United States General Accounting Office

GAO Report to Congressional Requesters

September 1996 WORLD BANK

U.S. Interests

Supported, but

Oversight Needed to

Help Ensure Improved

Performance

G O A

years

1921 - 1996

GAO/NSIAD-96-212

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-272937 

September 26, 1996

The Honorable John Kasich

Chairman, House Committee on the Budget

House of Representatives

The Honorable James Leach

Chairman, House Committee on

 Banking and Financial Services

House of Representatives

This report responds to your request that we undertake a review to determine whether

continued participation in the World Bank is in the U.S. interest. To address this question, we

assessed (1) the Bank’s role in enhancing the flow of international private investment capital

into developing countries, (2) the extent to which Bank projects achieve their development

objectives, (3) the Bank’s progress in reforming its operations to improve effectiveness, and

(4) the extent to which the Bank supports U.S. foreign policy goals.

We are sending copies of this report to the Secretaries of the Treasury and of State; the

Administrator, U.S. Agency for International Development; the President of the World Bank;

and other interested parties. Copies will also be made available to others on request.

This report was prepared under the direction of Benjamin F. Nelson and Jayetta Z. Hecker,

Director and Associate Director, respectively, International Relations and Trade Issues. They

can be contacted on (202) 512-4128 if you or your staff have any questions concerning this

report. Other major contributors are listed in appendix VII.

Henry L. Hinton Jr.

Assistant Comptroller General
Executive Summary

Purpose With the end of the Cold War, some political and economic analysts have

questioned the underlying rationale for U.S. participation in multilateral

institutions such as the World Bank. The recent rapid increase in private

investment in developing countries (more than a threefold increase since

1988) has raised questions about whether the Bank works to enhance or

inhibit this trend. Weaknesses in project effectiveness have raised

questions about the ability of the Bank’s programs to promote economic

development. Finally, the Bank has had difficulty demonstrating the

impact of reforms designed to improve its effectiveness.

Prompted by such concerns, the Chairmen of the House Committees on

the Budget and on Banking and Financial Services requested that GAO

undertake a review to determine whether continued participation in the

Bank is in the U.S. interest. To address this question, GAO assessed (1) the

Bank’s role in enhancing the flow of international private investment

capital into developing countries, (2) the extent to which Bank projects

achieve their development objectives, (3) the Bank’s progress in reforming

its operations to improve effectiveness, and (4) the extent to which the

Bank supports U.S. foreign policy goals.

To conduct its assessment, GAO obtained access to Bank officials and

information through the Department of the Treasury, which has the lead

role within the executive branch regarding U.S. policy toward the Bank,

and through the staff of the U.S. member of the Bank’s Board of Executive

Directors. GAO analyzed data and internal reports on Bank operations,

project performance, and management reforms. In addition, GAO examined

trend data on international private and public sector financial flows to

developing countries and obtained information from international private

investors on their experiences with the Bank. GAO also discussed the

Bank’s role and performance with officials from nongovernmental

organizations, academics, and foreign government agencies.

Background The purpose of the World Bank is to promote economic growth and the

development of market economies by providing finance on reasonable

terms to countries that have difficulty obtaining capital. Following its

initial efforts to reconstruct Europe after World War II, the Bank expanded

the scope of its activities to the rest of the world. The Bank’s development

strategy has evolved to include emphasis on poverty alleviation; economic

adjustment; and, most recently, private sector development. Implicit in

Bank actions during most of its history was the need to ensure the

Page 2 GAO/NSIAD-96-212 World Bank
Executive Summary

availability of capital for countries that might otherwise turn to

communism.

To achieve its goals, the Bank developed four major institutions: the

International Bank for Reconstruction and Development (IBRD), the

International Development Association (IDA), the International Finance

Corporation (IFC), and the Multilateral Investment Guarantee Association

(MIGA). IBRD and IDA make loans to developing country governments, with

IBRD lending at market-based terms and IDA lending to the poorest

countries on highly subsidized terms. IFC and MIGA work directly with the

private sector to spur investment in developing countries. Between fiscal

years 1993 and 1995, the United States contributed an average of 

$1.2 billion per year to support these institutions. In fiscal year 1996, the

United States contributed $824 million to support the Bank,1

 $700 million

of which was directed to IDA.

Results in Brief Bank operations support U.S. economic and foreign policy goals and

leverage other donors’ funds to do so. However, performance weaknesses

have limited the effectiveness of many of the Bank’s projects. The Bank

has recognized many of its problems and has developed a reform program

that holds promise for improving projects’ effectiveness. However, it is too

soon to assess whether the reform program will result in better outcomes.

The United States can, by virtue of its leadership role, continue to

influence Bank actions and advance reform efforts to ensure that Bank

projects make a greater contribution to development in the future.

Through the Secretary of the Treasury and the U.S. Executive Director, the

United States influences the Bank to take actions consistent with the U.S.

post-Cold War foreign policy agenda. These include providing assistance

to countries making the transition from communism to market economies

and financing economic reconstruction in areas of foreign policy

importance to the United States (e.g., Bosnia, Haiti, and the West Bank).

The Bank promotes economic development consistent with U.S. interests.

It provides financing for countries that have little access to private capital.

It also works to expand opportunities for private investment in developing

countries by reducing the associated investment risk and encouraging

banking and legal system reforms. Such Bank services generally do not

displace the private sector.

1

This includes $35 million for the Global Environment Facility, which is technically separate from the

Bank.

Page 3 GAO/NSIAD-96-212 World Bank
Executive Summary

Although the Bank’s goals are generally in accord with U.S. foreign policy

interests, the institution has performance problems that have proven

difficult to address. More than a third of the IDA and IBRD projects most

recently evaluated by the Bank itself were rated “unsatisfactory” (that is,

they had not met most of their major goals or achieved acceptable

contributions to development), and over half of the projects in

sub-Saharan Africa were rated unsatisfactory. In terms of achieving

project objectives, the Bank’s rate of success is much higher in meeting

physical objectives (e.g., completing buildings and administering social

services) than in improving market and policy conditions for economic

growth.

The Bank has undertaken a reform program that holds promise for

improving project effectiveness. For example, the Bank is taking steps to

reduce funding to countries that do not adopt growth-oriented market and

policy conditions and to increase funding to those countries that do.

Although institutional change is still ongoing, clear improvements in

project design and portfolio management are not yet evident. Continued

monitoring and reporting by Treasury on the progress of these reforms, as

GAO recommends, is important to help ensure that the reforms improve

performance.

Principal Findings

World Bank’s Impact on

Private Investment in

Developing Countries

While concerns have been raised that the Bank negatively distorts

international capital flows and developing country decision-making, the

available aggregate data does not permit an analysis of the distortion

directly attributable to Bank programs.2

 However, GAO obtained 65 private

sector firms’ views on whether Bank programs have displaced private

investment and whether the Bank’s efforts have enhanced the

environment for private investment in developing countries.

Nearly 90 percent of the private sector representatives we spoke with said

that Bank Group operations serve to enhance the environment for private

investment in developing countries by reducing the risks associated with

such investments. For example, MIGA’s political risk insurance program

helps promote the flow of foreign direct investment by insuring

2

Public funding can positively or negatively affect or distort the underlying variables of a given market

(e.g., prices and quantities demanded and supplied) when compared to a market that does not have

public funding.

Page 4 GAO/NSIAD-96-212 World Bank
Executive Summary

investments against political and other noncommercial risks. IFC loans to

private sector borrowers act as incentives for businesses to become

involved in new projects or markets. IBRD’s guarantee programs, thus far

limited in use, help address private sector concerns about the ability of

borrowers to repay their obligations. The Bank’s advisory services help

borrowing countries strengthen their regulatory and legal systems.

According to firms GAO interviewed, the World Bank has displaced private

sources of capital only in a few developing country markets where private

sector interest had become well established. These firms were concerned

primarily about IFC, which in certain cases displaced private sector firms in

particular projects. IFC is working to address these concerns by reducing

its presence in contested markets and has revised its guidelines to better

clarify the importance of not competing with private investment. Little or

no concern about displacement was raised regarding the Bank Group’s

other elements, which tend to operate in countries and sectors where

conditions are not conducive to private international investment. In fact,

despite the rapid rise in the flow of private funds to the developing

countries as a whole, less than 8 percent of foreign resources flowing into

countries that borrow from IDA comes from the private sector.

Development Effectiveness

of World Bank Projects

It is extremely difficult to measure the impact of Bank activities on

borrowing countries’ overall level of development. However, the Bank

collects data on IDA and IBRD projects’ effectiveness. These data show that

the projects have had significant difficulty in achieving their objectives.

About 36 percent of the most recently completed projects, evaluated by

the Bank in 1993 and 1994, have been judged unsatisfactory. Though Bank

projects are inherently risky and some unsatisfactory results are to be

expected, the Bank’s President agreed that this performance level needed

to be raised.

The Bank projects have had their greatest rate of success in building

physical infrastructure. The record of Bank projects in achieving goals in

other critical areas, such as improving market and policy conditions, has

been weaker: only about one-third of Bank projects with such objectives

have substantially achieved them.

