which has traditionally been the focus of economic assistancefrom Japan. And it will mean greater international coordination. Donor
harmonization is thought to be less cumbersome, more efficient and more
effective than unilaterally managed assistance but it has not been an importantelement of Japan’s aid practice. Partly this has been due to communication
barriers and differences in leadership styles; but it may also reflect weak strategic
thinking and poor coordination within the Japanese development assistance121

CHAPTER VI

community, itself.
Some view this as an indication that a separate government agency shouldbe created to centralize and concentrate ODA management. Meanwhile, othersteps are being taken; both JBIC and JICA are participants in a joint website toshare country analytic work. They join 22 other multilateral and bilateral donor
agencies on the “Country Analytic Work (CAW) Partnership website151. Closeand active participation in the World Bank’s Comprehensive Development
Framework (CDF) and Poverty Reduction Strategy Paper (PRSP) process isanother avenue to be pursued.

151

http://www.countryanalyticwork.net/

122

Concluding Remarks

CHAPTER VII

Concluding Remarks

The area of development assistance in the early 21st century is in a significant
transition stage. The reason is that in spite of the evolution of ideas, strategies
and approaches over the past five decades, in spite of the billions of dollars inassistance and the untold man-years of effort by skilled and committed
practitioners, the fundamental problem remains — many countries and billions
of people are mired in poverty152. Whole segments of population, and in thecase of Sub-Saharan Africa, an entire continent, are being marginalized atincreasing speed as technology and globalization take off elsewhere. Beyond
this discouraging situation, transnational problems such as global warming,
water resources, and HIV/AIDS are barely under control.
With a half century of history and experience informing today’s development
assistance effort, aid cannot truthfully be said to work. In spite of several
successful cases such as those of East Asia, Uganda and Mozambique, economic
development is not really associated with economic development assistance.
Much more is known now than in the past about what is necessary fordevelopment to occur, but the conversion of that knowledge from the academic
to the operational requires a methodology which is not yet known and which
may not exist. As one observer recently noted, “Knowing the destination does
not produce a road map for getting there” (Einhorn, 2001).

1. Recapitulation
In retrospect, the time of pioneers was a period of relatively little tension.
The norm, supported by the development community of that period, wasgovernment-led development through heavy investment especially in theindustrial sector. The belief was that developing countries lacked capital;
152

A just published book by a current World Bank Senior Advisor offers an on-the-ground account of thesefailures, as well as his own recipe for surmounting them, “[g]etting incentives right.” (Easterly, 2001: 143)

123

CHAPTER VII

therefore, assistance should emphasize the transfer of capital, something that
could be conducted most efficiently through the government. The success of
the reconstruction of Western Europe and Japan reinforced this belief. Tension
began to appear in the 1980s when severe macroeconomic shocks anddisillusionment with the application of generalized economic principles
prompted the Bretton Woods institutions to turn to neoclassical and free-tradeeconomic theories. This was signaled by the introduction of new lending
instruments; the structural adjustment loans (SALs). This was the zenith of
the neoclassical approach and the Bretton Woods institutions implemented it.
The United Nations family of organizations continued to espouse the otherapproach. Many countries were reluctant to implement SALs and theiropposition often entailed demonstrations and social upheaval. The most serious
criticism was the claim by policymakers of SAL recipient countries that theharshness of the conditionalities created a lot of suffering among the poor
populations. Several UN organizations, including United Nations Development
Programme (UNDP), took up this criticism and proposed that the development
assistance focus on poverty and on increasing human capability. A peopleoriented approach (today called “pro-poor”) resonated well, as reflected by
the awarding of the Nobel Prize in Economics to Amartya Sen. Some donor
countries, especially influential ones of northern Europe, gave strong support
to this orientation.
When James Wolfensohn became president of the World Bank in 1995, theorganization was in transition. Many perceived that there was little to showfor fifty years of analysis and implementation, little evidence that poor countries
and their populations had been helped. Those few previously poor countries
that were prospering were apparently doing so for reasons unrelated to WorldBank assistance. New concepts and theories were promoted amid loud criticism.
A number of NGOs accused the Bank, claiming that its contribution to thedevelopment efforts was negative in many areas. Mr. Wolfensohn consideredthat if the Bank were to survive, significant changes would be necessary andhe set about to make them. One change was to soften the “arrogant” image
that the Bank had acquired. But the most significant changes was raising poverty
reduction to the level of primary objective.— “Our dream is a world free ofpoverty” became the slogan of the World Bank.
The Bank was joining the movement toward development with a humanface, emphasizing qualitative rather than strictly quantitative indicators. One
consequence of this was a softening of the market-based/intervention-based
dichotomy. In the words of UN Secretary General Kofi Annan, the World
124

Concluding Remarks

Bank and the UN have “become closer than they had been for several
decades153” (Annan, 2001). This cooperative attitude is reflected in the successof the Monterrey Conference on Financing for Development at which major
donors committed substantial increases in ODA.

2. Possibilities and Prognoses
The World Bank and the entire development community are likely tocontinue to face many unresolved issues over the coming years. The story ofdevelopment and economic assistance is continually being written. Speculation
is a risky matter but the cyclical nature of development assistance over time
hints at a pattern: Criticism gives rise to pessimism which spurs intense analysis
which generates new thinking which prompts effort and money to render new
154
ideas operational in expectation (or hope) that they will work . Generally
this pattern has been manifested in pendulum swings between the interventionist
and the market-based philosophies. Such was the case when interventionist
capital accumulation, promoted after the Second World War, yielded toneoclassic structural adjustment in the 1980s and when market oriented neoclassicism gave way to the institution-based approach in currency today.
Pendulum swings in development assistance have resulted not only fromdisillusionment with prevailing theories; but also from changes in the US
administration. Ideologically the Republican political stance is closer to theneoclassicists’ position and has generally favored market-based strategies witheconomic growth as the objective. The Democratic stance generally is moreinterventionist and places more importance on achieving social and quality oflife objectives. Thus, the incumbent US administration is another clue to thenear future. It is unclear how indicative of its policy are the two aid packages
recently presented, the Millennium Challenge Account (MCA) and MiddleEast Initiative..
This is, in fact, a time of considerable composure among the development
community. There is an air of satisfaction among practitioners that they havediscovered a paradigm that will lead to poverty reduction through sustainable
development. But while there is confidence that the elements are known andhope that the relationships among them are understood, the dynamics of therelationship remain unclear. Both the confidence and the reservations are
revealed in the following statement:
153

Said with regard to the reforms of the Wolfensohn presidency in reference to criticisms leveled at Mr.
Wolfensohn.
This should not be understand as implying that development assistance is unusual in following this pattern.
On the contrary, it is a widespread problem solving technique, used in most areas of human endeavor.

154

125

CHAPTER VII

We know both the economic conditions and the institutional conditions
that make for good economic performance. What we do not know is how
to get them. For that, we need a body of theory that explores the processof economic, political, and social change. When we have such a theory,
we will make much better progress toward solving problems of development(North, 2001: 49).
Satisfaction with the new paradigm means that the institutional and other“software” facets of economic development have taken hold so strongly thatdevelopment strategies are unlikely to revert to those of the 1980s. Nonetheless,the shift of emphasis from growth to poverty alleviation is being modulated
and there are indications that growth and market orientation are regaining theircentrality. In its World Development Report 2002, for example, the WorldBank evokes a symbiosis between institutional orientation and market
orientation by subtitling it Building Institutions for Markets (World Bank,
2002a, sic).
To some extent, this is a manifestation of the pendulum swings indevelopment assistance. As the poverty reduction strategy becomes fully
deployed, inconsistencies and inadequacies become apparent, necessitating
realignment, either by curtailing its scope or by reintegrating it back into a
growth oriented strategy. It may also hint at a reprise of neoclassicism, possibly
promoted by the policies of the US administration which has called for reenforcement by international lending institutions of the fundamentals of themarket economy. As a consequence of its status as the “flagship” developmentbank, the World Bank was the first to be singled-out for this call. The Bank155
was also called on, by the Secretary of the Treasury to approach poverty
elimination in a new way, by focusing exclusively on production (Fidler, 2001a).
How the dynamic of development strategy, aid effectiveness and world
events in the early 21st century will impact on the World Bank is uncertain.
Speculation is a risky matter but one possible scenario features a World Bank
reduced in size and more limited in scope. As described above, there is evidence
suggesting that despite the apparent breadth of its objective, the Bank’s playing
field is narrowing.
•
155

The high cost of doing business with the Bank and/or insufficientabsorptive capacity by some clients is reflected in a reduced portfolio.

At the time, Paul O’Neil who has since left that position. There is no firm indication at this time that thissignals any change in policy.

126Concluding Remarks••

A turn more toward more grant extension and away from project lending
it could reduce the portfolio even further.
Criticism by stakeholders has, in the past, caused a retreat fromcontroversial involvement. This trend could well continue into the
future. Between the strident criticism, from right and left, and its own
push toward coordinated development efforts (i.e. CDF and SWAP),
the Bank is already, in the words of its own Quality Assurance Group,“a more marginal player…its capacity to set the agenda is diminished”(World Bank, 2001b: 26).
Even if these do not occur, the Bank might well be persuaded to rein insome of its more peripheral activities and focus on its core functions, assome of its supporters recommend. The Bank may restructure into asmaller, more specialized organization.

In addition to the above items, the suitability of the international financial
institutions, such as the World Bank and the regional banks, to conceptualize
and manage the type of assistance needed for institution building is debatable.
It will take a long time to bring change to those areas that have emerged as
critical, including gender, corruption, education, health, environment,
governance, legal and judiciary, etc. Beyond the issue of time frame, it isdoubtful that the international financial institution’s traditional lending
approaches are suitable to the needs now being defined. Possibly a neworganization is required to implement assistance in these specific areas, leaving
more purely economic matters to the financial institutions.
Even if there is no new organization, other players are available to take up
slack created by a reduced World Bank presence. The British Department forInternational Development (DFID) and the UN’s UNDP are prominent
adherents of the post-Washington consensus. DFID has recently moved into
4th place in terms of ODA after Japan, the US and Germany. DFID supports
fully the millennium development goals and is very serious about meetingthem. Very recently it has untied the totality of its loans to help it target thelowest income countries (UK DIFD website, www.DFID.gov.uk). UNDP is,of course, the keeper of the Human Development Index. Mark Malloch Brown
became its Administrator in 1999 (after 5 years at the World Bank) with a goalof increasing the heft of that organization within the development community.
UNDP provides funds and helps developing countries attract and use aid
effectively. Mr. Brown intends to take it in the direction of consulting, rather
than “bricks and mortar development” (Hoyos, 2001).
127

CHAPTER VII

The United Nations, itself, is continuing its activities with respect todevelopment. The Conference on Financing for Development in Monterrey,
Mexico and the later World Summit on Sustainable Development in
Johannesburg were important in the campaign to tackle the Millennium
Development Goals (MDGs). In addition, the regional multilateral developmentbanks, Asian Development Bank (ADB), Inter-American Development Bank(IADB) and European Bank for Reconstruction and Development (EBRD)
have sector specific expertise.
How Japan, a huge player in development assistance, should adjust to thesituation is being debated. The traditional focus on infrastructure assistancehas been and will continue to be important to recipient countries and Japan
appears to have a comparative advantage in it. Its wisest course may be tocontinue this approach but with increased emphasis on institutional factors.
With so many organizations emphasizing poverty reduction, some donor should
attend to infrastructure.

3. Summing up
Stepping back and looking at the critical path of development thought andassistance over the past five decades a recurring counterpoise is evident and it
can be expressed in two fundamental questions: Is development best achieved
through more or less government involvement? Should development assistancefocus on income redistribution and poverty reduction, generally pursued througheconomic management, or on expansion of the economic pie through relianceon market forces156? The factors that have propelled the swinging pendulum
between these axes have been intellectual theories, key world events and onthe-ground assistance efforts.
All these factors intertwine and are reflected in the activities of the World
Bank, reflected because the Bank is not an independent entity but a vehicle
through which its “stakeholders” exert influence. While the policies of theincumbent US administration have historically had huge impact, the influenceof others appears to be increasing and there appears to be a confluence with
the United Nations. If the pendulum should swing back toward emphasis on
156

Though not explored in this paper, this same counter-position has generally existed between the United
Nations family of organizations and the Bretton Woods institutions. Because of their structure, especially withregard to voting rules, the stances of the UN organizations and the Bretton Woods institutions have been quite
different, the UN reflecting more the demands of developing countries and the Bretton Woods institutions morethose of the industrialized countries. In terms of their position, the UN generally has favored government
involvement and the Bretton Woods institutions have tended toward private sector interests; the UN has been
more inclined to support redistribution of income while its Bretton Woods counterparts have believed in economic
growth.

128

Concluding Remarks

growth and to market forces, it will be with an enlightened comprehension of
why poverty persists. The nearly unanimous acceptance of the fundamental
importance of institutions by development economists of all stripes ensures
that.
If most people are poor, it is clear that the most important resource of theeconomy, i.e., its people, is being underutilized. It also appears irrelevantin such cases to be debating whether the focus of development should beon promoting economic growth or on reducing poverty (Duncan and
Pollard, 2001: 2).
If a perusal of the history of development assistance, as presented in thispaper, gives any cause for optimism it is that the international will seems there
and so there is little cause for pessimism. Probably the most serious potential
threat to future efforts to solve the development conundrum is discouragementon the part of the donor community. Words of Paul O’Neill, as Secretary of
the Treasury, resonate here. In his view, echoing the conclusions of the earlier
quoted OECD/DAC report and shared by a number of respected experts, little
has been accomplished for the US$225 billion lent over the past decade by theWorld Bank. “Visit some of the poorest nations in the world, and you will seethat we have little to show for it” (Fidler, 2001a). From a humanitarian point,
this is a great tragedy, from the human point of view it is a great waste, andfrom the economic point of view it is a great loss in purchasing power. Thereis a critical need for some positive results. This would not only signal that
underdevelopment was being eased, but would do a lot to counter donor fatigue
and re-invigorate the struggle.
The situation has always been fluid. The review of the history ofdevelopment assistance conducted in the current study suggests that at any
given time the focus or emphasis of assistance is unbalanced, that the“fashionable” becomes dominant and overshadows other points of view. This
was the case with capital accumulation during the era of pioneers, withdiminished government involvement during the era of neo-classicists, and withpoverty reduction in recent years. The current pre-occupation with MDGs isan example of this. Dramatic changes occur in this field rather abruptly,
frequently growing out of ideas proposed by individuals, or sometimes
organizations, well-placed to exert strong influence. Robert McNamara initiatedthe shift to a poverty focus, Douglas North is largely responsible for theimportance today of institutions, the Organization for Economic Cooperation
129

CHAPTER VII

and Development (OECD) created the International Development Targets(IDTs). The next innovation is still a wild card in the deck, and when it might
be played is unclear.
In a sense, “development theory has come full circle” (Hoff and Stiglitz,
2001: 427). This is neatly illustrated by a recent statement by Bank president
Wolfensohn that “there are stages of development157,” echoing clearly W.W.
Rostow’s “stages of growth” theory that started it all. It is unrealistic to thinkthat development issues have been conclusively resolved. If the current
approach (the “post-Washington consensus”) does not produce results on-theground, tensions will inevitably resurface and the lurking counter positions
will re-emerge. Perhaps resultant debate will produce a synthesis and newparadigm, so that the “full circle” will be a spiral upward.