The Bank and borrowing countries share responsibility for performance

problems. A major 1992 report on portfolio performance commissioned by

the Bank cited project design problems, unfavorable country conditions,

and a volatile international economic environment as major factors. A

Page 5 GAO/NSIAD-96-212 World Bank
Executive Summary

recent Bank study also indicates that greater use of economic and sectoral

analyses prior to lending funds might have led to better results in many

cases. According to Bank officials, projects have also become increasingly

demanding, complex, and risky, making it more difficult to achieve

development objectives.

Bank Reform Efforts The Bank has implemented a reform program aimed at improving its

portfolio performance. Many of these efforts are in their early stages, and

their final impact may not be seen for several years. However, some

indicators are available to evaluate the preliminary progress of these

reform efforts, and they show mixed results thus far.

A key component of the reform effort has been to systematically assess

country performance and direct lending to countries that have

demonstrated progress in project implementation and in market and

policy reform. Recent data on IDA lending show that an increased

proportion of loans has been directed to top-performing countries and that

allocations for poorer performers have been reduced.

Improvement of project design, or “quality at entry,” has been another

major focus of reform. Recent Bank studies show that some small

improvements have been made in the quality of new projects but that

significant project design problems remain. According to one study, nearly

40 percent of recently approved projects have been based on less than

acceptable economic analyses.

The Bank has also worked to improve project management by being more

proactive in identifying and attempting to resolve problems during project

implementation. Results in this area have been mixed. The Bank has been

successful at resolving long-standing problem projects and at more

realistically assessing problems. Overall, however, the percentage of

problem projects has not decreased since 1992. Furthermore,

implementation problems are often not detected early enough in the

project cycle, and the results of increased efforts to review and restructure

projects have been inconclusive.

Other reform efforts appear promising, though GAO could not measure the

extent of these reforms or their impact. They include greater emphasis on

policy and market reform objectives in projects, increased use of

nonlending services, and more focused Bank management attention to

reforms. The Bank’s greater emphasis on policy and market reforms, in

Page 6 GAO/NSIAD-96-212 World Bank
Executive Summary

particular, may increase the potential for Bank projects to positively

impact development in borrowing countries. However, since these

objectives are often difficult to achieve, increased emphasis in this area

may impede the Bank’s ability to raise the portion of its projects rated as

satisfactory.

U.S. Foreign Policy

Considerations

The United States has played a leading role in shaping the Bank’s agenda,

and Bank projects often support U.S. foreign policy goals. For example,

the Bank is providing resources to assist in the transition of central

Europe and the countries of the former Soviet Union from communist to

market-based systems. The Bank has also directed significant resources to

crisis areas where the United States has strong interests, such as Bosnia,

Haiti, and the West Bank and Gaza. Compromise is sometimes necessary

in the Bank as in any multilateral organization. For example, the United

States favored immediate graduation of China from eligibility for IDA

credits but agreed that new IDA lending to this country should end in 1999

after other members, particularly Japan, opposed the U.S. position.

However, insofar as the United States can ensure that Bank projects

support U.S. foreign policy goals, U.S. contributions are multiplied many

times over by those of other member countries.

Recommendation The benefits of U.S. participation in the Bank are limited by problems with

the effectiveness of Bank projects. Through its leadership, the United

States is positioned to ensure that the Bank reforms continue to progress

and have a positive impact on development effectiveness.

To ensure that the Bank reforms have the desired impact, GAO

recommends that the Secretary of the Treasury monitor and periodically

report to the Congress measurable indicators of progress, such as the

extent to which (1) the Bank allocates financing to those countries that

make Bank-advocated policy and market reforms, (2) projects

substantially achieve policy and market reform objectives, (3) project

design problems decrease, and (4) implementation problems are identified

and resolved early in the project cycle. If the indicators do not show

satisfactory progress, the Secretary should report on the actions being

taken by the Treasury to improve progress.

Agency Comments

and GAO’s Response

GAO received comments on a draft of this report from the Department of

the Treasury and, through it, the World Bank; the Department of State; and

Page 7 GAO/NSIAD-96-212 World Bank
Executive Summary

the Agency for International Development. These comments are reprinted

in appendixes III-VI.

Treasury agreed with many of the report’s basic findings and conclusions,

stating that they tracked well with its own views and with major positions

taken by successive U.S. administrations. In addition, Treasury supported

GAO’s recommendation that Treasury monitor and periodically report to

the Congress on Bank progress in improving project quality and

effectiveness. However, Treasury expressed concern that GAO’s analysis

did not fully reflect the impact of ongoing reforms on Bank operations.

The Bank disagreed with many of the report’s findings and criticized its

“exclusive reliance” on quantifiable indicators of project effectiveness. The

Bank contended that GAO’s failure to evaluate the entire scope of the

Bank’s operations, including policy dialogue and other activities

undertaken outside the framework of lending projects, prevented GAO from

presenting a balanced view of the Bank’s operations and effectiveness.

The Bank also commented that GAO did not give the Bank adequate credit

for the progress it has made in implementing reforms. In addition to these

overall comments, Treasury and the Bank offered clarifications, technical

corrections, and updated information, which GAO incorporated throughout

the report as appropriate.

The State Department and the U.S. Agency for International Development

highlighted the important role that the World Bank plays in development

as well as in the furthering of U.S. foreign policy interests. The State

Department also commented that the report did not fully acknowledge the

Bank’s role in promoting market-oriented reform in developing countries.

GAO agrees with the Bank that the effectiveness of projects financed by IDA

and IBRD is only a partial measure of the overall impact of the Bank’s

efforts. We report performance data for these projects in detail because

they capture the effectiveness of a large portion of the Bank’s activities;

indeed, IDA and IBRD lending represented 86 percent of the Bank’s outlays

in fiscal year 1995. Similar data is not available to capture the overall

effectiveness of the Bank’s other activities, and GAO did not consider

anecdotal information to be a satisfactory substitute.

In reaching its overall conclusions, however, GAO acknowledges the

breadth of the Bank’s operations, as well as its shortfalls in performance.

The report states that the Bank is a focal point for official efforts aimed at

facilitating economic development; that in addition to functioning as a

Page 8 GAO/NSIAD-96-212 World Bank
Executive Summary

source of investment capital it provides a broad range of nonlending

services, such as advice on legal, regulatory, and policy reform; and that

the Bank is a key player in the transition to market economies.

GAO believes that the Bank’s reform agenda addresses key performance

problems and holds promise for improving project effectiveness. However,

progress in some areas has yet to be demonstrated, and it is too soon to

assess actual results. GAO believes this report provides a good baseline for

the Congress and the executive branch to use in evaluating the Bank’s

implementation of its reform program. Continued monitoring and

reporting by Treasury of the progress of these reforms, as GAO

recommends, is important to help ensure that the reforms improve

performance.

Page 9 GAO/NSIAD-96-212 World Bank
Contents

Executive Summary 2

Chapter 1 

Introduction

14

The United States Has Exercised Substantial Influence Over Bank

Operations

17

Post-Cold War Evaluation of U.S. Foreign Operations Includes

Challenges to Continued Support for the Bank

18

Objectives, Scope, and Methodology 21

Chapter 2 

World Bank’s Impact

on Private Foreign

Investment in

Developing Countries

25

Rapid Growth in Private Capital Investment Raises Questions

About the Relevance of the Bank

25

Concern About Displacement Is Confined to a Limited Number of

IFC Markets

30

World Bank Programs Aim to Enhance Private Capital Flows 33

Chapter 3 

Development

Effectiveness of

World Bank Projects

38

Measuring Development Effectiveness 38

Causes of Weak Performance 46

Chapter 4 

World Bank Reform

Efforts

49

Portfolio Management Problems Being Addressed 49

Linking Lending Levels to Country Performance 49

Quality of Project Design 52

Project Management Reforms 54

Greater Emphasis on Market and Policy Conditions and

Nonlending Services

57

New Direction’s Impact Uncertain 58

Chapter 5 

U.S. Foreign Policy

Considerations

60

Changes in Bank Orientation Reflect U.S. Views 60

Bank Supports U.S. Foreign Policy Objectives 60

U.S. Contributions to Bank Are Highly Leveraged 61

Compromise Necessary in Multilateral Environment 62

Page 10 GAO/NSIAD-96-212 World Bank
Contents

Chapter 6 

Conclusions,

Recommendation, and

Agency Comments

63

Recommendation 64

Agency Comments 64

Appendixes Appendix I: International Bank for Reconstruction and

Development and International Development Association Project

Cycle

70

Appendix II: Private Sector Firms Interviewed 74

Appendix III: Comments From the Department of the Treasury 76

Appendix IV: Comments From the World Bank 82

Appendix V: Comments From the Department of State 89

Appendix VI: Comments From the U.S. Agency for International

Development

91

Appendix VII: Major Contributors to This Report 93

Tables Table 1.1: Assistance Provided by Bank Group Institutions in

Fiscal Year 1995

16

Table 1.2: U.S. Appropriations to Support Bank Group

Institutions

17

Table 1.3: Voting Share in Bank Group Institutions as Percentage

of Total Votes

18

Table 1.4: Percentage of Bank and Private Sector Resources

Directed to Each Country We Visited

23

Table 3.1: Satisfactory Project Outcomes by Region and Loan

Type

41

Table 3.2: Satisfactory Project Outcomes by Sector and Loan

Type

42

Table 3.3: Major Factors Negatively Influencing Project

Outcomes

47

Table 4.1: IDA Commitments and Country Performance 52

Table 4.2: Quality at Entry Problems in New Project Proposals 53

Table 4.3: Extent of Problem Projects in World Bank Portfolio 55

Figures Figure 1.1: World Bank Group Institutions 15

Figure 1.2: Projects With Satisfactory Outcomes by Year of

Evaluation

20

Figure 2.1: Comparison of Bank and Private Sector Net Resource

Flows to Developing Countries

26

Page 11 GAO/NSIAD-96-212 World Bank
Contents

Figure 2.2: Composition of Net Foreign Resource Flows to All

Developing Countries

27

Figure 2.3: Composition of Net Foreign Resource Flows to

IDA-Only Countries

28

Figure 3.1: Outcomes of Projects Evaluated in 1993-94 40

Figure 3.2: Evaluation Results by Project Objective 43

Figure 3.3: Objectives Included in Projects 45

Abbreviations

CAS Country Assistance Strategy

CODE Committee on Development Effectiveness

FIAS World Bank Foreign Investment Advisory Service

GAO General Accounting Office

IBRD International Bank for Reconstruction and Development

IDA International Development Association

IFC International Finance Corporation

IMF International Monetary Fund

MIGA Multilateral Investment and Guarantee Agency

OED Operations Evaluation Department

OPIC Overseas Private Investment Corporation

USAID U.S. Agency for International Development

Page 12 GAO/NSIAD-96-212 World Bank
Page 13 GAO/NSIAD-96-212 World Bank
Chapter 1 

Introduction

During the closing days of World War II, the United States and its allies

created the original “World Bank”—the International Bank for

Reconstruction and Development (IBRD)—as well as the International

Monetary Fund and the General Agreement on Tariffs and Trade—to

provide the underpinnings for a new international economic order.1

 The

economic and political leaders of the time developed these multilateral

mechanisms to prevent a return to the destructive trade and investment

isolationism of the 1930s. Among other concerns, these leaders feared that

private capital markets would not provide the investment capital needed

to stimulate growth, raise living standards, and promote political stability

in war-torn and underdeveloped countries. Creation of a new public sector

institution was deemed necessary to supplement private lending and

investment in these countries. By guaranteeing the financial integrity of

the institution, the member countries would enable it to borrow private

capital on the open market to lend to needy countries at reasonable rates.

To expand the potential impact of IBRD, the member countries

subsequently created three affiliated institutions: the International Finance

Corporation (IFC) and the Multilateral Investment Guarantee Agency

(MIGA),2

 created specifically to encourage private investment in developing

countries, and the International Development Association (IDA), which

lends to the poorest countries in the world at concessional rates.

Operationally, IBRD and IDA are one organization. Similar procedures are

followed by the Bank’s core staff to generate, administer, and evaluate

IBRD and IDA loans. IFC and MIGA have independent staffs and procedures.3

Collectively, these four institutions are known as the World Bank Group.4

Figure 1.1 and table 1.1 provide additional information on each institution.

1

In 1994 the members of the General Agreement on Tariffs and Trade replaced that agreement’s

organizational structure with the new World Trade Organization.

2

Membership in other Bank Group institutions is open to IBRD members. As of June 1995, IBRD had

178 member countries, while IDA had 158 members, IFC 165, and MIGA 128.

3

IDA pays IBRD a fee for its share of common administrative expenses. Similarly, IFC and MIGA pay

IBRD for administrative services that IBRD provides to them.

4

The Bank Group also includes the International Center for the Settlement of Investment Disputes.

This organization was not included within the scope of our review because its quasijudicial functions

are fundamentally different from those of the other four institutions.

Page 14 GAO/NSIAD-96-212 World Bank
Chapter 1 

Introduction

Figure 1.1: World Bank Group Institutions

IBRD (established in 1945) makes loans to member governments and provides associated nonlending 

services such as policy advice, economic analysis, and training.a IBRD derives a small percentage of its 

capital needs from member country contributions but obtains most of its capital through borrowing on 

international financial markets and reflows from old loans. IBRD lending rates are market based; interest 

charged covers the cost of borrowing and provides a small profit margin. Reflows are used to cover 

operating expenses and for other purposes, including support for subsequent lending. In principle, IBRD 

lends to governments of countries with moderate levels of Gross National Product (GNP) per capita.b

IDA (established in 1960) makes loans using the same technical and operational standards as IBRD and 	

provides associated nonlending services. However, IDA obtains capital primarily through member country 


contributions, supplemented by income transfers from IBRD and repayments of prior loans. IDA credits 

are considered to have an 80-percent grant element because (1) they are interest free, with borrowing 

governments required to pay only a small service charge, and (2) repayment is spread out over 35 or 40 

years and begins after a 10-year grace period. In principle, IDA lends only in countries with low levels of 

GNP per capita. Countries are deemed eligible for IDA credits (as opposed to IBRD lending) on the basis 

of relative poverty and lack of access to credit. The poverty-level transition point for moving from IDA 

credits to IBRD loans was set at a 1994 GNP per capita level of $865 for fiscal year 1996. A small number 

of "blend" countries with incomes below this level, including China and India, are deemed eligible to 

receive funds from both institutions. While relatively creditworthy, these countries have large numbers of 

very poor citizens.


MIGA (established in 1988) promotes private direct investment in developing countries by providing 

insurance against political and other noncommercial risks as well as advisory and consultative services that 

facilitate investment growth. Though originally capitalized through member country contributions, MIGA now 

uses premiums on its outstanding portfolio as its primary source of income. Premiums are based on the risk 

associated with each project. MIGA operates in developing countries at various income levels.


IFC (established in 1956) makes loans to and takes equity positions in private companies and financial 


institutions in developing countries without government guarantees and provides associated nonlending 

services. IFC has its own capital base from member country contributions. However, it now obtains most 

of its working capital through borrowing on the open market and from retained earnings. IFC terms are 

market based, and the corporation makes a profit, which helps support operations. IFC invests in 

developing countries at various income levels.


aIBRD and IDA can also lend to private or public bodies whose national governments guarantee

repayment.

bAs of June 1995, eligible countries ranged from Argentina (1994 income per capita of over

$8,000) to Indonesia (1994 income per capita of under $800).

Page 15 GAO/NSIAD-96-212 World Bank
Chapter 1 

Introduction

Table 1.1: Assistance Provided by

Bank Group Institutions in Fiscal Year

1995

U.S. dollars in billions

Type of assistance

Value of

assistance

IBRD disbursements $12.67

IDA disbursements 5.70

IFC loans and equity investments (disbursements) 1.81

MIGA guaranteesa 0.67

Other nonlending servicesb 0.54

Note: Contributions made to projects by other donor agencies, borrowing country governments,

and the private sector are not included.

aTotal amount of coverage issued.

bIncludes economic and sector work, research, policy work, trust funds, and development

training.

Source: Analysis of World Bank data.

The Bank is the world’s single largest official source of investment capital

for developing countries. While data published by the Organization for

Economic Cooperation and Development show that other donors

frequently provide more resources in individual countries, the Bank is

generally acknowledged as a focal point in the world community’s official

efforts to facilitate economic growth and development in poor countries.

As explained in figure 1.1, three of the four Bank Group institutions do not

rely primarily on annual donor contributions for support. The one

exception is IDA, which has absorbed about 88 percent of the

approximately $8 billion appropriated by the Congress for the Bank Group

in fiscal years 1990-96. Table 1.2 provides detailed information on annual

appropriations for Bank Group institutions during the 1990s.5

5

These figures do not include U.S. support for IBRD in the form of “callable capital”—a contingent

liability created to back Bank borrowings on world financial markets. As of June 30, 1995, the total

callable capital committed to support IBRD market operations amounts to over $165 billion, with the

U.S. share amounting to about $29 billion. The Bank may only call upon these member country

guarantees in the event that it encounters such severe financial difficulty that it is unable to pay its

own creditors. This has not occurred.

Page 16 GAO/NSIAD-96-212 World Bank
Chapter 1 

Introduction

Table 1.2: U.S. Appropriations to Support Bank Group Institutions

Fiscal year

U.S. dollars in millions

Bank Group institutions 1990 1991 1992 1993 1994 1995 1996

IDA $961 $1,032 $1,044 $1,024 $1,024 $1,175 $700

IBRD 50 111 69 62 28 23 28

IFC 75 40 40 36 36 69 61

MIGA 0 0 0 0 0 0 0

GEFa 0 0 0 30 30 90 35

Total $1,086 $1,183 $1,153 $1,152 $1,152 $1,357 $824

aThe GEF (Global Environment Facility) is not a Bank Group institution. It is a financial mechanism,

implemented by the Bank in partnership with the United Nations Development and Environment

Programs, that provides grant and concessional funds for projects intended to protect the global

environment. U.S. contributions to GEF are included in annual appropriations for the international

financial institutions.

The United States Has

Exercised Substantial

Influence Over Bank

Operations

As the largest provider of financial support to the Bank and a recognized

leader in the international community, the United States has exercised

leadership within the Bank Group since its creation. The United States

proposed the basic design of IBRD and provided much of the impetus for

the subsequent creation of IDA. Much of these institutions’ management

and staff comprise Americans or foreign nationals educated in U.S.

universities, and the Bank President has traditionally been a U.S. citizen.6

Support for the Bank has been the subject of periodic controversy in the

United States, and the Congress has enacted a number of measures

directing the U.S. Executive Director to vote against certain categories of

loans (e.g., for countries that have expropriated U.S. property without

compensation).7

 Nonetheless, the Bank continued to receive support from

the executive branch and the Congress through the Cold War era. The

need to continue U.S. participation was challenged during the early 1980s.