157

Statement made during a keynote address to a gathering in Tokyo in January, 2003.

130

References

References
Adelman, Irma and Cynthia Taft Morris (1997), “Editorial: Development
History and Its Implications for Development Theory,” World
Development, Vol. 25, No. 6: 831-840.
Akerlof, George A. (1970), “The Market for ‘lemons’: Quality Uncertainty
and the Market Mechanism”, Quarterly Journal of Economics. Vol.
84, No. 3: 488-500.
Akiyama, Takamasa, John Baffes, Don Larson and Panos Varangis (2001),
Commodity Market Reforms, Lessons of Two Decades, The World Bank.
Washington, D.C.
Alden, Edward (2001), “World Bank official attacks Wolfensohn,” The
Financial Times, July 25.
Annan, Kofi (2001), “World Bank is lucky in its visionary leader,” The Financial
Times, September 7.
Arrow, Kenneth (2000), “Observations on Social Capital,” In Dasgupta, Partha
and Ismail Serageldin (eds.), Social Capital, A Multifaceted Perspective,
The World Bank.
Asian Development Bank website, http://www.adb.org/default.asp
Balassa, Bela (1978), “Exports and Economic Growth,” Journal of
Development Economics, Vol. 5, No. 2: 181-190.
Baran, Paul (1957), The Political Economy of Growth, Monthly Review Press,
New York.
Barro, Robert J. and Jong-Wha Lee (1993), Losers and Winners in Economic
Growth, Annual Bank Conference on Development Economics, The
World Bank.
Basu, Kaushik (2001), “On the Goals of Development,” in Gerald M. Meierand Joseph E. Stiglitz. (eds.), Frontiers of Development Economics,
the Future in Perspective, Oxford University Press.
Bates, Robert H. (1981), Markets and States in Tropical Africa: The Political
Basis of Agricultural Policies, University of California Press.
Bauer, Peter T. and Basil S. Yamey (1968), Markets, Market Control andMarketing Reform, Weidenfeld & Nicolson.
Beattie, Alan (2000a), “Bank criticised over independence of portal,” The
Financial Times, September 21.
______(2000b), “Strains in Bank’s inclusive mode,” The Financial Times,
June 16.
131

______(2001a), “Lenders scent an attempt to clip their wings,” The Financial
Times, April 11.
______(2001b), “Panel calls for carbon tax and reforms to aid,” The Financial
Times, June 29.
______(2001c), “World Bank ‘losing support’,” The Financial Times, August16.
______(2002), “World Bank urges private aid to fight poverty,” The Financial
Times, February 20.
Beattie, Alan and Richard Wolffe (2001), “Comment & Analysis,” The
Financial Times. July 20.
Béjar, Héctor and Peter Oakley (1996), “From Accountability to Shared
Responsibility, NGO Evaluation in Latin America, in Michael Edwards
and David Hulme (eds.), Beyond the Magic Bullet, NGO Performanceand Accountability in the Post-Cold War World, Kumarian Press.
Bhagwati, J. N. (1978), Anatomy and Consequences of Trade Control Regimes,
NBER, New York.
Binswanger, Hans. and K. Deininger (1997), “Explaining Agricultural andAgrarian policies in Developing Countries,” Journal of Economic
Literature, Vol. 35, No. 4: 1958-2005.
Blustein, Paul (2001), “O’Neill Targets World Bank’s Poverty-Fighting
Strategy,” The Washington Post, May 16.
Bush, George W. (2001), quoted in “Bush Targets Reduction in Global Poverty”
by Mike Allen, The Washington Post, July 18.
______(2002), “President Proposes $5 Billion Plan to Help Developing
Nations,” speech to the Inter-American Development Bank, March 14.
http://www.whitehouse.gov/newsreleases/2002/03/20020314-7.html
Cammack, Paul (1988), “Dependency and the Politics of Development,” inP.F. Leeson and M. M. Minogue (eds.), Perspectives on Development:
Cross-disciplinary themes in Development Studies, Manchester
University Press.
Cardoso, Henrique H. and E. Faletto (1977), “The Original of a Copy: CEPAL
and the Idea of Development,” CEPAL Review, 2nd half of 1977: 7-40.
Cline, W. R. (1982), “Can the East Asian Model of Development be
Generalized?”, World Development, Vol. 10, No. 2: 81-90.
Coase, R. H. (1937), “The Nature of Firm”, Economica, Vol. 4, No. 16: 386405.
______(1960), “The Protection of Social Cost”, Journal of Law and Economics,
Vol. 3, No.2: 1-44.
132

References

Collier, Paul (1998), “Social Capital and Poverty,” World Bank Social Capital
Initiative Working Paper No. 4, World Bank.
Common, Michael (1995), Sustainability and Policy, Limits to Economics,
Cambridge University Press.
Council on Foreign Relations (1999), Safeguarding Prosperity in a Global
Financial System. The Future of International Financial Architecture,
independent task force report, Institute for International Economics.
Crafts, Nicholas (2001), “Historical Perspectives in Development,” in Gerald
M. Meier and Joseph E. Stiglitz (eds.), Frontiers of Development
Economics, the Future in Perspective, Oxford University Press.
DAC (1996), Shaping the 21st Century: The Contribution of Development
Co-operation, OECD.
DAC Informal Network on Poverty Reduction (2000), DAC Guidelines on
Poverty Reduction, Vol. 1, Consolidated text of the draft guidelines
submitted for review to the Fourth Meeting of the Implementation Group,OECD, Paris, March 2-3: 45.
De Janvry, Alain (1981), The Agrarian Question and Reformism in Latin
America, Johns Hopkins University Press.
Denison, E. F. and W. K. Chung (1976), “Economic Growth and its Sources,”in H. Patrick and H. Rosovsky (eds.) Asia’s New Giant, Brookings
Institution: 63-151.
dos Santos, T. (1970), “The Structure of Dependence,” American Economic
Review, Vol. 40, No. 2: 231-236.
Duncan, Ron and Steve Pollard (2001), “A Framework for Establishing
Priorities in a Country Poverty Reduction Strategy,” presented to The
Asia and Pacific Forum on Poverty: Reforming Policies and Institutions
for Poverty Reduction, February 5-9.
Easterly, William (2001), The Elusive Quest for Growth, Economists’
Adventures and Misadventures in the Tropics, Massachusetts Instituteof Technology.
Economic Planning Agency (1958), Economic Survey of Japan FY1957,
Economic Planning Agency(The) Economist (2001), “Reforming the Sisters,” The Economist, February
17.
______(2002), “Help in the right place,” The Economist, March 16-22.
Einhorn, Jessica (2001), “The World Bank’s Mission Creep,” Foreign Affairs.
Vol. 80, No. 5: 22-35.
Esho, Hideki (1997), Kaihatsu no Seiji-Keizai gaku [Political Economy of133

Development], Nippon Hyoronsha.
Fidler, Stephen (2001a), “O’Neill urges fresh focus on poverty,” The Financial
Times, June 28.
______(2001b), “Wolfensohn stirs hornet’s nest of criticism,” The Financial
Times, January 31.
______(2001c), “World bank employees blame Wolfensohn for morale crisis,”
The Financial Times, January 30.
Fifty Years is Enough web site, http://www.50years.org(The) Financial Times (2000), “Banking for the world’s poor,” editorial, The
Financial Times, June 21.
______(2002a), “Powerful economic analyst with controversial views,”
obituary, The Financial Times, May 6.
______(2002b), “Kabul tries to crawl out from under the UN’s aid blanket,”
The Financial Times, November 18.
Friedman, Thomas (1999), The Lexus and the Olive Tree, Anchor Books.
Fuhrer, Helmut (1996), The Story of Official Development Assistance, A Historyof the Development Assistance Committee and the Development
Cooperation Directorate in Dates, Names and Figures, OECD website
Fujimori, Kenichi (1966), Kosokudoro Keikaku Ron [Theory of Expressway
Planning], Kajima Shuppansha.
Globalization Challenge Initiative (2001), News & Notes for IMF and WorldBank Watchers, Vol. 2, No. 4, Spring.
Griffin, Keith (2000), Studies in Development Strategy and Systemic
Transformation, St. Martin’s Press.
Griffin, Keith and Terry McKinley (1992), Towards a Human Development
Strategy, monograph published on http://meltingpot.fortunecity.com/
lebanon/254/develop.htm
Gyohten, Toyoo (1997), “Japan and the World Bank,” in Devesh Kapur, John
P. Lews and Richard Webb (eds.), The World Bank: Its First Half century,
Volume 1: History, Brookings Institution Press.
Hausmann, Richardo and Michael Gavin (1995), “Overcoming Volatility in
Latin America,” Seminar Series, 95-34, International Monetary Fund.
Hayami, Yujiro (2001), Development Economics: From the Poverty to the
Wealth of Nations, Second Edition, Oxford University Press.
______and M. Aoki (1998), The Institutional Foundations of East Asian
Economic Development, Macmillan.
______and Vernon Ruttan (1985), Agricultural Development: An International
Perspective, Johns Hopkins Press.
134

References

Helleiner, Gerald K, et. al. (1995), Report of the Group of Independent Advisers
on Development Cooperation Issues Between Tanzania and Its Aid
Donors, Royal Danish Ministry of Foreign Affairs.
Hirschman, A.O. (1958), The Strategy of Economic Development, Yale
University Press.
______(1981), Essays in Trespassing: Economics to Politics and Beyond,Cambridge University Press.
Hoff, Karla and Joseph E. Stiglitz (2001), “Modern Economic Theory andDevelopment,” in Gerald M. Meier and Joseph E. Stiglitz (eds.),
Frontiers of Development Economics, the Future in Perspective, Oxford
University Press.
Honda, Keikichi and T. Hata (1998), Kashiwagi Yusuke no Shogen: Sengo
Nihon no Kokusai Kinyushi, [Testimony of Yusuke Kashiwagi: Historyof Japanese Post-war International Finance], Yuhikaku.
Honma, Masami (1991), Sekai-ginko no Seiritsu to Bureton Uzzu Taisei[Establishment of the World Bank and Breton Woods System],
Dobunkan.
Hoyos, Carola (2001), “Developing the UNDP,” The Financial Times, July
23.
Imai, Masayuki (2001), Kokusai Kaihatsu Kinyuu [International Development
Finance], Aki Shobo.
Inter-American Development Bank Strategic Planning and Operational Policy
Department (1996), Frame of Reference for Bank Actions in Programsfor Modernization of the State and Strengthening Civil Society, http://
www.iadb.org/sds/doc/scs%2DGN1883%2D5%2DE.pdf
Inter-American Development Bank website: http://www.iadb.org/
International Development Association (2002), Additions to IDA Resources:
Thirteenth Replenishment, Supporting Poverty Reduction Strategies,
http://www.worldbank.org/ida/IDA13Report.pdf
International Monetary Fund (1997), The Role of the IMF in Governance
Issues—Guidance Note, News Brief No. 97/15, August 4, http://
www.IMF.org.
Ishikawa, Shigeru (eds.) (1996), Kaihatsu Kyoryoku Seisaku no Rironteki
Kenkyu [Theoretical Study on Development Cooperation Policies],
Institute of Developing Economies.
Ito, Osamu (1995), Nihon-gata Kinyu no Rekishiteki Kozo [Traditional Structureof Japanese-style Finance], University of Tokyo Press.
Japan Development Bank (1963), Nihon Kaihatsu Ginko 10 Nenshi (10 Year
135

Review of Japan Development Bank), Nihon Kaihatsu Ginko.
Japan Statistical Association (eds.) (1988), Nihon Choki Tokei Soran 3rd
Volume (Overview of Japan’s Long-term Statistics), Nihon Tokei
Kyokai.
Johnson, Arlene (1987), “The Trilateral Commission: Effect on the Middle
East,” original research published online True Democracy, http://
www.truedemocracy.net
Johnston, B.F. and J.W. Mellor (1961), “The Role of Agriculture in Economic
Development,” American Economic Review, Vol. 51, No. 4: 566-591.
Kapur, Devesh, and R. Webb (2000), “Governance-related Conditionalities of
the International Financial Institutions,” G-24 Discussion Paper Series
6, UNCTAD and Center for International Development, Harvard
University, August.
Kapur, Devesh, John P. Lewis and Richard Webb (1997), The World Bank, Its
First Half Century,Volume One, History, Brookings Institution Press.
Kawai, M. and S. Takagi (2001), “Japan’s Official Development Assistance:
Recent Issues and Future Directions,” Policy Research Working Paper
No. 2722, World Bank.
Kawasaki, Tsutomu (1962), Nihon Tekkogyo no Hatten to Tokushoku,[Development and Characteristics of Japanese Steel Industry], Kogyo
Tosho Shuppan.
Krueger, Anne O. (1974), “The Political Economy of the Rent-Seeking Society,”
American Economic Review, Vol. 64: 291-303.
______(1978), Liberalization Attempts and Consequences, NBER.
Krugman, Paul (1984), “Import Protection as Export Promotion: International
Competition in the Presence of Oligopoly and Economies of Scale,” inH. Kierzkowski (ed.), Monopolistic Competition and International
Trade, Clarendon Press.
Kuznets, Simon (1966), Modern Economic Growth: Rate, Structure andSpread, Yale University Press.
Landes, David S. (1998), The Wealth of Nations: Why Some Are So Rich andSome Are So Poor, W. W. Norton.
Leeson, P.F. (1988), “Development Economics and the Study of Development,”in P. F. Leeson and M.M. Minogue (eds.) Perspectives on Development:
Cross-Disciplinary Themes in Development Studies, Manchester
University Press.
Lipton, Michael (1977), Why Poor People Stay Poor, Temple Smith.
Longworth, R.C., (1999), “Amartya Sen, Nobel Prize Winning Economist,”136

References

The Chicago Tribune, March 28.
Love, Joseph L (2001), “Latin America, UNCTAD and the Postwar Trading
System,” paper written at the Department of History, University of
Illinois, http://sshi.stanford.edu/GlobalTrade2001/love.PDF
Lowcock, Mark (2002), “New Approaches to development,” Developments,
www.dfid.gov.uk/
Lucas, R. Jr. (1988), “On the Mechanics of Economic Development,” Journalof Monetary Economics, Vol. 22, No. 1: 3-42.
McAleer, Phelem (2003), “World Bank withdrawal raises environment fears,”Financial Times, February 7, p.20.
McNamara, Robert S. (1981), The McNamara Years at the World Bank: Major
Policy Addresses of Robert S. McNamara, 1968-1981, Johns Hopkins
University Press.
Meadows, Donella H. et al. (1972), The Limits to Growth: a Report for theClub of Rome’s Project on the Predicament of Mankind, Universe
Books.
Meier, Gerald M (1984), “Agricultural Strategy” in Gerald M. Meier (ed.)
Leading Issues in Economic Development, 4th edition, Oxford
University Press.
______(1995), “Future Development in Historical Perspective--Note,” inGerald M. Meier (ed.), Leading Issues in Economic Development, 6thedition, Oxford University Press.
______(2001a), “Introduction.” in Gerald M. Meier and Joseph E. Stiglitz(eds.), Frontiers of Development Economics, the Future in Perspective,
Oxford University Press,______(2001b), “The Old Generation of Development Economists and theNew,” in Gerald M. Meier and Joseph E. Stiglitz (eds.), Frontiers ofDevelopment Economics, the Future in Perspective, Oxford.University
Press.
______and D. Seers (eds.) (1984), Pioneers in Development, Oxford University
Press.
______and James E. Rauch (eds.) (2000), Leading Issues in Economic
Development, 7th edition, Oxford University Press.
______and Joseph E. Stiglitz (eds.) (2001), Frontiers of Development
Economics, the Future in Perspective, Oxford University Press.
Meerman, Jacob (1997), Reforming Agriculture: The World Bank Goes toMarket, World Bank.
Ministry of Foreign Affairs, Japan, Economic Cooperation Bureau (eds.)137