Even then, however, a comprehensive executive branch review of the

World Bank and the regional development banks concluded that these

banks continued to serve U.S. foreign policy interests and that the United

6

U.S. nationals made up more than one-quarter of the Bank Group’s staff as of September 1994.

7

The Board of Executive Directors considers and decides on specific project proposals presented by

the President of the Bank and also decides policy issues that guide the Bank’s general operations.

Though appointed by the President of the United States with the advice and consent of the Senate, the

U.S. Executive Director is an official of the World Bank.

Page 17 GAO/NSIAD-96-212 World Bank
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Introduction

States should, with some qualifications, continue to support them.8 (App. I

explains how Bank projects are developed and approved.)

In the years immediately following World War II, the U.S. government and

financial markets were the primary sources of capital for the Bank. The

U.S. contribution to support the Bank has declined substantially over the

years as other member countries have increased their contributions and

the Bank’s financial dealings have diversified. For example, the U.S. share

of donor contributions to IDA declined from about 42 percent when the

association was formed to about 21 percent during the first half of the

1990s. Nonetheless, as of June 30, 1995, the United States still held the

greatest share of the votes in each Bank Group institution’s Board of

Executive Directors. This preserves the U.S. leadership position and

allows the United States to keep the Bank’s headquarters in Washington,

D.C. The United States retains sufficient votes to veto changes in IBRD’s

basic articles of agreement. Table 1.3 lists the percentage of voting share

the United States has in each Bank Group institution, along with the

relative voting share of the four other largest donors.

Table 1.3: Voting Share in Bank Group

Institutions as Percentage of Total

Votes (as of June 1995) 

Donor IBRD IDA IFC MIGA

United States 16.98 15.34 21.96 17.39

Japan 6.24 10.51 7.38 4.43

Germany 4.82 6.90 5.57 4.41

France 4.62 4.13 5.23 4.23

United Kingdom 4.62 5.08 5.23 4.23

Post-Cold War

Evaluation of U.S.

Foreign Operations

Includes Challenges

to Continued Support

for the Bank

U.S. policymakers have supported participation in the World Bank as a

means for advancing U.S. humanitarian, economic, and security interests

through alleviating poverty and encouraging economic growth and

political stability in developing countries. However, much of the impetus

behind U.S. participation in the Bank during the Cold War era was derived

from the perceived utility of the Bank in containing communist

expansionism in the developing world. One Bank official commented, for

example, that because of U.S. concern about communist insurgency in the

area, the Bank remained active in several sub-Saharan African countries

long after the corrupt nature of these countries’ governments became

evident.

8

United States Participation in the Multilateral Development Banks in the 1980s, Department of the

Treasury, Washington D.C. (Feb. 1982).

Page 18 GAO/NSIAD-96-212 World Bank
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Introduction

The fall of the Berlin Wall in 1989 and the subsequent collapse of the

Soviet bloc have dramatically altered the international status quo. In the

post-Cold War environment, the need to actively oppose communist

expansionism no longer serves as an underlying rationale for U.S. foreign

policy activities. Virtually all traditional U.S. foreign policy assumptions

and instrumentalities, including support for the Bank, have come under

increased scrutiny. Mounting government budget deficits in the United

States (and other donor countries) have lent added urgency to scrutiny

regarding the effectiveness of foreign operations spending.

A variety of critics have opposed the continuation of traditional levels of

U.S. support for the Bank, stressing that the Bank is not an effective agent

for economic development. The critics argue that, good intentions aside,

the Bank has not effectively facilitated real economic growth in the

developing world or made progress toward reducing poverty. They point

out, for example, that the number of impoverished persons in the world

continues to rise despite the efforts of the Bank and other multilateral and

bilateral assistance agencies. Some of the harshest criticism of Bank

intervention has been leveled at the Bank’s activities in sub-Saharan

Africa, where the gross domestic product per capita continues to decline.

Some critics argue that the availability of Bank financing permits

developing countries to avoid tough choices that, if made, would lead to a

better investment climate and, hence, increased private investment. Some

critics point out that the Bank’s own data show significant shortfalls in the

ability of IBRD and IDA to achieve their objectives. In fact, as shown in

figure 1.2, the Bank’s evaluation results showed a significant decline

during the 1980s in the portion of IBRD/IDA projects achieving satisfactory

results.

Page 19 GAO/NSIAD-96-212 World Bank
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Introduction

Figure 1.2: Projects With Satisfactory

Outcomes by Year of Evaluation

(1974-94)

1974 1979 1984 1989 1994

0

20

40

60

80

100

Percentage of satisfactory projects

Note: For a project to be rated satisfactory, its goals must be consistent with the Bank’s country

and sectoral assistance strategies and it must have achieved, or be expected to achieve, most of

its major goals in a timely and cost-efficient manner.

Source: World Bank, Operations Evaluation Department (OED).

Concern about the performance of the Bank’s portfolio led the President

of the Bank to establish a Portfolio Management Task Force in

February 1992. The Task Force’s report concluded that the Bank needed

to adopt a comprehensive plan of action to remedy problems with project

design, management, and implementation. It emphasized that a

contributing factor was the Bank staff’s preoccupation with getting loan

funds committed rather than with effectively managing existing projects.

In June 1993 the Bank adopted a plan of action to remedy the problems

Page 20 GAO/NSIAD-96-212 World Bank
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Introduction

identified by the Task Force. We reported on two occasions on the Bank’s

progress toward implementing these reforms.9

Objectives, Scope,

and Methodology

Our review of the World Bank was requested by the Chairmen of the

House Committees on the Budget and on Banking and Financial Services.

On the basis of our preliminary examination of the issues, the results of an

expert panel on the Bank that we convened in September 1995, and

discussion with the staffs of the requesters’ committees, we focused our

review on

• the Bank’s role in enhancing the flow of international private investment

capital into developing countries,

• the extent to which Bank projects achieve their development objectives,

• the Bank’s progress in reforming its operations to improve effectiveness,

and

• the extent to which Bank activities are aligned with U.S. foreign policy

goals.

To obtain official U.S. views on these issues, we met with representatives

of the Department of the Treasury, which has the lead role within the

executive branch regarding U.S. policy toward the Bank,10 and with

officials from the Department of State and the U.S. Agency for

International Development. We also obtained the views of academic

experts and representatives of nongovernmental organizations on relevant

topics.

As an agency of the United States, we have no direct authority to review

the operations of multilateral institutions such as the World Bank.

However, we obtained broad access to Bank officials (including the

President) and information through the staff of the U.S. member of the

Bank’s Board of Executive Directors. We also met with a number of other

Executive Directors to broaden our understanding of member country

views on Bank operations. We met with appropriate Bank officials,

including representatives of IBRD, IDA, IFC, and MIGA, with a concentration

9

Multilateral Development: Status of World Bank Reforms (GAO/NSIAD-94-190BR, June 6, 1994) and

Multilateral Development: World Bank Reforms on Schedule but Difficult Work Remains

(GAO/NSIAD-95-131BR, Apr. 5, 1995). Our 1994 report includes a complete list of the actions in the

Bank’s reform plan.

10By executive order, the President has delegated to the Secretary of the Treasury, in consultation with

the National Advisory Council on International Monetary and Financial Policies, his authority under

law to instruct the U.S. representatives at the international financial institutions. In practice, Treasury

takes the lead in working with the staff of the U.S. Executive Director’s office on developing and

implementing U.S. policy toward the Bank.

Page 21 GAO/NSIAD-96-212 World Bank
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Introduction

on those offices that are particularly concerned with private sector

development, such as the Vice-Presidency for Finance and Private Sector

Development, the International Economics Department, and the Foreign

Investment Advisory Service.

To assist us in assessing the Bank’s role in providing international

financial flows to developing countries, we examined data on the

composition of these flows compiled by the Bank, the International

Monetary Fund (IMF), and the Organization for Economic Cooperation and

Development. To better understand the relationship between Bank

operations and private sector flows, we interviewed 65 representatives of

major commercial banks, investment houses, multinational corporations,

and investment rating services that do business in developing countries

and are familiar with the Bank’s operations in these countries. These firms

are listed in appendix II. To ensure that we obtained a broad perspective

in this area, we interviewed representatives of such firms in four of the

world’s most important international financial centers—New York,

London, Tokyo, and Hong Kong—and in Washington, D.C., Los Angeles,

and San Francisco; and national financial centers in the developing

countries that we visited. We particularly sought these companies’ views

on the Bank’s role, if any, in encouraging or discouraging the flow of

foreign investment capital into developing countries.

To better understand the nature and impact of Bank interventions in

developing countries and the impact of the Bank’s recent reforms, we

examined Bank operations in five countries: China, India, Kenya,

Tanzania, and Armenia. While China, India, and Armenia are also eligible

to borrow from IBRD (and are, therefore, known within the Bank as blend

countries), all five of these countries are eligible for IDA assistance. We

concentrated on IDA recipients because IDA absorbs most of the funds

provided to the Bank Group by the United States and is the object of most

of the discussion of reducing U.S. support to the Bank.