(2001), Waga Kunino Seifu Keizai Enjyo [Our Country’s ODA],
Kokusai, Kyoryoku Suishin Kyokai.
Ministry of Foreign Affairs, Japan (2002), Seifu Kaihatsu Enjyo (ODA)
Hakusho 2001 Nenban [ODA Annual Report 2001], Ministry of Foreign
Affairs.
Morris, D. Morris (1997), Measuring the Condition of the World’s Poor, thePhysical Quality of Life Index, Pergamon Press for the Overseas
Development Council.
Mosley, Paul, Jane Harrigan, and John Toye (1991), Aid and Power, The WorldBank & Policy-based Lending, Volume 1, 2nd edition, Routledge.
Multinational Monitor (1994), “Editorial: Fifty Years is Enough!” Multinational
Monitor, July/August.
Myrdal, Gunnar (1956), “Undevelopment and Underdevelopment,” National
Bank of Egypt 50th Anniversary Commemoration Lectures, Cairo, 4751.
______(1970), The Challenge of World Poverty, Penguin.
Narayan, Deepa, Raj Patel, Ann Rademacher, Kai Schafft and Sarah Koch
Schulte (2000), Can Anyone Hear Us? (Voices of the Poor, Vol.1),
Oxford University Press.
Narayan, Deepa, Robert Chambers, Patti Petesch and Meera Kaul Shah (2000),
Crying Out for Change (Voices of the Poor, Vol. 2), Oxford University
Press.
Narayan, Deepa and Patt Petesch (2002), From Many Lands (Voices of thePoor, Vol. 3), Oxford University Press.
Nee, Victor (1979) “Norms and Networks in Economic and Organizational
Performance,” The American Economic Review, Vol. 88, No 2: 85-89.
New York Times website, http://www.nytimes.com
North, Douglass C. (1990), Institutions, Institutional Change and Economic
Performance, Cambridge University Press.
______(2001), “Needed: A Theory of Change.” in Gerald M. Meier and Joseph
E. Stiglitz (eds.), Frontiers of Development Economics, the Future in
Perspective, Oxford University Press.
Nurske, R. (1952) “Some International Aspects of the Problem of Economic
Development,” American Economic Review, Vol. 42 (Supplement):
571-583.
______(1959), Patterns of Trade and Development, Almquist & Wiskell.
OECD (1999), Executive Summary, presented at meetings at Ministerial levelof the Governing Board of the International Energy Agency, May 24138

References25, 1999 and of the OECD Council, May 26-27, 1999.
______website, http://www.oecd.org
OECF (1992), “Issues Related to the World Bank’s Approach to Structural
Adjustment: Proposal from a Major Partner,” OECF Occasional Paper
No. 1, October 1991; reprinted in OECF’s Research Quarterly.
______and World Bank (1997), “A New Vision of Development Cooperation
for the 21st Century,” Proceedings of a Symposium Jointly Hosted by
the Overseas Economic Cooperation Fund and the World Bank, Tokyo,
September 17.
Ohno, Kenichi (2003), East Asian Growth and Japanese Aid Strategy, National
Graduate Institute of Policy Studies (GRIPS).
Olson, Mancur (1965), The Logic of Collective Action, Harvard University
Press.
Oman, Charles P. and Ganeshan Wignaraja (1991), The Postwar Evolution of
Development Thinking, Macmillan in association with the OECD
Development Centre.
Onishi, Norimitsu, “Nongovernmental Organizations Show Their Growing
Power,” New York Times, March 22, 2002.
Powell, Colin L (2002), “The US-Middle East Partnership Initiative: Building
Hope for the Years Ahead,” speech to the Heritage Foundation,
December 12. http://www.state.gov/secretary/rm/2002/15920.htm
Prebisch, Raul (1950), The Economic Development of Latin America and Its
Principal Problems, UN Commission for Latin America.
Ringle, Ken (2002), “An Institution Going Nowhere,” the Japan Times, March
31.
Rodrik, Dani (2001), The Global Governance of Trade as if Development
Really Mattered, Paper submitted to the UNDP.
Romer, P. M. (1986), “Increasing Returns and Long-Run Growth,” Journal of
Political Economy, Vol. 94, No. 5: 1002-1037.
______(1990), “Endogenous Technological Change,” Journal of Political
Economy, Vol. 98, No 5, Part 2: S71-S102.
Rosenstein-Rodan, Paul N. (1943), “Industrialisation and Eastern and South
Eastern Europe” Economic Journal, Vol. 53, reprinted in A. N. Agarwala
and S. P. Singh (eds.) (1958), The Economics of Underdevelopment,
Oxford University Press.
Rostow, Walt Whitman (1960), The Stages of Economic Growth, Cambridge.
Schultz, Theodore W (1964), Transforming Traditional Agriculture, Yale
University Press.
139

Seers, Dudley (1969), “What Are We Trying to Measure?” Lecture before the11th World Conference of the Society for International Development,
New Delhi.
Sen, Amartya (1992), Inequality Reexamined, Harvard University Press.
______(1995), “Comment: Capabilities and Entitlements,” in Gerald M. Meier(ed.) Leading Issues in Economic Development, 6th edition, Oxford
University Press.
______(1999), Interview in Chicago Tribune, March 28, 1999, quoted in Gerald
M. Meier and Joseph E. Stiglitz (eds.), Frontiers of Development
Economics, the Future in Perspective, Oxford.University Press.
______(2001), “What is Development About?” in Gerald M. Meier and Joseph
E. Stiglitz (eds.), Frontiers of Development Economics, the Future in
Perspective, Oxford.University Press.
Shihata, Ibrahim F.I. (1991), The World Bank in a Changing World, Selected
Essays, Volume I, Martinus Nijhoff Publishers.
______(1995), The World Bank in a Changing World, Selected Essays andLectures, Volume II, Martinus Nijhoff Publishers.
Shimomura, Yasutami, J. Nakagawa and J. Saito (1999), ODA Taiko no Seiji
Keizaigaku [Political-economy of ODA Charter], Yuhikaku.
Singer, Hans W. (1950), “The Distribution of Gains between Investing andBorrowing Countries,” American Economic Review, Vol. 40: 473-85.
Society for Industrial Studies (1995), Sengo Nihon Sangyoshi (Post-War Historyof Japanese Industries), Toyo Keizai Shimposha.
Srinivasan, T.N. (1998), “Development and Theories of Endogenous Growth,”
in Fabrizio Coricelli, Massimi di Matteo and Frank Hahn (eds.) New
Theories in Growth and Development, St. Martin’s Press.
Stek, Pieter (2002), “Independent assessments at the World Bank,” The
Financial Times, March 25.
Stiglitz, Joseph (1989), “Markets, Market Failures, and Development,”
American Economic Review, Vol. 79, No. 2: 197-203.
______(1995), “The Theory of International Public Goods and the Architectureof International Organizations,” United Nations Background Paper 7,
Department for Economic and Social Information and Policy Analysis,
July.
______(1996), “Some Lessons from the East Asian Miracle,” The World Bank
Research Observer, Vol. 11. No. 2: 151-177.
______(1998), “Towards a New Paradigm for Development: Strategies,
Policies and Processes,” 1998 Prebisch Lecture at UNCTAD, October140

References

19.
Streeten, P (1995), Thinking about Development, Cambridge University Press.
______and Shahid J. Burki (1978), “Basic Needs: Some Issues,” World
Development, Vol. 6, No. 3: 411-421.
Strong, Maurice (1999), “Paradigm Shifts in International Development,” inShifting Paradigms in International Development Towards the 21stCentury, FASID.
Takahashi, Kazuo (2000), “Armed Conflict and Development,” in Kazuo
Takahashi (ed.) Agenda for International Development 2000: Copingwith Marginalization, FASID.
Takeda, Haruto (eds.) (1995), Nihon Sangyo Hatten no Dainamizumu[Dynamism of Japanese Industrial Development], University of Tokyo
Press.
Ul Haq, Mahbub (1976), The Poverty Curtain: Choices for the Third World,
Columbia University Press.
UNCTAD (2002a), The Least Developed Countries Report 2002, Escaping
the Poverty Trap, http://www.UNCTAD.org.
______(2002b), Economic Development in Africa, From Adjustment to Poverty
Reduction: What is New? http://www.unctad.org/en/docs//
pogdsafricad2.en.pdf
UNDP website, http://www.undp.org
UNESCO (1995), The Cultural Dimension of Development, Towards a
Practical Approach, UNESCO Publishing.
UNIDO (2002), Industrial Development Report 2002-2003, Competing
Through Innovation and Learning, website: http://www.unido.org/
United Kingdom Department for International Development (1997),“Eliminating World Poverty: A Challenge for the 21st Century,” United
Kingdom Department for International Development White Paper.
______website, http://www.DFID.gov.uk
United Nations FfD web site, www.un.org/esa/ffd/
United Nations website, www.un.org
United States Congress (2000), International Financial Institution Advisory
Commission Report, on the workings of international financial
institutions, March 9.
United States Department of State (2002), Fact Sheet: US-Middle East
Partnership Initiative, December 12, http://www.state.gov/r/pa/prs/ps/
2002/15923.htm
Vines, David (2001), “Comment,” in Gerald M. Meier and Joseph E. Stiglitz
141

(eds.), Frontiers of Development Economics, the Future in Perspective,
Oxford University Press.
Wagstyl, Stefan (2001a), “Bank to heed social cost of restructuring,” The
Financial Times, April 24.
______(2001b), “EBRD vows to raise democratic standards among client
states,” The Financial Times, April 25.
(The) Washington Post (2001), “O’Neill Targets World Bank’s Poverty-Fighting
Strategy,” May 16.
Williamson, John (1993), “Democracy and the ‘Washington Consensus’,” World
Development, vol. 21, 1329-1336.
______(2000), “What Should the World Bank Think About the Washington
Consensus?” The World Bank Research Observer. Vol. 15, No. 2: 251264.
Williamson, O. E. (1975), Markets and Hierarchies, Analysis and Antitrust
Implications: A Study in the Economics of Informal Organizations,Free Press.
______(1985), The Economic Institutions of Capitalism, Free Press.
Wolfensohn, James D. (1997), The Compact: Letter to the Executive Directors,”
February 13.
______(2001), The Challenges of Globalization, the Role of the World Bank,
address to the Bundestag, Berlin, April 2.
World Bank (1944), Articles of Agreement.
______(1973), World Bank/IDA Annual Report 1973, World Bank.
______(1990), World Development Report 1990 – Poverty, Oxford University
Press.
______(1992a), Effective implementation: key to development impact, Reportof the Portfolio Management Task Force.
______(1992b), World Development Report 1992 - Development and theEnvironment, Oxford University Press.
______(1993), The East Asian Miracle: Economic Growth and Public Policy,
Oxford University Press.
______(1994), Adjustments in Africa, Oxford University Press.
______(1997a), Strategic Compact: Renewing the Bank’s Effectiveness to Fight
Poverty, and related documents, February and March.
______(1997b), World Development Report 1997 – the State in a Changing
World, Oxford University Press.
______(1997c), Rural Development, From Vision to Action, ESSD Studies
and Monographs Series, The World Bank.
142

References______(1998), Assessing Aid; What Works, What Doesn’t, and Why, A WorldBank Policy Research Report, Oxford University Press.
______(2000a), A New Approach to Country-Owned Poverty Reduction
Strategies, World Bank.
______(2000b), Reforming Public Institutions and Strengthening Governance;
A World Bank Strategy Executive Summary, World Bank.
______(2000c), World Bank Lending Instruments, World Bank.
______(2001a), Adjustment Lending Retrospective; Draft Final Report, WorldBank.
______(2001b), Annual Report on Portfolio Performance, FY2000, WorldBank.
______(2001c), Supporting Country Development: Strengthening the WorldBank Group’s Support for Middle-Income Countries, Paper prepared
for the Development Committee (Joint Ministerial Committee of theBoards of Governors of the Bank and the Fund), April 10.
______(2001d), World Bank Revises Disclosure Policy, News Release No.
2002/070/S, September 7, 2001.
______(2001e), World Development Report 2000/2001 - Attacking Poverty,
Oxford University Press.
______(2001f), CAS Public Information Notice, 10/5/2001 3:06:19 PM Central
Daylight Time.
______(2002a, sic), World Development Report 2002 - Building Institutionsfor Markets. Oxford University Press.
______(2002b), Low Income Countries Under Stress, A Difficult but Critical
Challenge for the Development Community, Report of the Task Forceon Low Income Countries Under Stress, March 11, 2002.
______(2002c), Development Assistance, Lessons from World Bank
Experience, A Research Paper from the Development Economics Vice
Presidency of the World Bank, presented at the United Nations
International Conference Financing for Development, Monterrey,
Mexico, March 18-22.
______(2002d), Globalization, Growth, and Poverty. Building an Inclusive
World Economy, A World Bank Policy Research Report, Oxford
University Press.
______(2002e), Rural Strategy, Reaching the Rural Poor, http://lnweb18.worldbank.org/ESSD/essdext.nsf/11ByDocName/
StrategyRuralStrategy.
______(2002f), Better Measuring, Monitoring and Managing for Development143

Results, prepared by World Bank staff for presentation to theDevelopment Committee (Joint Ministerial Committee of the Boardsof Governors of the Bank and Fund on the Transfer of Resources toDeveloping Countries), September.
______(2002g), 2002 World Development Indictors, World Bank.
______(2002h), Annual Report on Portfolio Performance, FY2002, WorldBank.
______(various issues), Global Development Finance, World Bank.
______(undated-a) Toward Social Sustainability, Social Policy Division of
the Environment Department, posted to the World Bank web site______(undated-b) PovertyNet Home, “Understanding Poverty,” http://
www.worldbank.org)
World Bank website, http://www.worldbank.org
World Commission on the Environment and Development (1987), “OurCommon Future, Oxford University Press.
World Trade Organization website, http://www.wto.org
Yusuf, Shahid (2003), Innovative East Asia: the Future of Growth, Oxford
University Press.
______and Simon J. Evenett (2002), Can East Asia Compete? Innovation for
Global Markets, Oxford University Press.

144

Appendix

Appendix 1

Articles of Agreement

Presented here are excerpted sections from the Articles of Agreement of
two organizations of the World Bank Group, the International Bank for
Reconstruction and Development (IBRD) and the International Development
Association (IDA). The IBRD provides loans and development assistance to
middle-income countries and creditworthy poorer countries. Voting power islinked to members’ capital subscriptions, which in turn are based on eachcountry’s relative economic strength. The IBRD is not a profit-maximizingorganization but has earned a net income every year since 1948. The IDA is
the World Bank Group’s concessional lending window. It provides long-termloans at zero interest to the poorest of the developing countries.
There are three additional members of the World Bank Group, theInternational Finance Corporation (IFC) which promotes private sector
investment; the Multilateral Investment Guarantee Agency (MIGA) which
provides investment insurance against non-commercial risk in developing
countries; and the International Center for Settlement of Investment Disputes(ICSID) which provides facilities for conciliation and arbitration of investment
disputes. As they are basically irrelevant to this paper (the IFC being only
marginally so), their Articles of Agreement are not presented.
The complete Articles of Agreement of the two organization is quite lengthy.
For this reason, only those provisions most pertinent to the contents of thispaper are offered here. However, the complete documents are easily available
on the World Bank web site, www.worldbank.org, for anyone wishing to
examine them.
--------------------------------------------------

145

IBRD:
Articles of Agreementof the International Bank for Reconstruction
and Development (IBRD)(As amended effective February 16, 1989)
Article I: Purposes:
The purposes of the Bank are:(i) to assist in the reconstruction and development of territories of members
by facilitating the investment of capital for productive purposes, including
the restoration of economies destroyed or disrupted by war, the reconversion
of productive facilities to peacetime needs and the encouragement of thedevelopment of productive facilities and resources in less developed
countries.
(ii) To promote private foreign investment by means of guarantees orparticipations in loans and other investments made by private investors;
and when private capital is not available on reasonable terms, to supplement
private investment by providing, on suitable conditions, finance for
productive purposes out of its own capital, funds raised by it and its otherresources.
(iii) To promote the long-range balanced growth of international trade and themaintenance of equilibrium in balances of payments by encouraging
international investment for the development of the productive resourcesof members, thereby assisting in raising productivity, the standard of living
and conditions of labor in their territories.
(iv) To arrange the loans made or guaranteed by it in relation to internationalloans through other channels so that the more useful and urgent projects,
large and small alike, will be dealt with first.
(v) To conduct its operations with due regard to the effect of international
investment on business conditions in the territories of members and, in theimmediate post-war years, to assist in bringing about a smooth transition
from a wartime to a peacetime economy.
The Bank shall be guided in all its decisions by the purposes set forth
above.

146

Appendix

Article IV: Operations
Section 10: Political Activity Prohibited
The Bank and its officers shall not interfere in the political affairs of any
member; nor shall they be influenced in their decisions by the political characterof the member or members concerned. Only economic considerations shall be
relevant to their decisions, and these considerations shall be weighed impartiallyin order to achieve the purposes stated in Article I.
-------------------------------------------------IDA:
Articles of Agreementof the International Development Agency(Effective September 24, 1960)
Article I: Purposes
The purposes of the Association are to promote economic development,
increase productivity and thus raise standards of living in the less-developed
areas of the world included within the Association’s membership, in particular
by providing finance to meet their important developmental requirements on
terms which are more flexible and bear less heavily on the balance of payments
than those of conventional loans, thereby furthering the developmental
objectives of the International Bank for Reconstruction and Development(hereinafter called “the Bank”) and supplementing its activities.
The Association shall be guided in all its decisions by the provisions of this
Article.
Article V: Operations
Section 1: Use of Resources and Conditions of Financing(a) The Association shall provide financing to further development in the lessdeveloped areas of the world included within the Association’s membership.
(b) Financing provided by the Association shall be for purposes which in theopinion of the Association are of high developmental priority in the lightof the needs of the area or areas concerned and, except in special
circumstances, shall be for specific projects.
147

(c) The Association shall not provide financing if in its opinion such financing
is available from private sources on terms which are reasonable for therecipient or could be provided by a loan of the type made by the Bank.
(d) The Association shall not provide financing except upon therecommendation of a competent committee, made after a careful study ofthe merits of the proposal. Each such committee shall be appointed by the
Association and shall include a nominee of the Governor or Governors
representing the member or members in whose territories the project underconsideration is located and one or more members of the technical staff of
the Association. The requirement that the committee include the nomineeof a Governor or Governors shall not apply in the case of financing provided
to a public international or regional organization.
(e) The Association shall not provide financing for any project if the member
in whose territories the project is located objects to such financing, exceptthat it shall not be necessary for the Association to assure itself that individual
members do not object in the case of financing provided to a public
international or regional organization.
(f) The Association shall impose no conditions that the proceeds of its financing
shall be spent in the territories of any particular member or members. The
foregoing shall not preclude the Association from complying with any
restrictions on the use of funds imposed in accordance with the provisionsof these Articles, including restrictions attached to supplementary resources
pursuant to agreement between the Association and the contributor.
(g) The Association shall make arrangements to ensure that the proceeds ofany financing are used only for the purposes for which the financing wasprovided, with due attention to considerations of economy, efficiency andcompetitive international trade and without regard to political or other noneconomic influences or considerations.
(h) Funds to be provided under any financing operation shall be made available
to the recipient only to meet expenses in connection with the project asthey are actually incurred.
Section 6: Political Activity Prohibited
The Association and its officers shall not interfere in the political affairs ofany member; nor shall they be influenced in their decisions by the politicalcharacter of the member or members concerned. Only economic considerations
shall be relevant to their decisions, and these considerations shall be weighed
impartially in order to achieve the purposes stated in this Agreement.
148

Appendix

Appendix 2

Elements of Poverty

The information below is not meant to be all inclusive. It is an attempt tocover most of the ground in terms of the World Bank’s implementation of its
poverty reduction development strategy. The inter-relationship among theseareas is readily apparent and has been acknowledged by pairing a few of them.
This is a fluid area, subject to change in response to data, theoretical analysis
or philosophic approach.
Agriculture is viewed by some countries as a declining sector. But today,
as was recognized by Johnston and Mellor in the early 1960s, is critical to thetransition from an agrarian society to an urban-industrial one. Without growthin agriculture, poverty reduction and general economic development will be
seriously hindered. The Bank’s thinking on the rural sector mirrors that for the
economy at large: holistic, focusing on governance, institutions, social issues
and sustainability.
Almost 72% of the worlds poor are rural and this ratio is expected to continue
well into this century. (World Bank, 1997c: 1) These people are vulnerable toglobal forces as well as domestic ones. The capacity building, empowerment
and participation helpful to the economy at large are vital to them. In addition,
environmental sustainability and information technology are of criticalimportance. An agricultural strategy is relevant for all three levels of activity,
the community level where rural poverty is concentrated, the national level
due to the importance domestically of a healthy rural sector, and regionally (orglobally) because export is so critical.
Conflict Resolution/Resettlement. Project induced resettlement has long
been a concern of the World Bank. That necessitated by dam or road
construction is an example. Now attention is being given to the human costsof displacement and resettlement from other causes. Some displacement is a
byproduct of development activities. Urbanization, globalization, structuraladjustment, all can and often do cause large groups of people to migrate without
having any place really to go.
Now post-conflict resettlement is becoming a major issue. More than 120
developing countries are affected by armed conflict. (Takahashi, 2000: 2) Post149

conflict settlement is critical to two different groups: civilians who were forced
to flee and combatants who return after the fighting has ended. Both need tobe re-integrated into a structured society.
Frequently, the social fabric has been seriously damaged, so effort must be
given to stabilizing institutions, such as the legal, political, and financial systems.
In addition, infrastructure has to be reconstructed. In many of the modern
conflicts, de-mining is a necessary first step to that.
Empowerment is the ability of people to influence forces that affect them.
(It has been suggested that “empowerment” as used within the World Bank isa code word for “redistribution” (Beattie, 2000b). It is closely related toparticipation and governance because it requires access to and respect frominstitutions. Disadvantaged people are unempowered, by definition. The
corollary to this is that empowerment will move them from the ranks of thedisadvantaged.
The drive for empowerment is being approached from two different
directions. One is a grassroots level approach. This would strengthen existingprocesses and introduce new ones that promote inclusion of the poor andencourage them to speak out. The other approach is to insure access to
information and communication through modern information technology.
Environment/Sustainable Development acknowledges theinterdependence of development and the environment. Consensus has beenreached that sustainable development (using the Brundtland Commission
definition) is an international development target. However, many development
activities happen in areas where the environment cannot easily absorb theeffects, creating pressures that threaten sustainability. Urbanization; sanitation
including clean water, transportation, energy, water supply, public health andnatural resources management are all critical areas where tension between theenvironment and development must be carefully managed.
NGOs are particularly sensitive to this latent conflict. Two marketing
campaigns related to coffee growing offer examples of their engagement. The
first relates to the loss of coffee canopy, which provides habitat for birds aswell as natural cover for the coffee plants, due to adoption of intensive planting
methods. This has prompted a campaign of “coffee for the birds,” coffee
guaranteed to have been grown under canopy. The second deals withremuneration to the small grower who normally receives only a small return
after intermediaries have taken their share of the proceeds. This campaign iscalled “Fair Trade Coffee” and has the support of some major coffee outlets,
including Starbucks.
150

Appendix

The World Bank has reconciled the sustainability/development tension by
stressing the impact that the environment has on economic growth and on wellbeing, which is the goal of the development effort (World Bank, 1992b: 1).
That is, the Bank’s position is that environmental degradation negatively impacts
the poor in terms of quality of life and in terms of reduced opportunities for
economic freedom.
Gender is an issue with two faces. On one side is the issue of equality. For
cultural and religious reasons, women in many societies occupy difficult,subservient positions. Following the World Conference on Women in Beijing
in 1995 and response to urging by women’s organizations, the Bank has
committed itself to lending that would “advance gender equality.” Education,
health and nutrition and credit programs have been designed for this purpose.
On the other side is the issue of women’s impact on economic development.
The impact is widespread. As workers in the field and in the home, they havedirect economic impact. But their indirect impact, as wives and mothers andsocial participants, is possibly even more significant.
Education for women and girls is of particular importance. The WorldBank president has referred to this as “the single most important developmenttool” (Wolfensohn, 2001). Educated mothers rear fewer, healthier, better
nourished, better educated children, both boys and girls. Education of women
increases human capital and there are indications that equality in education
creates long-lasting positive social and economic effects. The view is thatinvestment in women pays dividends and will raise economic growth in thelong run.
There is a dissenting view, that women will be helped by the same effective
development measures — health, education, opportunity — that benefit all
those living in poverty. Therefore, gender should not receive special focus.
Globalization/Marginalization. Globalization is the creation of aninternational economic system regulated by market forces. It involves thesimultaneous widening and intensifying of linkages in international trade andfinance. It encompasses the international flow of goods and services, of private
capital and also of people through migration. It is fundamentally an economic
activity and has tremendous economic impact; but it also has social and cultural
ramifications. While globalization is not really a new phenomenon, it isincreasingly conspicuous. In the words of one observer,” globalization has
replaced the Cold War as the defining international system” (Friedman 1999:
7)
Part of the problem with the globalization issue is that there is little151

agreement on cause and effect. There is agreement that 1) globalization is
powerful; 2) that some countries benefit from it; and 3) some countries sufferfrom it. The World Bank roughly divides these two groups of countries into
158
“globalizers and non-globalizers ”. It has created “an agenda for action,” tobring the benefits of globalization to all. (World Bank 2002d). Dani Rodrik,of Harvard University, is a critic of the World Bank approach and a vocal
advocate for using globalization as a development tool (Rodrik 2001). Rodrik
calls on the WTO to put development rather than trade liberalization at the topof its agenda. WTO is doing just that, having dubbed the current round ofnegotiations, known as the Doha Round, the “development round.” Inoperational terms, WTO is preparing a framework for “special and differential
treatment” for developing countries (WTO website, www.wto.org). UNCTAD
is another interested party in this. They suggest an “investment-export nexus”
to build export capacity and higher incomes in the least developed countries,
but promote a measure of insulation from market forces while that nexus isbeing built and having impact (UNCTAD, 2002).
Because globalization is 1) subject to interpretation; 2) of as much economic
interest to wealthy countries as to developing ones or least developed ones;
and 3) complicated by social and cultural ramifications, it will probably remain
an unresolved issue for some time to come. Since it is undoubtedly inexorable,much attention is being given to how it can be managed so that it becomes abeneficial force, especially for those vulnerable countries being left behind in
marginalized condition.
Marginalization is exacerbated by the two-track nature of the world
economy. Wealthy nations are able to build on their strengths throughtechnological changes and formation of regional blocks while poor nations
experience deterioration of physical capital, ill-equipped human capital, andincreasing loss of traditional comparative advantage. There are echoes here of
the center-periphery and dependency theories of an earlier era. The
globalization/marginalization dichotomy is attracting increasing opposition byorganized protesters.
Governance/Corruption. Within the current development paradigm,
governance is fundamental in much the way that institutions are fundamental.
In fact, governance is defined as more than simply governing, it is the way that
institutions are interrelated. Referring to a systemic relationship among
economic, social, population, gender, human settlements and human rights
issues, Maurice Strong has defined governance as “the ability to manage this158

The globalizers encompasses some 3 billion people, and the non-globalizers some 2 billion people.

152

Appendix

complex system of relationships” (Strong, 1999: 4). A briefer definition is“good order” (Shihata, 1991: 93).
But the issue of governance includes its opposite, corruption, the use of
public power for private purposes. Corruption is intentional distortion and asymptom of “weak, dysfunctional governance” (World Bank, 1997b: 5).
Corruption has a devastating social and economic impact, destroying trust,diverting resources and discouraging private investment. It must be rejectedby any government that is transparent, honest and legitimate.
These issues are exceptionally critical to the current “participatory”
development strategy, with its emphasis on “ownership.” Given thatdevelopment assistance is fungible money, it is absolutely vital that the
governance be appropriate and that corruption be controlled.
Highly Indebted Poor Country (HIPC) Initiative Many developing
countries have accrued heavy debt. The HIPC Initiative is a program to reducethe debt overhang of qualifying countries thereby freeing up for them resources
for use in their poverty reduction strategy. It is constituted by an agreement
among official creditors to help worthy (in terms of institution framework),heavily indebted countries obtain debt relief. There is concern about the moral
hazard implication of debt forgiveness, the rewarding of unwise behavior. The
fear is that countries might incur debt under the assumption that it will be
forgiven. To avoid this phenomenon, preparation of an PRSP is a prerequisite
to inclusion in this program.
Some of the momentum for this program has come from a group called
Jubilee 2000/USA (now called Jubilee+) which has coordinated a “Drop theDebt” movement among religious, environmental, labor and student groups.
These representatives of “civil society,” support complete foreign debt
cancellation for the world’s poorest countries. The Bank has replied thatcomplete debt relief would “wipe out the World Bank” (Beattie, 2001a).
The Bank has, in fact, said that it cannot afford to do more than has now
been programmed to provide debt relief and is shifting responsibility for further
steps to donor countries. The “Drop the Debt” movement is based in London,
and the British government is particularly interested in this issue. It has
expressed concerned that the debt level of many countries is unsustainable andthat the debt overhang is absorbing resources better used elsewhere.
HIV/AIDS. More than 90% of the total 18 million HIV infected people
live in developing countries, a situation with serious negative implications fortheir development prospects. Children are orphaned, workers debilitated,
medical facilities overextended at great expense to the economy and social
153

fabric of the countries impacted.
The nature of HIV transmission has complicated international agreement
on how to deal with it, as a number of countries cannot accept references tobehavior that is illegal or against religious norms. However, a UN conference
reached agreement on Jun 26, 2001 to commit money to meet specific timetables
and targets for instituting programs. NGOs and international activists havebeen particularly involved with this issue, campaigning strongly to makeexpensive, sophisticated medication available to AIDS patients in poor
countries.
Human Capacity refers to the capacity of people to benefit from
opportunities open to them. Indicators of human capacity include primaryschool enrollment, literacy, infant mortality, and life expectancy. Boostingthese indicators entails access to basic social and health services and availabilityof nutritious food and clean water for disadvantaged groups. The World Bank’s
projects in this area include social services such as reproductive and maternal
health care, nutrition, early childhood development programs, primaryeducation, and programs that target women, the rural poor and indigenous
peoples. The Bank assists client government is to establish social safety nets
to help the most needy populations.
People in poverty frequently find health care, nutrition and sanitation to beprohibitively expensive. This is important from the perspective of development
because diminished human capacity, in the form of illiteracy and poor health,burdens economic growth and re-enforces poverty. If, as some believe, humancapital contributes more to economic expansion than natural and physical capital
combined, then investing in human capacity can be highly profitable (Griffin,
2000: 17).
Institutions/Capacity Building. Building effective and accountable
institutions (capacity building) is central to the World’s Bank strategy to makerecipient governments active participants in development. Effectiveness andaccountability are integral to ownership. The best designed aid project will be
wasted if the institutional capacity does not exist to maintain and run it.
Institutional capacity building is closely related to human capacity building,and therefore to literacy, numeracy and education, both for children and on acontinuing basis.
Capacity building is more than making or enforcing rules. Rather, it implies
a cultural change, a grasp of consequences that had been lacking — otherwise
capacity would already exist. This can apply across an entire country or canrefer to sectors, sub-sectors or particular activities. There are projects, for154