We selected Kenya and Tanzania because some of the sharpest criticism

has been directed at the Bank’s operations in sub-Saharan Africa. We

selected Armenia, formerly a part of the Soviet Union, to provide us with a

better understanding of the utility of the Bank in facilitating a peaceful

transition toward democracy and open markets among former Eastern

bloc countries. We included the two largest blend countries for a number

of reasons. China and India absorb a large portion of the Bank’s annual

lending. As of mid-1995, the two countries combined had received more

than one-third of the IDA credits ever granted and about 16 percent of all

Page 22 GAO/NSIAD-96-212 World Bank
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Introduction

IBRD loans. The two countries continue to absorb a significant share of

IDA’s concessional credits (over a billion and a half dollars in new

commitments in fiscal year 1995) despite their recent success in attracting

international private investment. Some critics have proposed that these

countries, particularly China, be graduated from eligibility for IDA credits

because of their increased access to international capital markets. Data on

the portion of IDA, IBRD, and IFC resources directed to the countries we

visited, as well as the portion of current foreign private investment in

developing countries going to these countries, are displayed in table 1.4.

Table 1.4: Percentage of Bank and

Private Sector Resources Directed to

Each Country We Visited (weighted

averages for 1993-94) Country

IDA gross

disbursements

IBRD gross

disbursements

IFC loan/equity

disbursements

(average for

1990-95)

Net foreign

private sector

investment

China 14.2 9.7 0.8 29.6

India 15.0 8.1 13.3 3.1

Kenya 3.0 0 0.3 –0.1

Tanzania 3.0 0 0.1 0

Armenia 0 0 0 0

Total 35.2 17.8 14.4 32.7

Note: Zeros indicate less than 0.05 percent. Totals entries may not add due to rounding.

Within the countries we visited, we discussed Bank operations with Bank

field staff, U.S. embassy officials, officials of relevant national and local

government bodies (e.g., ministries of finance and agencies using Bank

funds in their operations), local representatives of the foreign assistance

agencies of other major donor countries, concerned nongovernmental

organizations, and the local business community. In each country, we

visited several sites where Bank-funded operations were underway and

spoke with project administrators and intended beneficiaries.

To assess the development effectiveness of IDA and IBRD projects, we

analyzed numerous studies and annual reports from the Operations Policy

Department, which monitors the performance of ongoing projects, and the

Operations Evaluation Department, which evaluates completed projects.

In several cases we requested additional data from the Operations

Evaluation Department’s database on evaluation results. The Bank

declined to provide us with much of the data we requested, citing its

disclosure policy and concerns about confidentiality. The lack of detailed

Page 23 GAO/NSIAD-96-212 World Bank
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Introduction

data significantly limited the extent of our analysis. We interviewed

several OED evaluators and reviewed their reports to become familiar with

their methodology and ensure that evaluations are conducted with an

appropriate degree of independence and subject area expertise.

To evaluate the Bank’s reform efforts, we again obtained relevant studies

from the Operations Policy and OEDs. The former is responsible for

overseeing implementation of the reforms, while the latter has evaluated

many of those efforts and their results. We also reviewed the report of a

working group convened to study the Bank’s nonlending services. We

discussed many of these studies with representatives of the Operations

Policy and OEDs to ensure that our interpretation of the results was

appropriate.

We performed our review from October 1995 to June 1996 in accordance

with generally accepted government auditing standards.

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World Bank’s Impact on Private Foreign

Investment in Developing Countries

The recent expansion of private foreign investment in developing

countries has renewed interest in the relevance of the Bank to economic

development and in the relationship between the Bank and private capital

flows. Critics have asserted that Bank involvement in markets inhibits

private investment. However, supporters of the Bank claim that its efforts

are enhancing the environment for private sector investment. Private

sector firms we interviewed said that, with the exception of a limited

number of markets that have substantial private sector activity, the Bank

did not appear to displace the flow of private capital. In fact, these firms

cited the Bank’s guarantee programs and efforts to promote legal and

regulatory reform as important elements in attracting private sector

investment.

Rapid Growth in

Private Capital

Investment Raises

Questions About the

Relevance of the Bank

Since 1991, net resource flows from the private sector to developing

countries have grown rapidly and have substantially exceeded the amount

provided by the IBRD, IDA, and IFC (see fig. 2.1).1

1

The financial data presented in this report were obtained from the World Bank, are based upon net

foreign resource flows, and include World Bank-eligible borrowers only. “Net foreign resource flows”

are the sum of net financial flows on long-term debt, including IMF loans, plus net foreign direct

investment, portfolio equity flows, official grants, and technical cooperation grants. As of June 30,

1995, the World Bank listed 140 countries as eligible for IBRD loans and/or IDA credits. Of these, 63

low-income countries were eligible only for IDA credits. Sixty-two middle-income countries (1994 per

capita gross national product between $790 and $8,060) were eligible only for IBRD near-market rate

loans. Fifteen countries are eligible for a blend of IBRD and IDA funds with the four highest income

countries being small island economies. These data exclude countries such as South Korea, Portugal,

and Singapore, which have already graduated from eligibility for World Bank financing. While these

countries may continue to receive disbursements from the Bank Group, they are no longer eligible for

new financing.

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Figure 2.1: Comparison of Bank and

Private Sector Net Resource Flows to

Developing Countries (fiscal years

1975-94) 

1975 1978 1981 1984 1987 1990 1993

0

20

40

60

80

100

120

140

160

1994 dollars in billions

Private sector Bank Group

Source: Compiled from 1996 World Bank Debt Tables.

Net resource flows from the private sector accounted for nearly

three-quarters of the $194 billion invested in developing countries in 1994

(see fig. 2.2).

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Figure 2.2: Composition of Net Foreign

Resource Flows to All Developing

Countries (fiscal year 1994) $194 billion

Bilateral

Private sector

Other multilaterals

IMF

World Bank

16.8%

72.5%

6.5%

0.8%

3.3%

Note: World Bank category includes IBRD, IDA, and IFC.

Source: Compiled from 1996 World Bank Debt Tables.

The U.S. government has long promoted the idea that the private sector

should have an important role in development. The recent growth in

private capital is clearly consistent with that goal. As private sector flows

have dramatically increased, the share of net resource flows attributed to

the Bank has rapidly fallen and only accounted for about 3.3 percent in

1994, down from about 6.8 percent in 1991.

This rapid fall in the Bank’s share of net resource flows has raised some

concern about the Bank’s continued importance in development.

However, this recent rise in private capital flows has not been experienced

by lower income developing countries. As shown in figure 2.3 private

capital represented less than 8 percent of total net resources flowing to

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IDA-only countries in 1994. The private sector’s share is lower than the

World Bank’s share and much lower than the share from bilateral donors.

Figure 2.3: Composition of Net Foreign

Resource Flows to IDA-Only Countries

(fiscal year 1994) $26 billion

World Bank

Bilateral

Private sector

Other multilaterals

IMF

11.8%

55.3%

7.6%

22.8%

2.4%

Note: World Bank category includes IBRD, IDA, and IFC.

Source: Compiled from 1996 World Bank Debt Tables.

Somewhat paradoxically, concerns have also arisen as to whether the

Bank’s involvement in developing countries inhibits the flow of private

capital to those countries. This issue and concerns regarding the

continued importance of the Bank are subsets of a larger discussion on the

“distortionary” impact of Bank programs and policies.

Market Distortion Is

Difficult to Measure

The World Bank states that it acts as a catalyst for private sector

investment by covering risks that the market is not willing to bear, thus

reducing overall financing costs and aiding development. Bank officials

also point out that, at least in recent years, the Bank has worked with

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governments to create better investment climates that will encourage the

growth of markets in general and private foreign investment in particular.

Critics counter that these public finance services, provided at subsidized

rates, displace companies that are subject to market rates, distort market

signals, and inhibit business development. Also, the presence of lower cost

public money may enable recipient governments to delay necessary

market reforms, further inhibiting the growth of the private sector.

Public funding affects or distorts the underlying variables of a given

market (e.g., prices and quantities demanded and supplied) when

compared to a market that does not have public funding. This distortion

can have either positive or negative consequences depending on the goals

and effectiveness of the intended public policy, the initial conditions of a

given market, the occurrence of any unintended consequences, and the

impact of unforeseen external events, such as the subsequent collapse of

commodity prices or the worsening of civil discord. This basic principle

applies to the programs supported by the World Bank. However,

measuring the impact of public funding can be quite speculative. Since

public financing is available to developing countries from a wide variety of

sources, both domestic and foreign (multilateral and bilateral), it is

extremely difficult to establish the conditions that would have existed in

the absence of public funding or to assess the amount of distortion

directly attributable to the World Bank. The available aggregate data do

not permit such an analysis, and thus we cannot establish a causal link

between the Bank’s efforts and the success or failure of a particular

country’s development effort.

In lieu of such analysis, we obtained 65 private sector firms’ views

regarding their experiences with the World Bank and with private

investment in developing countries.2

 Specifically, we asked these firms

whether Bank policies and programs interfered with or displaced their

investment in developing countries. We also explored the views of these

private firms on the effectiveness of Bank efforts to enhance the

environment for private sector investment.