Appendix

example, to build risk management capacity, evaluation capacity, public service
capacity, planning and execution capacity and others.
Poor communities, like all communities, encompass a range oforganizations, formal and informal, traditional and modern, grassroots andborrowed, through which community life is coordinated. Particular attention
is being paid to capacity building to establish or strengthen organizations within
impoverished local communities. This is further to the effort to encourage
participation by the poor in efforts to move them out of poverty.
Knowledge/Information Technology has the potential to allow new routes
out of poverty. “A deficiency of knowledge is a more pervasive handicap todevelopment than is the scarcity of any other factor” (Meier, 2001: 4). In
addition, knowledge transfer is form of non-lending assistance that can bemade available to clients who lack the governance and policies necessary forlending assistance. The World Bank has a number of programs aimed at
exploiting information technology to reduce poverty.
One of the first programs was put forth in 1996. Its goal was to make theWorld Bank into a “Knowledge Bank” acting as a “global catalyst for creating,sharing and applying the cutting-edge knowledge necessary for poverty
reduction and economic development” (World Bank web site;www.worldbank.org). This was largely the concept of Joseph Stiglitz while hewas part of Bank management. Since his departure, The Knowledge Bank
seems to have been transformed, first into “knowledge management,” theninto “knowledge sharing,” and additional related initiatives have been launched.
The Development Gateway (DG 159) was recently unveiled. It is aninteractive portal website on development issues, particularly sustainable
development and poverty reduction. The goal is to be a resource socomprehensive that users will be able to access and share information, resources,
and tools related to the development experience. It is intended to serve as aneasy to use, one-stop forum for poverty reduction dialogue and problem solving.
The DG was severely criticized when the concept was first launched in October2000 out of concern that development information would be concentrated andcontrolled by the World Bank. Aid experts, academics and NGOs accused the
Bank of an overly ambitious exercise that threatened to disrupt existing websites.
Although it is managed by a newly established organization, the Development
Gateway Foundation, it is operated by the World Bank (Beattie, 2000a).
The Information for Development Program (InfoDev) is a program to bring
the benefits of information technology to developing countries. Essentially159

http://www.developmentgateway.org/

155

the World Bank will provide assistance in the form of technical support andpolicy advice. InfoDev provides grants and organizes workshops, seminars
and pilot projects.
Participation, refer to the explanation in Chapter IV.
Private Investment/Private Sector Development is specifically mentioned
in the Articles of Agreement as an activity which the Bank is mandated to“promote” as a guarantor or participant (Article I, Paragraph (ii). This remains
a stated goal. However, private investment rarely finances the social
development that the Bank currently stresses.
Even so, the need for healthy market forces is well accepted. A healthyprivate sector is the key to long-term growth. The attainment of a productive
private sector requires a hospitable environment, including suitable
macroeconomic policy, removal of regulatory obstacles, and creation of a
supportive public sector. Entrepreneurs and investors require enforceable
contractual obligations, adequate physical and technological infrastructure, andfinancial architecture that is both local and modern.
The World Bank Group has two affiliates working specifically to support
private investment and private sector development; the Multilateral Investment
Guarantee Agency (MIGA) which provides guarantees to foreign investors
against loss due to noncommercial risks; and the International FinanceCorporation (IFC) which provides loan and equity finance for private sector
investment as well as technical assistance.

156

Appendix

Appendix 3

World Bank (IBRD) Bonds

The International Bank for Reconstruction and Development (IBRD)
constituted the original World Bank organization160. Over the years, otherunits with other mandates and other financing arrangements have joined the
IBRD, creating what is known officially today as the World Bank Group.
Meanwhile, the IBRD has continued to function as a bank and raise funds
through the sale of bonds competitively on the international market as otherbanks do. The funds raised in this way are provided as loans to developing
countries for reconstruction and development of poorer countries.
Because the IBRD must return to investors the funds raised by the sale ofbonds plus interest, its loans must be low risk and yield returns above andbeyond cost. This applies to all loans whether they are for reconstruction ordevelopment of the recipient country. For this reason, IBRD loans are extended
only to creditworthy countries for projects demonstrating reliable repayment
capacity. Concessional loans to less creditworthy countries are extended by
the IDA and are officially termed “credits.”
The Bank has procured funds from international capital markets for morethan 50 years. The first IBRD bonds were issued in the US in 1947. These 10year and 25-year bonds raised a total of 250 million dollars. Commercial
banks purchased 46%; insurance companies, 21%; individual investors, 15%;
savings banks, 8%; and others, 10% (Honma, Masami 1991: p.329). The year
1998 stands out in that 31.8 billion dollars was raised from 213 issues,
apparently in response to the global financial crisis that began with theThailand’s currency crisis in July of 1997. This was more than double the2000 amount of 15.1 billion dollars. In FY2001, the Bank issued mediumand long-term bonds worth 17 billion dollars in markets around the world.
New financial products are developed continuously. The Bank deals with
47 financial institutions throughout the world (FY2000) and structures its
instruments to attract international investors. World Bank bonds offer various
combinations of denominated currency, maturity, yield, timing and par value161.
In 2001, 60% of Bank bonds were denominated in US dollars, followed by160

Initially the term “World Bank” was a nickname.

157

19% in Japanese yen and 15% in German marks. They are offered either
through private or through public subscription. The main issuance program is
the Global Debt Issuance Facility (GDIF).
The World Bank has an exceptionally high international credit rating.
Moody rates it as Aaa and Standard & Poor has rated it at AAA since upgrading
it from AA in 1959. These ratings enable the Bank to sell bonds easily and on
favorable terms and maintaining these ratings is extremely important. For thisreason IBRD loans are extended only to creditworthy countries. The Bank
states that “[t]he financial strength of IBRD must be ensured by the support
from its shareholders and through strict enforcement of its financial policies”(World Bank Annual Report 2001).

161

The Bank has also introduced electronic bonds which are issued and traded entirely on the Internet. These ebonds offer investors price transparency in financing and trading markets, accurate and timely information on
new bonds, and the opportunity for individuals to purchase new issues directly (World Bank Tokyo Office,www.worldbank.or.jp/debtsecurities/)

158

Appendix

Appendix 4

Millennium Development Goals,
Targets and Indicators(UNDP website)
Millennium Development Goals (MDGs)
The goals and targets are based on the UN Millennium Declaration,and the UN General Assembly has approved them as part of the Secretary
General’s road map towards implementing the declaration.
UNDP worked with other UN departments, funds and programmes, theWorld Bank, the International Monetary Fund and the Organization for
Economic Cooperation and Development to identify over 40 quantifiableindicators to assess progress.
Goals and Targets

Indicators

Goal 1: Eradicate extreme poverty and hunger
Target 1: Halve, between 1990 and2015, the proportion of people
whose income is less than one
dollar a day

1. Proportion of population below $1
per day (PPP-values)
2. Poverty gap ratio [incidence x depthof poverty]
3. Share of poorest quintile in national
consumption

Target 2: Halve, between 1990 and2015, the proportion of people
who suffer from hunger

4. Prevalence of underweight children(under-five years of age)
5. Proportion of population below
minimum level of dietary energy
consumption

Goal 2: Achieve universal primary education
Target 3: Ensure that, by 2015
children everywhere, boys andgirls alike, will be able tocomplete a full course

6. Net enrolment ratio in primaryeducation
7. Proportion of pupils starting grade 1
who reach grade 5159

primary schooling

8. Literacy rate of 15-24 year olds

Goal 3: Promote gender equality and empower women
Target 4: Eliminate genderdisparity in primary andsecondary educationpreferably by 2005 and to alllevels of education no later
than 2015

9. Net enrolment ratio in primaryeducation tertiary education
10. Ratio of literate females to malesof 15-24 year olds
11. Share of women in wage employment
in the non-agricultural sector
12. Proportion of seats held by womenin national parliament

Goal 4: Reduce child mortality
Target 5: Reduce by two-thirds,
between 1990 and 2015, theunder-five mortality rate

13. Under-five mortality rate
14. Infant mortality rate
15. Proportion of 1 year old children
immunised against measles

Goal 5: Improve maternal health
Target 6: Reduce by threequarters, between 1990 and2015, the maternal mortality
ratio

16. Maternal mortality ratio
17. Proportion of births attended byskilledhealth personnel

Goal 6: Combat HIV/AIDS, malaria and other diseases
Target 7: Have halted by 2015, andbegun to reverse, the spreadof HIV/AIDS

18. HIV prevalence among 15-24 year
old pregnant women
19. Contraceptive prevalence rats
20. Number of children orphaned by
HIV/AIDS

Target 8: Have halted by 2015, andbegun to reverse, theincidence of malaria and othermajor diseases

21. Prevalence and death rates associatedwith malaria
22. Proportion of population in malaria
risk areas using effective malaria
prevention and treatment measures
23. Prevalence an death rates associatedwith Tuberculosis

160

Appendix

24. Proportion of TB cases detected andcured under DOTS (Directly
Observed Treatment Short Course)

Goal 7: Ensure environmental sustainability*
Target 9: Integrate the principle ofsustainable development into
country policies andprogrammes and reverse theloss of environmental
resources

25. Proportion of land area covered byforest
26. Land area protected to maintainbiological diversity
27. GDP per unit of energy use (as proxyfor energy efficiency)
28. Carbon dioxide emissions (per capita)[Plus two figures of global
atmospheric pollution: ozone
depletion and the accumulation of
global warming gases]

Target 10: Halve, by 2015, theproportion of people without
sustainable access to safe
drinking water

29. Proportion of population withsustainable access to an improved
water source

Target 11: By 2020, to haveachieved a significant
improvement in the lives of atleast 100 million slum dwellers

30. Proportion of people with access toimproved sanitation
31. Proportion of people with access tosecure tenure[Urban/rural disaggregation of severalof the above indicators may be relevant
for monitoring improvement in the
lives of slum dwellers]

Goal 8: Develop a Global Partnership for Development*
Target 12: Develop further an open,rule-based, predictable, nondiscriminatory trading andfinancial system

Some of the indicators listed below will
be monitored separately for the Least
Developed Countries (LDCs), Africa,
landlocked countries and small island
developing states.

161

Includes a commitment togood governance,development, and poverty
reduction — both nationally andinternationallyTarget 13: Address the Special
Needs of the Least Developed
Countries
Includes: tariff and quota freeaccess for LDC exports;
enhanced programme of debt
relief for HIPC andcancellation of official bilateral
debt; and more generous ODA
for countries committed topoverty reduction

Target 14: Address the Special
Needs of landlocked countries
and small island developing
states(through Barbados
Programme and 22nd General
Assembly provisions)

162

Official Development Assistance
32. Net ODA as percentage of DAC
donors’ GNI[targets of 0.7% in total and 0.15%
for LDCs]
33. Proportion of ODA to basic social
services(basic education, primary health care,nutrition, safe water and sanitation)
34. Proportion of ODA that is untied
35. Proportion of ODA for environment
in small island developing states
36. Proportion of ODA for transport
sector in land-locked countries
Market Access
37. Proportion of exports (by value andexcluding arms) admitted free of
duties and quotas
38. Average tariffs and quotas on
agricultural products and textiles
and clothing
39. Domestic and export agricultural
subsidies in OECD countries
40. Proportion of ODA provided to help
build trade capacity
Debt Sustainability
41. Proportion of official bilateral HIPC
debt cancelled
42. Debt service as a percentage ofexports of goods and services
43. Proportion of ODA provided as debt
reliefAppendix

Target 15: Deal comprehensively
with the debt problems ofdeveloping countries throughnational and international
measures in order to makedebt sustainable in the long term

44. Number of countries reaching HIPC
decision and completion points

Target 16: In co-operation with
developing countries, develop
and implement strategies fordecent and productive work foryouth

45. Unemployment rate of 15-24 year olds

Target 17: In co-operation withpharmaceutical companies,
provide access to affordable,
essential drugs in developing
countries

46. Proportion of population with accessto affordable essential drugs ona sustains basis

Target 18: In co-operation with theprivate sector, make available
the benefits of newtechnologies, especiallyinformation andcommunications

47. Telephone lines per 1000 people
48. Personal computers per 1000 people
Other Indicators TBD* The selection of indicators for Goals 7 and 8 is subject
to further refinement163Appendix 5

Lending Instruments

Current World Bank lending instruments include the following:
APL

Adaptable Program Loan, approved in 1998, provides phased but sustained
support for the implementation of long-term development programs.
Example*: India Power Sector Restructuring Program Loan
Loan Amount:
IBRD US$210 million
Approval Date:
February 19, 1999
Project Description: This project, first in a series, is a part of an adaptable
program that, over the next eight years, will help transform Andra Pradesh’s
power secto—now a major drain on the state’s budget—into a contributor ofresources for priority sectors.

DRL

Debt Reduction Loans help eligible, but highly indebted, countries reduce
debt and debt servicing to manageable levels.
Example*: Panama Debt and Debt Service Reduction Project
Loan Amount:
IBRD US$20 million
Approval Date:
March 28, 1996
Project Description: This operation aimed to facilitate development by helping
the country re-establish creditworthiness. It assisted the government in
implementing debt and debt service reduction, consolidating fiscal balanceand structural reforms, and normalizing relations with commercial creditors.

ERL

Emergency Recovery Loans support the recovery of assets and productions
levels affected by some extraordinary event such as war, civil disturbanceor natural disaster.
Example*: Bangladesh Emergency Flood Recovery Project
Loan Amount:
IDA US $200 million equivalent
Approval Date:
November 24, 1998
Project Description: This project is the first part of a three-part strategy tohelp Bangladesh recover from the 1998 floods. It aims to (1) help restore andsustain macroeconomic stability and contain pressure on the balance of
payments; (2) maintain and augment food grain stocks, contain inflation , andensure food security; and (3) help revive the agricultural, industrial, andeconomic activities disrupted by the floods.
* Source: World Bank (2000c)

164Appendix

FIL

Financial Intermediary Loans provide long-term resources to local financial
institutions to finance real sector investment needs, for which the local
institutions assume the credit risk.
Example*: Lithuania Enterprise and Financial Sector Project
Loan Amount:
IBRD US$25 million
Approval Date:
April 13, 1995
Project Description: This project supports reform in the financial sector, andthe delivery of finance to support the development of private and privatizedenterprises. It provides financial resources and technical assistance to improve(1) the capacity of the banking system to deliver financial resources, and (2)the ability of enterprises to prepare financing plans.

LIL

Learning and Innovation Loans, introduced in 1998, are designed to support
small, time-sensitive programs to build capacity and to pilot promising
initiatives or to experiment and develop locally based models prior to largescale interventions.
Example*: Gabon Pilot Community Infrastructure Works
Loan Amount:
IBRD $5 million
Approval Date:
August 24, 1998
Project Description: This project assists the government in designing andtesting methods and procedures to facilitate the involvement of private local
firms in small-scale slum upgrading works. It also supports the disseminationof information on such methods, with the aim of strengthening private
construction companies and increasing employment among the poor.

RIL

Rehabilitation Loan is designed to support policy reform that will create
an environment attractive to private sector investment.
Example*: Tajikistan Post-Conflict Rehabilitation Credit
Credit Amount:
IDA US$10 million equivalent
Approval Date:
December 16, 1997
Project Description: The project provides noninflationary budget financing
in the country’s post-conflict economy, enabling the government to purchasecritical imports to support the social safety net and restore production,
employment, and consumption. The counterpart funds generated by this credit
will help meet near-term costs associated with the peace accord, while
maintaining progress toward financial stabilization.
* Source: World Bank (2000c)

165

PCF

Post-Conflict Fund, established in 1997, enables rapid response to earlyreconstruction situations in post-conflict societies where alternative Bank
instruments are unavailable. The PCF supports planning, piloting andanalysis of reconstruction activities by funding governments and partnerorganizations in the forefront of this work. The emphasis is on speed andflexibility Consideration is being given to application to conflict prevention
situations, as well.
Example**: Assistance to Albania in Response to Kosovo Crisis:
Grant Amount:
US$2 million
Date Announced:
April 14, 1999
Project Description: Two grants from the PCF: The first (US$1million) is toexpand schools, supply health centers, improve water supply and sanitation,
finance transport, provide food for children, and collect waste in four cities;
The second grant (US$1 million) is to undertake more intensive refugee support
activities and assist the development of NGO structures, which can administer
this and other inflows of aid funds.

PRSC

Poverty Reduction Support Credit, introduced in 2000, is a credit extended
specifically to enable implementation by a country of its poverty reduction
strategy as described in its Poverty Reduction Strategy Paper
Example**: Vietnam
Credit Amount:
SDR 197.2 million
Date Recommended: April 23, 2001
Project Description: The Project, to be disbursed in two tranches, will buildon the recent reforms undertaken by the Government, and support
implementation of Vietnam’s poverty reduction strategy as summarized in theInterim Poverty Reduction Strategy Paper (I-PRSP). The project will promote
faster growth, and poverty reduction by improving private sector development,
thereby generating jobs, and higher wages. Additionally, social safety nets
will be expanded for state-owned enterprises workers displaced by reform.
* Source: World Bank (2000c)** from World Bank Web page, www.worldbank.org

166

Appendix

PSAL

Programmatic Structural Adjustment Loans, approved in 1998, support
longer-term reform to address systemic social, structural and institutional
issues. It is extended within the framework of a multi-year, phased programof policy reform and institution building.
Example*: Thailand Public Sector Reform Project
Loan Amount:
IBRD US$400 million
Approval Date:
October 14, 1999
Project Description: This project focuses on improvements in revenue andexpenditure management, human resource management decentralization,
participation, transparency, and accountability. It aims to (1) improve
performance and effectiveness in the management of financial and humanresources; (2) create incentives for budget and civil agencies to focus on
outcomes; (3) improve service delivery and client orientation throughoutsourcing, restructuring, decentralizing government activities, and enhancing
public sector responsiveness to communities; (4) improve transparency inbudgeting; and (5) establish effective mechanisms to promote accountability
and transparency.

SAL

Structural Adjustment Loan is intended to support structural reform overthe medium and long term.
Example*: Malaysia Economic Recovery and Social Sector Loan
Loan Amount:
IRD US$300 million
Approval Date:
June 18, 1998
Project Description: This project supports the government’s program of preemptive measures to (1) minimize the downturn in economic activity in thewake of the 1997-98 regional crisis; (2) expand social safety nets to protect thepoor and near-poor from the adverse effects of the crisis; and (3) protect
investments in the human resource base. It also supports policy reforms aimed
at promoting robust and sustainable growth.

SSAL

Special Structural Adjustment Loans, approved in 1998, are reserved for
IBRD borrowers (non-concessionary) who are in exceptional crisis
situations with major social and poverty consequences. They target
structural and social reform in a potential or actual crisis situation.
Example*: Brazil Social Protection Special Sector Adjustment Loan
Loan Amount:
IBRD US$252.5 million
Approval Date:
January 7, 1999
Project Description: The loan supports the government’s efforts to protect
social expenditures targeted to the poor and those particularly vulnerable toeconomic hardship—children in poor families, retired and disabled people inpoor families, families needing regular access to free or low-cost basic healthservices, children attending primary school, and adults who may lose their jobs
during periods of economic uncertainly.
* Source: World Bank (2000c)

167

SAD

Sector Adjustment Loans support policy and institutional reform in a
specific sector. (Formerly known as SECAL)
Example*: Morocco Contractual Savings Development Loan
Loan Amount:
IBRD US$150 million
Approval Date:
June 9, 1998
Project Description: This operation aims to improve the accumulation of longterm savings, encourage their allocation to private productive investment, andguarantee the long-term sustainability of the country’s pension system. Its
focus is the reform of contractual savings institutions, including insurancecompanies, savings banks, and the pension system.

SIL

Specific Investment Loans support the creation, rehabilitation, andmaintenance of economic, social and institutional infrastructure and may
include consultant service and management and training programs.
Example*: Sri Lanka Mahaweli Restructuring and Rehabilitation
Project
Credit Amount:
IDA US$57 million equivalent
Approval Date:
April 14, 1998
Project Description: This project aims to shift the focus of the Mahaweli
Authority from project implementation to river basin management, to help
ensure that natural resources in the Mahaweli River basin and watershed aremanaged more efficiently, productively, and sustainably. The project also aims
to increase agricultural productivity through the rehabilitation, upgrading, andimproved operation and maintenance of irrigation facilities.

SIM

Sector Investment and Maintenance Loans are designed for public
expenditure programs in particular sectors. They are in support of sectoral
policy reform and maintenance of that reform.
Example*: Indonesia Sumatra Region Roads Project
Loan Amount:
IBRD US$234 million
Approval Date:
March 31, 1998
Project Description: The project supports the government’s effort to promote
efficient, equitable, and environmentally sustainable regional development. It
aims to improve transport efficiency and accessibility within the eight provincesof Sumatra, by integrating and strengthening the planning and management oftransport infrastructure.
* Source: World Bank (2000c)

168Appendix

TAL

Technical Assistance Loan is used in the client country to build institutional
capacity for the promotion of economic and social development.
Example*: Peru Urban Property Right Project
Loan Amount:
IBRD US$38 million
Approval Date:
August 6, 1998
Project Description: This project is designed to formalize rights to real
property in predominantly poor urban settlements. The loan finances theregistration of nearly 960,000 properties, of which 800,000 are to be individuallytitled. The formalization process is expected to cover the four million people—
one quarter of the total population—who typically live near the poverty line.
* Source: World Bank (2000c)

169Appendix 6

World Bank Regional Lending by Sector
World Bank: Regional Lending by Sector, FYs 1991-2000
Latin America and the Caribbean
FY
FY
FY
Sector
1991
1993
1995
Agriculture (and rural Development)
942
390
440
Economic policy
Education
595
589
747
Electric power and other energy
0
372
162
Environment
016
104Finance
845
125
1860
Industry000Mining200
250
0Multisector
422
1318
329
Oil and Gas
260
45
11
Population, health, and nutrition
337
374
95
Private sector development
Public sector management
673
383
821
Social Sector (social protection)
00500
Technical Assistance69
88
Telecommunications
0
0
0
Transportation
218
1698
421
Urban development
260
170
350
Water supply and sanitation
485
439
222
5237
6169
6060
World Bank: Regional Lending by Sector, FYs 1991-2000
AfricaFYFYFY
Sector
1991
1993
1995
Agriculture (and rural Development)
505
318
407
Economic Policy
Education
266
417
157
Electric power and other energy
155
356
255
Environment
008Finance
139
252
7
Industry0840Mining21
025
Multisector
887
937
421
Oil and Gas
300
00
Population, health, and nutrition
433
131
250
Private Sector Development
Public sector management
12
105
117
Social protection (Social sector)
00156
Telecommunications
13
89
0
Transportation
310
483
75
Urban development
98
61
158
Water supply and sanitation
256
67
248
3394
1817
2284

170

FY
1997
731

614
405

FY
1999
520
3091
399
30
54
827
40
0
391
0
309
76
81
1280

0
225
43
158
5
11142
641

0
1496
100
200
4563

0
545
103
30
7737

28
0
11
147
4063

FY
1997
194

FY
1999
188
677
194
0
15
29
0
15
0
18
172
78
121
130
11
237
111
75
2070

FY
2000
174
426
160
43
16
60

62
0
57
630
0
0
132
0
137

75
164
95
66
0
21
707
0
55
111
0
0
53
147
25
1737

FY
2000
224
21
78
5
53
1312

0
65
117
110
201
283
139
10
256
11
88
2159

Appendix

World Bank: Regional Lending by Sector, FYs 1991-2000
South AsiaFYFY
FYSector
1991
1993
1995
Agriculture (and rural Development)
773
481
551
Economic policy
Education
307
339
424
Electric power and other energy
200
960
250
Environment
00168Finance
124
66
916
Industry528
03Mining0120Multisector
74040
Oil and Gas
735
0
121
Population, health, and nutrition
339
827
258
Private sector development
Public sector management000Social protection (social sector)
000
Telecommunications
57
0
0
Transportation
179
120
0
Urban development
0039
Water supply and sanitation
307
208
276
3605
3416
3006
World Bank: Regional Lending by Sector, FYs 1991-2000
Middle East and North Africa
FY
FY
FY
Sector
1991
1993
1995
Agriculture (and rural Development)
13
463
232
Economic policy
Education
241
115
158
Electric power and other energy
114
165
0
Environment
00113
Finance235
00Industry365
00Mining000Multisector
310
0
150
Oil and Gas
84
00
Population, health, and nutrition
245
188
36
Private sector development
Public sector management000Social protection (social sector)
000
Telecommunications
0
100
0Transportation
162
35
239
Urban development
250
684
51
Water supply and sanitation
0
0
0
2020
1880
979

FY
1997
409
0
24
65
105
3
0
0
0
574
32
20
0
685
0
99
20116

FY
1997
177
98
65
0
75
0
0
120
0
0
85
30
0
42
100
123
915

FY
1999
391
350
98
210
139
119
32
0
200
0
325
32
0
0
0
561
105
32
2562

FY
2000
60
45
200
280
0
65

FY
1999
454
370
55
54
0
159
35
0
0
0
101
136
53
50
0
0
64
80
1576

FY
2000
153
0
219
0
0
0

0
101
0
345
0
251
111
62
582
11
0
2112

0
84
0
87
16
35
75
9
15
82
145
920

171

World Bank: Regional Lending by Sector, FYs 1991-2000
Europe and Central AsiaFYFY
FYSector
1991
1993
1995
Agriculture (and rural Development)
100
525
202
Economic policy
Education
250
67
40
Electric power and other energy
600
0
192
Environment
00123Finance710
55
147
Industry10000Mining0Multisector
1017
1245
2085
Oil and Gas
520
703
226
Population, health, and nutrition
091
220
Private sector development
Public sector management0335
71Social protection (social sector)
00128
Telecommunications
270
30
0
Transportation
300
378
486
Urban development
0
285
418
Water supply and sanitation
0
130
161
3867
3844
4499
World Bank: Regional Lending by Sector, FYs 1991-2000
East Asia and the PacificFY
FY
FY
Sector
1991
193
1995
Agriculture (and rural Development)
1,375 1,089
373
Economic Policy
Education
592
479
527
Electric power and other energy
275
760 1,383
Environment
050
398
Finance439
457
0Industry
362
250
175
Mining0Multisector
250
200
167
Oil and Gas
0
225
245
Population, health, and nutrition
164
200
242
Private sector development
Public sector management
62
173
88
Social protection (social sector)
00268
Telecommunications
0
134
325
Transportation
324 1,183 1,033
Urban development
543
110
486
Water supply and sanitation
178
310
75
4,563 5,570 5,694

172

FY
1997
788
138
505
10
274
112
300
1227
136
96
99
935
0
313
56
67
5055

FY
1997
1,265
645
1,131
0
28
60
0
0
0
59
0
0
0
1,244
265
169
4,866

FY
1999
243
1790
41
46
27
362
470
300
50
0
95
817
204
229
0
638
59
386
5286

FY
2000
161
765
23
197
62
359

FY
1999
7,118
3,612
557
100
304
826
100
0
0
0
105
199
505
990
100
1,015
265
450
9,765

FY
2000
354
30
5
470
383
32

45
253
0
168
0
88
35
0
208
507
174
3042

10
0
7
119
0
490
100
0
629
0
350
2,979

Appendix

Appendix 7

Strategic Compact

The Strategic Compact:
Renewing the Bank’s Effectiveness to Fight Poverty. (1997-2000)
The compact offered a transformation of the World Bank so that it could
more effectively focus of poverty reduction. The objective was to “position it
as the premier global development institution going forward into the next
century” (Wolfensohn, 1997).
There were four key elements:
•
•

•

•

Refueling current business activity; that is, maintaining or increasing
what had become a diminishing level and quality of client services.
Refocusing the development agenda by increasing attention to socialand environmental issues, developing better products and services, andstrengthening staff in critical areas.
Retooling the Bank’s knowledge base by collecting, synthesizing anddisseminating information to staff and clients by building a world-classknowledge management system.
Revamping institutional capabilities by realigning its resources tosupport the new work environment. This would include a better
integrated internal information system; partial decentralization of staff
to regional offices; enhanced human resource strategy to assure thenecessary competences; and reform of internal financial management.