2

See appendix II for a list of the 65 firms we visited. The firms came from a total of 47 companies in 12

different locations across 8 different countries. The reason that the number of firms exceeds the

number of companies is that we spoke with representatives of 10 of these companies in 2 or more

locations. The responses of these duplicate companies often varied across location, due to differing

experience in investment and with the World Bank. Of our total of 65 firms, 58 were directly engaged

in private investment, while 7 worked to support it. In our analyses on the frequency of displacement

and enhancement, we used only the data from the 58 firms engaged in investment.

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Concern About

Displacement Is

Confined to a Limited

Number of IFC

Markets

According to the firms we interviewed, the World Bank inhibited efforts to

invest in a limited number of developing country markets. Their concern

has been mostly with the activities of IFC, which is taking steps to address

this issue. Few concerns were raised regarding the other Bank Group

institutions, which tend to operate in countries where conditions are not

yet favorable to international investment or in sectors of little interest to

the private sector.

IFC Displacement

Identified as a Problem by

Some Firms

More than one-quarter of the private sector officials we spoke with cited

instances in which IFC’s presence conflicted with their participation in a

given project. These instances occurred in commercially viable sectors,

including pulp and paper, oil and gas, power generation, and

telecommunications, where private firms were increasing their level of

participation. Some private sector officials commented that IFC regularly

takes equity positions in projects they are considering investing in. Such

involvement acts as a disincentive for their firms’ participation because

they either prefer not to share equity or perceive that IFC exerts more

influence than merited by its financial position in the project.

We were also told that IFC’s nonlending services (e.g., advisory services)

have displaced commercial and investment banks that wanted to provide

these services for development projects. A former U.S. Executive Director

told us that during his tenure, he heard complaints from private sector

officials that IFC competed with private companies in contracting for

advisory services. Some business officials told us that IFC encourages

borrowing entities to use IFC nonlending services or to have IFC review

previously completed services, even when private partners do not see the

need. Several commercial bank officials in Hong Kong and Japan also

noted that IFC displaces the private sector by arranging financing, a service

they would like to provide.

Private sector officials provided several examples in which IFC

displacement occurred in specific markets. One commercial bank official

described a situation in which IFC displaced a small investment firm where

he was formerly employed. The firm, which helped create local capital

markets, had an opportunity to invest in a single-family housing project in

a suburb of Jakarta, Indonesia. His firm was asked by local businessmen to

participate as an equity holder and provide a medium-term loan for the

project. Subsequently, IFC became involved in the project, offered a lower

interest rate for the same services, and edged out the small firm.3

 The

3

This commercial bank official also told us that the project was subsequently terminated, but he was

not aware of the reason for termination.

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commercial bank official said that he doubted that IFC should have been

involved in the project because it already had sufficient commercial

interest. In another instance, a commercial bank official told us that his

bank wanted to arrange financing for a telecommunications project in

Indonesia but lost out to the IFC. He said that the project’s sponsors

selected IFC to arrange financing for the project without going through a

bidding process. He believed that the IFC typically obtained information

about projects earlier than commercial banks, allowing it to outpace

commercial banks that want to arrange financing.

Problems with IFC stem, to some extent, from its somewhat contradictory

mandate. According to a Managing Director of the Bank, IFC is supposed to

achieve two goals: make profits and have a developmental impact (that is,

catalyze investment where the private sector would otherwise be unwilling

to go). He told us that Bank management had received complaints from

World Bank board members that IFC is excessively oriented toward

earning profits. IFC’s Executive Vice President emphasized that IFC does

not seek to maximize profit but instead to achieve an acceptable rate of

return on its investments. He acknowledged, however, that IFC at times

may choose projects where the occurrence of competition was a judgment

call. Nonetheless, he explained that IFC is now committed to addressing

not only the possibility but also the perception that it is competing with

the private sector.

IFC Working to Minimize

Future Displacement

Citing increased activity and overlap with the international private sector,

IFC reviewed its operating practices and guidelines in November 1995 to

clarify the importance of not competing with private investors. This review

of selected policies and practices stressed collaboration with the private

sector to underscore the supplemental value of IFC’s basic services: project

finance, stand-alone advisory services, and securities underwriting and

placement. The review emphasized three guiding principles for IFC’s

mandate:

• to participate in projects that otherwise would not be possible at all or

would not be completed in a timely fashion;

• to stimulate the flow of private capital, both domestic and foreign, to

productive enterprises; and

• to bring the discipline of the market (i.e., profitability) to bear upon the

investments in which it participates.

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IFC’s Executive Vice President told us that a contact point within the

institution had been established to receive complaints from the private

sector regarding its experience with IFC. He also said that IFC is working to

reduce its participation in markets where private sector interest is well

established, such as Thailand. He said that IFC has generally withdrawn

from competitive bidding against the private sector for contracts to

provide advisory services to recipient governments.

U.S. and foreign private sector officials suggested to us that IFC should

provide financial services in more risky markets and sectors, such as

constructing road systems, or to facilitate projects that would have

difficulty gaining access to foreign exchange. The Executive Vice

President of IFC explained that both the IFC Board and the market are

primary factors in directing where IFC financing goes. For example, he said

that prior to the Mexican peso crisis, the IFC portfolio in that country was

declining; however, after the crisis, due to the shortage of private sources

of long-term financing, the Board decided IFC financing in Mexico should

increase. He also said that both aggregate economic data and IFC’s own

experience can determine whether continuing IFC assistance is required in

particular markets. He pointed to the Czech Republic as an example of a

country where IFC financing was needed over 3 years ago; however, IFC’s

role has since been reduced, and it is currently participating only in special

privatization projects.

Displacement Not an Issue

for IDA, IBRD, and MIGA

Private investors we spoke with expressed little interest in investing in

IDA-eligible countries, and none of them said that IDA loans displaced their

investments. Figure 2.3 showed that very little private capital is going to

IDA-only countries. Private firms also indicated to us that the activities of

the IBRD tend to be in sectors and markets in which the international

financial sector has very little interest. IBRD also lends to the governments

of developing countries, further limiting the potential interest of the

private sector. However, three of the private sector firms we spoke with

noted that IBRD potentially displaces private institutions by lending at low

rates for projects that may have been commercially funded instead.

MIGA’s political risk insurance services do not displace private sector

insurers. Privately provided insurance is currently not available for the

length of time investors require and does not offer the full range of

coverage offered by MIGA. MIGA provides investment insurance against

noncommercial risks, such as currency inconvertibility, expropriation, war

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and civil disturbance, and breach of contract, particularly for the longer

term (8 to 20 years). One private provider of political risk insurance is

planning to expand its coverage in the future, but the duration of

insurance (up to 7 years) will still be less than what is offered by MIGA.

World Bank Programs

Aim to Enhance

Private Capital Flows

Despite instances in which private sector officials noted that the IFC

displaced their involvement in projects, nearly 90 percent of the firms we

spoke with said that Bank Group services enhance opportunities for

international private capital by reducing the risks associated with

investing in developing countries. These services include guarantee and

political risk insurance programs as well as loans and technical assistance

that help borrowing countries strengthen their regulatory and legal

systems.

Bank Activities Help

Minimize Risks for

Investors

In September 1994 IBRD revitalized its guarantee program and now uses

partial risk and credit guarantees to address lenders’ concerns about

borrowers’ ability to repay loans. These two programs have had very

limited use thus far, but several private sector firms expressed interest in

their potential for reducing noncommercial risk. Partial risk guarantees

cover risks associated with the borrowing government’s contractual

commitments to a project (also known as sovereign risk)—for example,

the stability of the regulatory regime, tariffs, and nonpayment by a publicly

owned utility. Partial credit guarantees cover all events of nonpayment

(both sovereign and noncommercial) for a designated period of financing.

These guarantees encourage extension of maturities by covering

repayments in the later years of the project (e.g., beyond 10 years).

According to Bank officials, both guarantees can be used for large,

expensive, long-term projects, such as infrastructure projects, to meet the

needs of commercial bankers. World Bank officials added that as a

substitute for typical IBRD loans, which are provided to governments, the

Bank Group has recently been combining IFC loans with World Bank

guarantees to focus more resources toward the private sector.

Several private sector officials noted that the Bank’s guarantee programs

encouraged their participation in projects. For example, IBRD provided a

partial risk guarantee for the Hub Power Project in Pakistan. Officials from

some of the Japanese banks that participated in the project said the

guarantee was helpful because it would have been impossible to get a

guarantee from the private sector for the length of the project (about 

12 years). The private sector would have guaranteed only 2 to 3 years of

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the project. Officials from a U.S. investment bank told us that the partial

credit guarantee program was instrumental in the successful financing of a

power project in the Philippines. They doubted the project would have

been financed without the guarantee. They also said they are working with

IBRD’s partial risk guarantee program to help create an infrastructure

development corporation in the Philippines. If this project goes forward,

the guarantee program will significantly reduce the interest rate offered by

the development corporation to finance infrastructure projects.

Some private sector officials told us that political risk insurance, such as

the type offered by MIGA, was critical to their operations in some

developing countries. MIGA was established to help promote the flow of

foreign direct investment by insuring investments against noncommercial

risks. Although MIGA has a lower insurance limit than bilateral providers of

political risk insurance, such as the U.S. Overseas Private Investment

Corporation (OPIC), it offers businesses a multilateral alternative when

bilateral insurance is unavailable. For example, some U.S. private sector

officials said that they use MIGA in countries where OPIC does not operate

because of U.S. foreign policy concerns or because OPIC has already

reached its exposure limits.