The plan was expensive, involving separation payments, recruitment andtraining costs, inefficiencies during transition, resettlement of staff and families
to regions as well expenses entailed by internal reorganization. As first
proposed, the total cost was estimated to be $450 million, half to come fromsavings and redeployment, the rest to come from the administrative budget.
The compact was accepted by the shareholders and the necessary funding wasapproved.
At the conclusion of the compact, when the extraordinary infusion had
ended, spending had increased in such a way that a 7% ($90 million) additional
was requested in the annual meeting of April 2001.
173

Appendix 8

World Bank Loans to Japanamount(US$1,000)
Kansai Electric Power: Tanagawa Thermal Power Plant (2 generators, 75 MW)*
21,50010/15/1953 Kyushu Electric Power: Karita Thermal Power Plant (1 generator, 75 MW)*
11,200Chubu Electric Power: Yokkaichi Thermal Power Plant (1 generator, 66 MW)*
7,500
10/25/1955 Yawata Steel: Heavy Plate Rolling Equipment*
5,300
NKK: Seamless Pipe Manufacturing Equipment*
2,600
Toyota Motor: Koromo Factory Machine Tools for Truck and Buses*
2,350
Ishikawajima Heavy Industries: Tokyo Plant Ship Turbine Manufacturing
02/21/1956
1,650
Equipment *Mitsubishi Shipbuilding: Nagasaki Shipbuilding Plant; Diesel Engine
1,500
Manufacturing Equipment*
Kawasaki Steel: Chiba Plant Hot and Cold Strip Mills
20,000Agriculture Land Development Machinery Public Corporation: Reclamation
12/19/1956
Project in Kamikitanegawa District, Reclamation Project in Shinotsu Peat Bog,
4,300
Import of Dairy Cows, etc.
08/09/1957 Aichi Waterworks Corporation: Aichi Waterworks Project
7,000
01/29/1958 Kawasaki Steel (II): Chiba Plant 1,000-ton Blast Furnace and Coke Oven*
8,000
Kansai Electric Power (II): Kurobe Hydropower Plant No. 4 (3 generators, 86
06/13/1958
37,000MW)*
06/27/1958 Hokuriku Electric Power: Arimine Hydropower Plant (261 MW)*
25,000Sumitomo Metal Industries: Wakayama Plant 1,000-ton Blast Furnace,
07/11/1958
33,000
Steelmaking and Blooming Equipment*
Kobe Steel: Nadahama Plant 800-ton Blast Furnace; Wakihama Plant
10,00008/18/1958
Steelmaking Equipment*
Chubu Electric Power (II): Hatanagi Hydropower Plant No. 1 & 2 (85 MW
29,00009/10/1958 each)*
NKK (II): Mizue Plant 60-ton Converter*
22,00002/17/1959 Electric Power Development Co.: Mihoro Hydropower Plant (215 MW)*
10,000Fuji Steel: Hirohata Plant 1,500-ton Blast Furnace, Converter, Blooming
11/12/1959
24,000Equipment*
11/12/1959 Yawata Steel (II): Tobata Plant Two 1,500-ton Blast Furnaces*
20,00003/17/1960 Japan Highway Public Corporation: Amagasaki-Ritto Expressway
40,000Kawasaki Steel (III): New Construction of Heavy Plate Manufacturing Plant in
6,000
12/20/1960 Chiba*
Sumitomo Metal Industries (II): Wakayama Plant Combined Mill*
7,000
03/16/1961 Kyushu Electric Power (II): Shin-Kokura Thermal Power Plant (156 MW)*
12,00005/02/1961 Japan National Railways: Tokaido Shinkansen
80,000Japan Highway Public Corporation (II): Ichinomiya-Ritto, Amagasaki11/29/1961
40,000
Nishinomiya Expressway
09/27/1963 Japan Highway Public Corporation (III): Tokyo-Shizuoka Expressway
75,00004/22/1964 Japan Highway Public Corporation (IV): Toyokawa-Komaki Expressway
50,00012/23/1964 Metropolitan Expressway Public Corporation: Haneda-Yokohama Expressway
25,000Electric Power Development Co.: Kuzuryu River System Hydropower Plants in
01/13/1965
25,000Nagano and Yugami
05/26/1965 Japan Highway Public Corporation (V): Shizuoka-Toyokawa Expressway
75,00009/10/1965 Hanshin Expressway Public Corporation: Kobe City Expressway Route 1
25,00007/29/1966 Japan Highway Public Corporation (VI): Tokyo-Shizuoka Expressway
100,000
Total
862,900* Loans extended through Japan Development Bank
Source: “The World Bank and Japan,” World Bank Tokyo Office
Date

174

Projects

Appendix

Appendix 9

Official Development Assistance fromDAC Countries
US $ million
1981
-83

1986
-87

1993

1994

1995

1996

1997

1998

1999

2000

6,488 11,259 13,239 14,489
9,340 10,123 9,927 7,367
4,111 6,954 6,818 7,524
1,804 2,920 3,197 3,202
4,646 7,915 8,466 8,443
1,917 2,525 2,517 3,226
1,232 1,769 1,819 1,704
1,790 2,400 2,250 2,067
777 1,340 1,446 1,623
2,509 3,043 2,705 1,623
844 1,014 1,137 1,244
217 1,304 1,305 1,348
690
953 1,091 1,194
484
793
982 1,084
617
810
727 1,034
199
544
655
767
373
355
290
388
31
235
303
258
57
81
109
153
0
0
0
0
13
50
59
65
81
98
110
123

9,439
9,377
7,601
3,199
7,451
3,246
1,999
1,795
1,772
2,416
1,311
1,251
1,074
1,026
913
557
408
218
179
184
82
122

9,358 10,640 15,323 13,508
6,878 8,786 9,145 9,955
5,857 5,581 5,515 5,030
3,433 3,864 3,401 4,501
6,307 5,742 5,637 4,105
2,947 3,042 3,134 3,135
1,731 1,573 1,630 1,799
2,045 1,707 1,699 1,744
1,637 1,704 1,733 1,664
1,266 2,278 1,806 1,376
1,306 1,321 1,370 1,264
1,234 1,376 1,363 1,195
1,061
960
982
987
911
898
969
890
764
883
760
820
527
456
527
423
379
396
416
371
250
259
276
271
187
199
245
235
173
179
194
226
95
112
119
127
154
130
134
113

average average

Japan
United States
Germany
United Kingdom
FranceNetherlands
SwedenCanadaDenmark
Italy
NorwaySpain
Australia
Switzerland
Belgium
Austria
Finland
Portugal
Ireland
GreeceLuxembourg
New Zealand

3,318
7,355
3,170
1,867
2,974
1,392
887
1,272
404
770
537
181
762
270
518
204
144
7
36
0
5
66

TOTAL DAC
26,134 38,221 56,486 59,152 58,926 55,622 48,497 52,084 56,378 53,737
Source: Development Co-operation (various issues), DAC.

175

Appendix 10

Net Disbursements of Concessionaland Non-concessional Flowsby Multilateral Organizations
US$ million
1986
～ 87

1990
～ 91

1995

1996

1997

1998

1999

2000

Concessional Flows (ODA)
Major Financial Institutions
IDA
IBRD
IADB
African Dev. Fund
Asian Dev. Fund
IFAD
EBRD
United Nations
WFP
UNDP
UNHCR
UNICEF
Other UN
IMF*
EC
Arab Funds
Other International
Institutions

9,301 14,858 18,455 16,709 15,321 14,750 14,204 13,407
4,759 6,115 6,991 7,991 7,270 6,885 6,270 5,716
3,428 4,118 4,928 5,723 5,253 4,822 4,509 4,188
2
202
121
235
405
292
328
223
153
323
615
570
591
589
576
459
300
478 1,080 1,158 1,102 1,010 1,001
937
927
326
181
86
152
109
135
131
143
15
18
17
23
11
5
3,187 4,930 5,133 3,091 2,707 2,521 2,741 3,272
684 1,134 1,093
371
279
270
354
357
778 1,182
504
555
670
604
508
390
392
626
880
281
261
236
253
493
345
586
796
677
514
484
564
576
988 1,403 1,859 1,207
984
928 1,060 1,456-363
647 1,605
330
178
181
197
-89
1,583 3,021 4,723 5,261 5,156 5,124 4,911 4,414
102
114
-21
-36
-37
-8
37
35
33

32

25

Non-concessional Flows (OOF)
Major Financial Institutions
IBRD
IFC
IADB
African Dev. Bank
Asian Dev. Bank
IFAD
EBRD
EC
Arab Funds
Other International
Institutions

7,395
6,822
4,096
182
1,076
349
309

8,500
7,983
3,385
939
1,212
1,100
1,347

3,393
3,387
-543
657
1,387
471
1,147

165
48

209
-20

360

328

268
151

-145

50

58

3,275 11,140 16,180 13,815
2,959 10,278 15,290 13,117-238 3,145 5,746 3,802
902
246
678
663
1,409 2,697 4,112 5,956
291
-33
-197
-114
218 3,971 4,654 2,580
-1
9
-23
13
377
244
320
218
303
836
846
637

72

8,828
8,352
2,776
229
4,360
-304
1,049
5
237
427

14

47

26

48

44

61

50

Total
16,696 23,357 21,848 19,984 26,461 30,930 28,019 22,235* IMF Trust Fund, SAF and ESAF.
Source: Development Co-operation (various issues), DAC.

176

Selected Events in World Bank History

Selected Events in World Bank History
1944
July

1945
December

1946
June

1947
May

1948
March

1952
August1953
October

1956
July

Articles of Agreement of the International Bank for
Reconstruction and Development and the International
Monetary Fund adopted at Bretton Woods, New
Hampshire, in a conference of forty-five governments.

Articles of Agreement of IBRD become effective after
its signature by twenty-eight governments.

The World Bank formally begins operations. Bank’s
initial authorized capital is $12 billion.

Executive directors approve the Bank’s first loan, toFrance in the amount of $250 million for reconstruction
purposes.

Executive directors approve the Bank’s first loan to adeveloping country, to Chile in the amount of $13.5
million for hydroelectric development.

Japan becomes a member of the Bank, bringing the Bank’s
membership to fifty-three.

The first of three loans to Japan, totaling $40.2 billion, isapproved for power development.

The International Finance Corporation (IFC) isestablished as an affiliate of the Bank, with an authorized177capital of $100 million.
1959
September

1960
September

1961
May

On the occasion of the annual general meetings, theUnited States proposes establishment of the International
Development Association (IDA) as an affiliate of theBank.

IDA is established with initial subscriptions of $912.7
million.

IDA extends its first development credit, totaling $9
million, to Honduras, for highway development andmaintenance.

1963
March - November Eighteen newly independent African countries become
members of the Bank.
1968
April

1972
June

1979
May

1992
November

178

Robert S. McNamara becomes the fifth president of the
Bank.

Robert McNamara in a speech to the United Nations
Conference on the Human Environment in Stockholm
declares poverty to be “the leading edge of action.”

President McNamara proposes “structural adjustment”
lending in an address to the United Nations Conference
on Trade and Development in Manila, Philippines.

The report of the Task Force on Portfolio Management(the “Wapenhans Report”) is transmitted to the executive

Selected Events in World Bank History

directors.
1993
September

1994
June

1995
June

1996
June
OctoberNovember

1997
April
September

An independent inspection panel is established, with themandate to receive and investigate complaints if the Bank
has not followed its own policies and procedures withrespect to the design, appraisal, or the implementation ofa development project that its supports.
The East Asian Miracle is published, compiling theBank’s research works on the economic development of
East Asian countries.

For the first time the Bank’s net disbursements turnnegative.

James D. Wolfensohn becomes the ninth president of theBank.

Fiftieth anniversary of the Bank’s opening for business.
Member countries endorse the Highly Indebted Poor
Countries (HIPC) Initiative, a program of action,
proposed by the Bank and IMF, for reducing the debt
burden of eligible heavily indebted countries.
The Bank establishes the HIPC Trust Fund and allocated$500 million to it.

Uganda becomes the first country to receive debt relief
under the HIPC Initiative.
President Wolfensohn announces the Strategic Compact,a plan to make the Bank more effective in delivering its
regional programs and in achieving its basic mission of
reducing poverty.

179

1998
November

1999
January

June
2000
March

Assessing Aid is published, compiling Bank’s researchworks on aid effectiveness.

President Wolfensohn calls for the adoption ofComprehensive Developmental Framework (CDF) bydonor countries.
The CDF is launched in Bolivia.

Meltzer Report, proposing that the Bank and IMF besignificantly scaled back and that the Bank shift fromloans to grants, is published.

Source: Up to 1996 mainly from Kapur, D. et al. (1997), and after 1996
mainly from the Bank website.

180

IndexINDEX
Adelman57

GyohtenAkerlof38

Hata

Akiyama50

Hayami

Allen

99

116

111, 113, 114
3, 22, 26, 29, 30, 37, 39, 40,

42

Annan

124, 125

Helleiner

77, 78Arrow

39

Hirschman2, 22, 28

Balassa

26

Hoff

Baran

33

Honda

111, 113, 114

Bates

25

Honma

157

Bauer

24

Hoyos

Beattie64, 66, 99, 150, 155

Imai

Bhagwati

26

Binswanger
Brown

40

127

Ito

28, 130

127
118

113

Johnston

3, 29, 30, 149

Kapur

Brundtland

53

47, 102

Kashiwagi

111, 114

Burki

36

Kawasaki110, 112Bush64, 90, 96, 97

Krueger

14, 25, 26, 48
27

Cardoso32

Krugman

Coase

4, 38

Kuznets

23

Collier

38

Landes39

Conable48, 67, 68, 98

Leeson24, 25

Lewis

29

Crafts24

Deininger

40

Longworth42

de Janvry

37

Lowcock

103

Desai

41

Lucas

42

dos Santos

33

McAleer100

Duncan56, 129

McKinley40

Einhorn

28, 123

McNamara

14, 36, 48, 56, 129

Evenett

118

Meadows

53

Meerman

50

Fei

29

Fidler99, 126

Friedman
Fujimori
GriffinMeier

2, 22, 24, 26, 27, 39, 155

151

Mellor3, 29, 30, 149

112

Meltzer

65

40, 76, 154

Morris, C.

57

181

Morris, M.

Sen

41

Mosley49

Myrdal35

Nakagawa

50, 153

Shimomura
118

Narayan4, 14, 42, 43, 68, 69, 124

Shihata

77

118

Short

14

Singer27, 33, 35

North

4, 26, 38, 39, 70, 78, 126, 129

Srinivasan

Nurkse23

Stiglitz

Nurske2, 27

274, 14, 26, 28, 38, 50, 63, 95,

96, 130, 155

O’Neill

12, 95, 129

Streeten

36, 41

Olson

38

Strong152, 153

Oman

25, 37

Summers

118

Pollard56, 129

Takahashi

149

Prebisch2, 14, 22, 27, 31, 33, 34, 35

Takeda112, 113

67, 98Ul Haq4, 41

Preston
Ranis

Wapenhans

29

52

20, 28, 29

Weber

Rodrik152

Wignaraja

Romer

42

Williamson, J.

48, 96

Williamson, O.