Lending Activities Aim to

Increase Participation of

Private Investors

Some of the World Bank’s lending activities are designed to encourage

private sector participation in development projects. For example, the

volume of cofinanced World Bank assisted operations totaled $8.2 billion

in fiscal year 1995.4

 In cofinancing arrangements, commercial banks

typically provide loans for up to 10 to 12 years, with the World Bank and

other lenders (e.g., regional multilateral development banks and bilateral

financing agencies) providing the remainder of the loans. Commercial

lenders told us that their level of confidence of being repaid is greater

when they are involved in World Bank projects because borrowing

countries are less likely to default on a World Bank loan than on a

commercial loan. According to the Bank’s Cofinancing and Financial

Advisory Services officials, cofinancing creates an umbrella effect,

fostering increased participation by commercial banks in the development

process. They estimate that about 42 cents for every $1 the Bank loans is

cofinanced.

IFC deals exclusively with private sector development, primarily providing

lending services and advice. According to its Executive Vice President, IFC

has devoted about one-fourth of its work to capital market development,

4

Fifteen of 114 Bank cofinanced projects in fiscal year 1995 were with the private sector.

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another one-fourth to one-third to development of private infrastructure,

and the remainder to other purposes (e.g., privatization and small

enterprise development). IFC provides loans for its own account, called A

loans, and mobilizes international private capital for projects through

syndicated loans, called B loans. For B loans, IFC shares the commercial

risks of projects with cofinancing partners and is the lender of record.5

Loan syndications and underwriting have represented almost half of IFC

financing for investment approvals since 1991.

Several private sector officials we interviewed said that IFC involvement in

some projects has acted as an incentive for their participation. For

example, IFC arranged a syndicated loan for a textile project in Suzhou,

China. While the officials acknowledged that the project was strong on its

own merit, they said project financing in China was difficult because

China does not have a sound legal structure and a convertible currency.

Business officials told us that IFC participation helped increase investors’

confidence and attract private financing.

IFC involvement can also help businesses enter new markets. One private

sector official told us that his company is trying to establish a presence in

the securities market to finance costly infrastructure projects. His

company has joined with IFC and other private sector investors to establish

a new entity that would provide credit enhancement to developing

countries by issuing securities. The new company would be able to

facilitate both domestic and cross-border investments. According to the

chief executive officer, the company could not have undertaken such a

project on its own because of the need for regulatory backing from the

host country government (governments trust the World Bank/IFC’s advice)

and the high risks involved.

Nonlending Services

Address Foreign Investors’

Interests

The Bank’s nonlending services, such as economic and sectoral work,

policy dialogue, and training, help host governments establish regulatory

and legal structures to protect investors’ interests and create an

environment that is conducive to private sector investment. Private sector

officials told us that sound regulatory and legal structures are important

elements in determining whether to invest in a market. Because borrowing

5

As the lender of record, IFC incorporates provisions in its loan agreements for the loans for its own

account and for the accounts of the remaining participants, and IFC is the sole contract party with the

borrower. In this capacity, IFC has rights and responsibilities vis-a-vis the participants, borrowers, and

IFC’s shareholders that arise from the operation of law and from the contractual undertakings set in

various agreements. These responsibilities include monitoring the project/borrower, informing banks

about any material developments, administering the loan documentation, and distributing to the

participants their respective shares of payments received.

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countries view the Bank as a neutral and objective intermediary, the Bank

has a unique role in encouraging regulatory and legal changes that help

attract foreign investment. According to the Bank’s Vice President for

Finance and Private Sector Development, the Bank is the world’s largest

force for this kind of work.

This Bank official also told us that this division is working in 70 countries

to advise governments in areas such as

• reforming their banking systems through training in bank supervision,

accounting and auditing standards, payment/settlement systems, and bank

insurance systems;

• modernizing their legal systems, including commercial and bankruptcy

laws, and establishing arbitration systems; and

• privatizing their assets by helping them establish privatization ministries

and auction and voucher systems and by providing legal advice.

In addition, the Bank and IFC have together prepared a series of private

sector assessments in various countries to gauge the individual needs of a

particular country. According to the Bank’s Vice President for Finance and

Private Sector Development, a private sector assessment helped the

government of Morocco develop a program jointly financed by the public

and private sector to help overcome constraints to private sector

development.

IFC also provides technical assistance for projects that seek to develop

capital markets, draft securities market laws and regulations, and create or

develop stock exchanges. According to Bank officials, this type of

assistance helps prepare the way for infrastructure privatization. For

example, an investment company official stated that U.S. custodial banks

are reluctant to provide complete custodial services to clients in Russia

because of the lack of efficient share registration facilities. He added that

the Bank and IFC are best suited not only to provide the necessary finance

but also to persuade the host government to adopt more efficient and safer

systems.

In the mid-1980s, IFC established the Foreign Investment Advisory Service

(FIAS) to review government policies and laws with respect to foreign

direct investment. Now a joint venture of IFC and the Bank, this Service

advises countries on how to eliminate impediments to foreign direct

investment and, in some cases, helps countries develop investment

promotion agencies. Using IFC’s financial experience in developing

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countries, FIAS works as a consultant to any government that wishes to

increase foreign direct investment. Working only on requests by

developing country governments, FIAS can provide a wide range of

assistance, including diagnostic reviews of policy impediments, reviews of

specific investment policies, and institutional strengthening. The

distribution of FIAS reports is typically restricted. China and several other

countries have sought FIAS advice on policies governing foreign direct

investment in infrastructure sectors. Altogether, FIAS has worked in over

90 developing countries.

In addition to technical assistance, the Bank provides information on

macroeconomic policies of borrowing countries. Private sector officials

told us that the Bank provides information on various markets, which is

useful for analyzing industries and for making investment decisions.

Officials from two rating agencies told us that World Bank information is

useful to them in their analysis of country risk. One rating agency official

added that the private sector does not have the resources to do the kind of

in-depth analyses that the World Bank does and that insufficient

information would result in poorly functioning markets and inefficient

investment decisions.

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Development Effectiveness of World Bank

Projects

The most current information available from the World Bank indicates

that IDA and IBRD projects have experienced significant problems in

achieving their stated development objectives during the last decade. A

significant portion of recently completed Bank projects are judged by the

Bank itself as unsatisfactory. Bank projects have had a much greater rate

of success in building physical infrastructure than in transforming the

underlying structure of developing economies. Weaker performance in

leveraging needed sector policy reforms and facilitating private sector

development through lending is of particular concern, as the Bank itself

has concluded that progress in these areas is critical for economic growth

and poverty alleviation. Prominent among the causes of weak

performance have been project design and implementation problems,

borrowing countries’ inadequate commitment and capacity, and the

increasingly challenging nature of Bank projects.

Measuring

Development

Effectiveness

It is difficult to demonstrate the impact of Bank projects on countries’

overall development. The Bank’s contributions to development cannot

usually be separated from those of other donors, the countries themselves,

and private sector investors. Furthermore, it is not reasonable to use

country macroeconomic indicators alone to judge the effectiveness of the

Bank, especially since one can only speculate about the course of a

country’s development in the absence of Bank assistance.

Given these limitations, we relied on project-specific data to assess

whether Bank projects achieved their goals. The most comprehensive data

the Bank provided to us on project performance were IBRD and IDA project

evaluation data. These data do not reflect the outcome of the

contributions that the Bank makes through MIGA guaranties; IFC private

sector investment; and nonlending services, including economic and

sectoral work, research, policy work, trust fund projects, and development

training. In fiscal year 1995, the Bank’s outlay for IDA and IBRD loans was

six times greater than for these other activities combined.1

 Few evaluation

data are available for these other activities, though the Bank is now

developing evaluation systems for them.2

 In future years, as evaluation

1

Outlays for other activities consist of IFC disbursements for loans and equity investments, MIGA’s

maximum aggregate liability, and the cost of providing nonlending services (estimated at 38 percent of

the Bank’s administrative budget for fiscal year 1995).

2

IFC does not systematically report on the development effectiveness of its investment portfolio as the

Bank does for IDA and IBRD projects. IFC assesses the development effectiveness of many of its

projects, but these assessments were not made available to us at the time of our review. The Bank did

provide some aggregated IFC project evaluation data, but this information did not address

development effectiveness, focusing instead on financial returns.

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becomes more systematic, the Bank and other observers may be better

able to evaluate the overall performance and effectiveness of all Bank

programs. Even with these limitations, Bank and U.S. Treasury officials

have indicated that, among all bilateral and multilateral donors, the Bank

has the most rigorous and systematic methodology for evaluating the

performance of its projects.

Significant Percentage of

IBRD and IDA Projects

Judged Unsatisfactory

The most recent IBRD and IDA project evaluations available reflect the

outcomes of 737 projects that were implemented primarily between 1985

and 1993. The results of these evaluations are displayed in figure 3.1. The

Bank judged 36 percent of these projects to be unsatisfactory and

64 percent satisfactory.3

3

For a project to be rated satisfactory, its goals must be consistent with the Bank’s country and

sectoral assistance strategies (relevant), and it must have achieved, or be expected to achieve, most of

its major goals (efficacious) in a timely and cost-efficient manner (efficient).