4, 38

RicardoRosenstein-Rodan2, 23Rostow

2, 22, 23, 24, 130

Ruttan3, 29, 30, 37, 39

Saito

118

37

Wolfensohn

12, 14, 67, 68, 69, 100,

124, 130, 151, 173
Wolffe64

Schultz

3, 29

Yamey

24

Seers

2, 35, 41

Yusuf

118

182

25, 37

IndexINDEX
AC

Absorptive Capacity

6, 8, 63, 72, 90,

101, 114, 126
Accountability

Capability

17, 57, 154
59,

60, 164

Capital39, 45, 46, 47, 50, 56, 110,

114, 123, 124

Adjustment Lending/Loan4, 52, 57,—— Accumulation

58, 62, 70, 72, 79
Sub-Saharan ——30, 45, 56, 74,

95, 123—— -Asset Ratio

112, 113

Capitalism/Capitalist32, 33, 37Center-periphery

3, 22, 28, 61, 62, 88, 112,

119, 149
Aid Effectiveness12, 72, 105

Aid People and Development People
94

Chicago Boys

Performance (ARPP)

32
55, 160

Civil Society

76, 77, 97, 153

Club of Rome

53

45, 108

Colonial System
53, 62, 101

52, 99Articles of Agreement

31-33

Child Mortality

Cold War

Annual Report on Portfolio
Approval Culture

2, 15, 18, 22,

24, 25, 125, 129

4, 40, 47, 49, 50

Agriculture

73, 90, 91, 119,

154

Adaptable Program Loan (APL)

Africa42, 43, 124

Capacity Building

Community

22

40, 57, 63, 155Compensatory Financing

45, 50, 61, 67,

106, 145, 156

Framework (CDF)

Asian Development Bank (ADB)

58,

93, 128

34

Comprehensive Development
Concessional Loan
Conditionalities

7, 65, 79, 81

5, 1574, 5, 12, 30, 32, 50-

52, 51, 72, 73, 74, 76, 95, 100, 124

B

Conflict Resolution

Basic Needs

3, 35, 38, 41, 42, 48, 56

Big Push Development Strategy
Bretton Woods Institutions

23

19, 26, 98,
See World

Commission on the Environment andDevelopment

Corruption

88, 14940
25, 55, 72, 73, 78, 88, 93,

97, 152
Cost of Doing Business

105, 124
Brundtland Commission

Cooperatives

6, 62, 101,

126
Country Assistance Strategy (CAS)7,

72, 79, 81, 82, 84, 85
Culture39

Currency Crisis

See East Asia

183

D

EffectivenessDebt

4, 49, 50, 58, 162, 163—— Crisis32, 48—— Relief

153, 162

Debt Reduction Loan (DRL)
Democracy—— of Assistance

109, 119—— of World Bank69, 113

Emergency Recovery Loan (ERL)93, 97, 107

Department for International

60,

164

60, 164

Empowerment

42, 61, 68, 88, 94, 150

Environment

7, 53, 54, 75, 88, 150,

Development (DFID) of the United

162

Kingdom

Environmental Assessment (EA)

54, 65, 92, 102, 121,

76

127
Dependency

31

Deregulation

49

Environmental Effect/Impact
Environmental Sustainability

Development Assistance Committee
(DAC)

65

Development-Compatible Institution

Era of the Economist

4

Era of the Engineer

4, 46

Era of the Social Scientist

114
Development Gateway (DG)

Community86

16

European Bank for Reconstruction and152

Development (EBRD)

9, 129Dual Economy Model93, 107,12829European Union (EU)E

Evaluation

East Asia

5, 68

Europe Aid Program of the European

155

Development Support Loan (DSL)
Donor Fatigue

55,

161

11, 54Development Common Fund

Doha Round5,30

26, 38, 53-54, 58, 118, 119,120

11, 12, 13, 89, 102, 121

Export Pessimism

27, 31

120, 123
East Asian Crisis

82, 83, 157

East Asian Miracle

26, 53, 114,

118
3, 25, 26, 108

Economic Comission for Latin America(ECLA)

31, 32, 34

Economic Liberalization

See Trade

See East Asia

Financial Intermediary Loan (FIL)
60, 165

76, 97, 119, 120, 151, 154, 160
55, 154, 159, 160

65-

66
Fixed Exchange Rate5, 41, 42, 54, 61, 62, 63,

Primary ——98

Financing for Development (FfD)

Liberalization

184

Fifty Years is Enough
Financial Crisis

East Asian Tigers

Education

F

48

Foreign Direct Investment (FDI)
54
Freedom

42, 43, 68, 70, 105

Fungibility

18, 57, 10224,

IndexG

152, 154

GenderHuman Development

55, 88, 151, 160

Generalized Poverty

3, 25, 74

Globalization

33, 88, 151

Anti- —

68, 69, 92

73, 95

Get prices Right3, 4, 9, 37, 40,

Human Development Index (HDI)41, 69, 127

98, 99Globalizer/Non-Globalizer
Global Public Goods
Governance

152

63

I
Import-Substitution74, 88, 90, 91, 93, 96,

Industrialization Through —— (ISI)

101, 152-153, 155—— Assessment
Good ——
Government25

2, 22, 31
72

Income Distribution23, 6439, 72, 74, 162

Income Redistribution

853, 72, 73, 75, 76, 77,

Increasing Returns to Scale79, 80, 81, 84, 85, 86, 90, 91, 92,

Indicators of Success

94, 97, 100, 102, 103, 117, 123,

Industrial Programming

128, 129

Infant Mortality—— Failure

24—— Intervention

54
31

41, 154, 160

Information for Development Program
2, 19, 23, 24,

33, 49, 53, 117(InfoDev)

155-156

Information Technology

Grant/Grant Aid

6, 63, 64, 65, 127

Green Revolution

30

Growth27

Infrastructure Building/Infrastructure
Project

2, 16, 19, 20, 22-24, 25, 27,

35, 42, 49, 53, 68, 79, 94
36, 562, 4, 18, 23, 46, 100, 112

Inspection Panel
Institution

Redistribution with —— (RWG)

88, 150, 155

98

1, 3, 4, 5, 7, 8, 9, 23, 26,

35, 37, 41, 42, 51, 55, 56, 58, 64,
68, 75, 78, 88, 90, 93-94, 100, 101,

Self-Sustained ——Stages of ——23

114, 129, 150, 152, 154

22, 24

Theory of Balanced ———— Building
23

55, 58, 70, 79, 86,

127, 167
Institutional and GovernanceH

Review

HealthInstitutional Reform

119

Maternal ——Helleiner Report77, 78Initiative80, 88, 153
55, 88, 153, 160

58, 80, 93,

168

55, 160

Highly Indebted Poor Country (HIPC)
HIV/AIDS

72

Institutionalist

26, 28, 68, 70, 76

Inter-American Development Bank(IADB)

58, 94, 128

International Bank for Reconstruction

Human Capacity

88, 154and Development (IBRD)

Human Capital24, 27, 35, 39, 40, 68,

145

5, 46,

185

—— Bond

157

K—— Loan47, 80, 157, 158

Knowledge

International Buffer Stocks

33

155, 173International Center for Settlement of
Investment (ICSID)

Kuznets Curve

23

145

International Development Association(IDA)

27, 42, 63, 88, 91, 106,

5, 7, 45, 47, 65, 85, 145,

L
Latin America

147, 157

4, 22, 31, 32, 34, 49,

64—— Credit

79, 80

Learning and Innovation Loan (LIL)

International Development Target (IDT)54, 130

59, 60, 165
Least Developed Countries (LDC)

International Finance Corporation (IFC)
145, 156

Lending Instruments

International Financial Institution

9,65, 127

90,

95
7, 59, 85, 102,

124, 164
Letter of Development Strategy (LDS)International Labor Organization (ILO)
36
International Monetary Fund (IMF)

85, 86
Life Expectancy

41, 69, 154

Limits to Growth53

32, 45, 49, 72, 74, 80, 89, 92, 99,

Literacy

111, 117

Lost Decade

Investment Lending

57, 58, 79

41, 97, 154, 160
32

Low Income Countries

5, 22, 33, 34,

96, 101J

Low Income Countries Under StressJapan(LICUS)8, 17, 18, 27, 46, 47, 53, 65,

15, 90, 91, 100

81, 108, 128, 174
Japan Bank for International
Cooperation (JBIC)

118, 122

Japan International Cooperation
Agency (JICA)

118, 122

Japan Policy and Human Resources
Development (PHRD) Fund
119
Japan Social Development Fund(JSDF)

119

Joint Staff Assessment (JSA)
Committee
Jubilee 2000

186

80
153

M
Malaria

55, 160

Marginalization

88, 151

MarketFree —— / Free Trade19, 27,46, 124—— Failure

27—— Force

25, 35, 129, 151, 152,

156—— Oriented
Marketing Board

3, 24, 26
24, 40, 50, 51

Marshall Plan

46

Meltzer Report65, 96, 99

Index

Middle East Initiative

Oil Shock125

Middle Income Countries (MIC)

5,

(OED)

79, 84, 85, 96, 145Millennium Challenge Account (MCA)106

Organization for Economic Cooperation
and Development (OECD)9, 90, 97, 125

Our Common Future

9, 55, 89, 159
Millennium Summit

53

Overseas Economic Cooperation Fund

55

Mobilization for Global Justice(OECF)

98

118

Ownership

89

Monterrey Conference

11, 54,68, 92, 130

Millennium Development Goals (MDG)

Monitoring

4, 32, 48

Operations Evaluation Department

7, 65, 66, 74, 75, 77-78,

80, 81, 86, 91, 92, 100, 121, 153,

See United

154

Nations Conference on Financing forDevelopment

Moral Hazard

P

153

Multilateral Development Bank (MDB)
16, 18, 58, 107, 128

90Participation

Multilateral Investment Guarantee
Agency (MIGA)PARIS217, 61, 74, 75, 76, 77, 80,

88, 92, 122, 150, 155

145, 156

Partnership

55, 83, 161

People-Oriented Approach

N

PHRD Fund

Neoclassic (Approach)3, 4-5, 25-28,

48-49, 117, 124, 12527,

42
New International Economic Order3, 33

25, 26
NGOs

Pioneers

2, 4, 20-24, 28, 46, 100, 123

Policy3, 4, 25-26, 31-32, 49-52, 58,

72, 74, 80, 101—— Based Lending

Newly Industrialized Countries (NICs)
New Views

See Japan

Physical Quality of Life Index (PQLI)
41

New Endogenous Growth Theory(NIEO)

4, 5, 37-43

16, 17, 57, 64, 77, 94, 97, 98,

120, 150, 154, 155
Non-Lending Assistance124—— Dialogue23, 50, 72—— Reform

27, 58, 80, 165,

167, 168
Population Increase58, 79, 155

O48, 50, 58,

72

2, 29

Post Conflict Fund (PCF)

166

Post-War Reconstruction

45, 109, 114

Post-Washington Consensus

Official Development Assistance(ODA)

13, 54, 125, 162, 175—— Charter (of Japan)
Japan’s ——5, 8, 9,17-18, 19, 50-57, 67, 74, 92, 98, 99,
127, 130109

116-117, 121-122

187

Poverty Reduction

5, 6-7, 14, 15, 48,

50, 54, 56, 67-91, 93, 95, 96, 105,

Right to Make Mistakes
Rules of the Game66, 7838, 78106, 124, 125, 128, 129, 155, 173—— Strategy

5, 6-7, 67-91, 95,

100, 105, 153

Safeguard Policy

Poverty Reduction Growth Facility(PRGF)

80, 8287

Sardar Sarovar Dam project

52

Sector Adjustment Loan (SAD)

Poverty Reduction Strategy Paper(PRSP)

S7, 16, 74, 77, 78, 79,

80, 84, 85, 86, 95, 118, 122,
153

Sectoral Adjustment Loan (SECAL)
4, 49, 50, 168
Sector Investment Maintenance Loan

Interim —— (I-PRSP)

80

Poverty Reduction Support Credit(PRSC/PRC)

7, 59, 60, 80,

85, 86, 166(SIM)60, 168

Sector-Wide Approach (SWAP)

22, 30, 31, 33,

34, 50Social Capital

49, 85, 87, 88, 96,110, 112, 156

68, 93, 100, 105,

154
Social Sustainability

Programmatic Structural Adjustment
Loan or Credit (PSAL/C)

7, 59,

60, 85, 86

76

35, 37, 39

Social Safety Net

Private Investment

81,

102
Social Assessment (SA)Primary Commodities

76

Soviet Union/Former Soviet Union23, 25, 26, 38, 45, 47, 55
Special Structural Adjustment Loan

Public Sector

72, 73(SSAL)

167

Specific Investment Loan (SIL)

Q

60,

168

Quality Assurance Group (QAG)

53,

101, 106, 127

R

27

Structural Adjustment

48

94, 150

Structuralism

31-32

Sustainability

7, 75, 76, 121, 150,

Rent Seeking

25

Resettlement

149

Results-Based Management
3, 26

Ricardian Trap

29

4,

26, 49-52, 60, 124, 167

111

Rehabilitation Loan (RIL)

Revisionist

69, 79, 173

Strategic Trade Theory

28, 35, 38, 41, 42

Redistribution
Reformist

Strategic Compact

Structural Adjustment Loan (SAL)

Rationalization Plan

188

60,

168

60, 165

151
Sustainable Development
88, 15089, 10653, 68, 75,

IndexT

United Nations Research InstituteTechnical Assistance Loan (TAL)60,

for Social Development

96

United Nations Statistics Division(UNRISD)

169
Terrorist Attacks of September 11
Tokaido Shinkansen
Trade

89

112, 114

United States (US)34, 51—— Barriers

9, 19, 45, 46, 48,

64, 65, 89, 90, 95, 96-98, 99, 110,

3, 25—— Liberalization

120, 125, 128

26, 48, 49,

United States Agency for

94, 152
Terms of ——International Development

22, 27, 31, 33, 34,(USAID)37
Trickle-Down

40

23

US Export-Import Bank

35

110

US Middle East Partnership

U

Initiative

Uganda97

16, 80, 86, 123

United Kingdom (UK)48, 65, 102,

V
Vietnam121
DFID

See Department for International

16, 81, 82

Voices of the Poor

77

Development of the UK

United Nations (UN)9, 19, 34, 53,

W55, 64, 124, 128

Wapenhans Report

United Nations Conference on

Washington Consensus

52, 53, 89
4, 46, 49, 74

Financing for Development

Women in Development (WID)

12, 16, 55, 89, 128

World Bank Bonds

United Nations Conference on

World Bank Institute (WBI)

Trade and Development

World Bank lending Method(UNCTAD)World Bank Tokyo Office24, 34, 45, 73,

74, 78, 95, 152
35
41, 45,124, 127, 159
United Nations Industrial
Development Organization(UNIDO)

113
120

and Development

53, 54, 75

World Conference on Women

United Nations Development
Programme (UNDP)

91, 119

World Commission on the Environment

United Nations Development
Decade119

116, 157

45, 79World Development Report54, 151
41, 68,126
World Summit on Sustainable
Development (WSSD)

55, 128

World Trade Organization (WTO)
152

United Nations Population Fund
(UNFPA)

45

189

Authors

Authors
Takamasa Akiyama is Senior Advisor at the International Development
Research Institute (IDRI), FASID, and also Visiting Professor at National
Graduate Institute for Policy Studies (GRIPS). Having obtained his master’s
degree in Engineering from University of Hawaii (1972), he served as Economic
Affairs Officer at the United Nations Conference on Trade and Development(UNCTAD), Geneva (1972-80), and as Lead Economist at the World Bank,
Washington, D.C.(1981-2000) Among his publications are Energy Demand in
Asian Economies (Oxford University Press, 1999), Commodity Market
Reforms: Lessons of Two Decades (World Bank, 2001).
Suzanne Akiyama has worked as a development consultant editing a numberof World Bank documents and papers since 1981. After completing her master’s
degree in South Asian Economics at University of Hawaii (1972), she served
as Public Affairs Coordinator at the International Air Transport Association(IATA), Geneva (1973-80).
Naonobu Minato is Acting Director of IDRI, FASID and also Visiting
Professor at several graduate schools including GRIPS. He started his careerat Dai-ichi Kangyo Bank, Ltd. (1975-89). He obtained his master’s degree inInternational Relations from International University of Japan (1991) and joined
FASID in 1992. His papers include “A Comparative Study of Official
Development Assistance by Major Industrial Countries: An Economic
Analysis,” The Developing Economies (Institute of Developing Economies,
1994); “Japanese ODA to China and Indonesia in the Context of FDI — A
Comparative Multisectoral Approach,” The Journal of Econometric Study ofNortheast Asia (Economic Research Institute for Northeast Asia, 2003)

191

ISSN 1348-0561