Page 39 GAO/NSIAD-96-212 World Bank
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Figure 3.1: Outcomes of Projects

Evaluated in 1993-94

60%

IDA IBRD Total

0

200

400

600

800

Number of projects

Unsatisfactory Satisfactory

32%

68%

41%

59%

36%

64%

Source: World Bank, OED.

The Bank generated these data from an extensive evaluation process that

determined completed projects’ relevance, efficiency, and efficacy.

Evaluation data were compiled by the Bank’s OED from a combination of

self-assessments prepared by project managers and audits of those

self-assessments prepared by OED evaluators. For each project, the specific

objectives and other aspects of the project were examined, and an overall

outcome rating was assigned, ranging from highly unsatisfactory to highly

satisfactory. Ratings based on self-assessments done by Bank managers,

which represent about 65 percent of all project ratings, tended to be more

optimistic than those based on OED audits.4

 An unsatisfactory project is

one that, in the evaluators’ judgment, has not met its major relevant goals

4

In fiscal year 1995, OED audited the results of self-assessments and found that they overstated the

number of projects with satisfactory outcomes by about 9 percentage points.

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or has not made an acceptable contribution to development. According to

OED, however, even projects rated unsatisfactory have made useful

contributions to development to the extent that some of their objectives

were achieved. OED also cautions that development projects are inherently

risky enterprises and some unsatisfactory outcomes should be expected.

We could not identify any objective, widely accepted criteria as to what

percentage of unsatisfactory projects would be deemed acceptable.5

However, the Bank’s President has expressed concern about this record of

performance and the need to improve.

Variations in Performance

by Region and Sector

The overall satisfactory rate of recently evaluated Bank projects masks

substantial differences in achievement among regions, as shown in 

table 3.1. In sub-Saharan Africa, where about one-third of these projects

were implemented, only about half of the projects were judged

satisfactory. In the East Asia and Pacific region, on the other hand,

81 percent of the most recently evaluated Bank projects achieved a

satisfactory rating.

Table 3.1: Satisfactory Project

Outcomes by Region and Loan Type

(for projects evaluated 1993-94)

Percentage of projects judged

satisfactory

Region IDA IBRD Overall

Sub-Saharan Africa 51 51 51

East Asia and Pacific 71 85 81

Europe and Central Asia 100a 60 60

Latin America and the Caribbean 73 61 62

Middle East and North Africa 67 69 68

South Asia 70 76 71

Total 59 68 64

Note: IDA data include a small number of projects financed jointly by IDA and IBRD.

aReflects performance on only one IDA project in this region.

Source: World Bank, OED.

Bank evaluation data also show mixed results across sectors and between

IBRD and IDA projects (see table 3.2). While IBRD projects have fared better

than IDA projects overall, this was not the case in all sectors. Most notably,

projects that provided some of the most basic needs—water and sanitation

5

The Bank President told us that it was his goal to reduce the number of unsatisfactory projects to

20 percent.

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and human resources projects6 in IDA countries—had the highest rate of

satisfactory outcomes of any type of project (91 percent and 86 percent

satisfactory, respectively). Two types of projects with primarily

nonphysical objectives, namely technical assistance and financial sector

projects, were among the least successful (49 percent and 43 percent

satisfactory, respectively). According to OED, financial sector reform is a

key component of the Bank’s private sector development efforts.

Table 3.2: Satisfactory Project

Outcomes by Sector and Loan Type

(for projects evaluated 1993-94)

Percentage of projects judged

satisfactory

Sector IDA IBRD Overall

Agriculture 57 64 60

Energy 62 73 69

Finance 38 56 49

Human resources 86 76 80

Industry 50 64 58

Pollution control and solid waste • • •

Power 63 74 68

Program and policy 60 68 64

Technical assistance 38 57 43

Telecommunications 75 50 63

Tourism • • •

Transport 52 71 62

Urban 73 83 80

Water and sanitation 91 62 70

Total 59 68 64

Note: IDA data include a small number of projects financed jointly by IDA and IBRD. No pollution

control and solid waste or tourism projects were evaluated in these years.

Source: World Bank, OED.

Greatest Rate of Success in

Physical Objectives

Bank evaluation data show that the area with the greatest rate of success

for projects evaluated in 1993 and 1994 was in meeting physical objectives.

As illustrated in figure 3.2, 67 percent of these projects substantially

achieved their physical objectives, such as constructing buildings and

infrastructure and providing social services to project beneficiaries.7

 In

6

These include education, population, health, and nutrition projects.

7

Projects that were judged to have highly or substantially achieved these types of objectives are

included in this category. Projects that were judged to have achieved their objectives only moderately

or negligibly are not included.

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contrast, other objectives were substantially achieved in only one-third or

fewer of the projects in which they were included. Thus, Bank projects

have had markedly less success in leveraging market and policy reforms

and furthering the growth of the private sector.8

Figure 3.2: Evaluation Results by Project Objective (for projects evaluated in 1993-94) 

Physical

Financial

Macroeconomic

Sector policy reform

0 20 40 60 80 100

Type of objective

Percentage of projects that substantially achieved objective

Private sector development

Institutional development

Note: Data on private sector development objectives available only for projects evaluated in 1993.

Source: World Bank, OED.

In addition to being more often substantially achieved, physical objectives

were more often included in these projects than most other types of

objectives. As shown in figure 3.3, 76 percent of projects evaluated in 1993

8

“Private sector development” refers to activities specifically aimed at promoting private enterprises,

such as privatization of state-owned operations, and may not include some policy reforms that would

more generally foster private sector development.

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and 1994 included physical objectives. Data on project objectives also

indicate that Bank projects frequently impacted borrowing country

institutions, because, although the success rate in this area was low (as

shown in fig. 3.2), institutional development was the most common

objective, included in 94 percent of Bank projects. Bank projects less

frequently attempted to achieve other nonphysical objectives, such as

macroeconomic reform (included in 16 percent of the projects), private

sector development (included in 33 percent), financial reform (included in

36 percent), and sector policy reform (included in 54 percent). Given the

absence of such objectives in many projects and the poor success rates in

achieving such objectives when included, it appears that Bank projects

overall have had considerably less impact in improving countries’

underlying market and policy conditions than in building physical and

institutional infrastructure.

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Figure 3.3: Objectives Included in Projects (for projects evaluated in 1993-94) 

Physical

Sector policy reform

Financial

Macroeconomic

0 20 40 60 80 100

Type of objective

Percentage of projects that included objective

Institutional development

Private sector development

Note: Data on private sector development objectives available only for projects evaluated in 1993.

Source: World Bank, OED.

According to senior Bank officials, many of these projects did not include

market and policy reform objectives because at the time that these

projects were approved the Bank’s preferred vehicle for achieving such

reform was “adjustment” lending. Adjustment projects, which since the

early 1980s have represented about a quarter of the Bank’s portfolio,

provided hard currency loans in exchange for an agreement by the

borrowers to make certain policy and market reforms (or adjustments)

and did not include physical objectives.9

9

In general, adjustment projects have been somewhat more successful than their investment-oriented

counterparts in meeting policy and market reform objectives. For example, 44 percent of adjustment

projects evaluated in 1993 and 1994 substantially achieved their sector policy reform objectives. Only

24 percent of the investment projects that had this type of objective substantially achieved it. Overall,

27 percent of all projects with this objective substantially achieved it.

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Regardless of the instrument used, success in achieving policy and market

reform objectives has important implications for the development

effectiveness of Bank projects. A 1995 OED study on the social impact of

structural policy adjustment showed that when Bank projects achieved

policy reform objectives, the results for development were very positive.

According to the report, countries that successfully implemented the

adjustment policies agreed to with the Bank have achieved growth in per

capita income and reduced the proportion of their populations in poverty.

This study also indicates that substantial success in meeting policy reform

was very important. It concluded that the most common reason why

adjustment operations failed was that the agreed policies were only partly

adopted or were soon abandoned.

A project in one sub-Saharan African country illustrates the limitations of

achieving only physical and institutional objectives. This project was

aimed at promoting tourism by improving the protection of wildlife, a

major tourist attraction that was being threatened by poaching. By

providing funds for equipment and game park infrastructure, the project

enabled government rangers to stem poaching, especially in the

rhinoceros population. However, since it was considered an emergency

project, it did not include any policy reform requirements. According to a

U.S. embassy official and the Bank official who monitors this project in

the field, despite improvements in wildlife protection, the tourism industry

continues to decline, in large part because of poor government policies,

such as opposition to private sector tourism promotion and the lack of

maintenance of tourist-related infrastructure. The Bank official

commented that economic and sectoral research was needed to convince

the borrowing government of the economic importance of protecting the

environment. Officials responsible for the Africa Region at Bank

headquarters believe that, although this project did not include policy

reform objectives, it has strengthened the government’s policy-making

capability and will facilitate the achievement of policy reform objectives in

future projects.

Causes of Weak

Performance

The 1992 Portfolio Management Task Force’s report identified three basic,

closely interrelated factors as causes of portfolio performance problems.

These factors are (1) problems with the way projects are structured;

(2) unfavorable country conditions, such as poor macroeconomic policies,

changing development priorities, and poor capacity of local institutions;

and (3) a volatile international economic environment. The report

identified many project design problems and made a series of

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recommendations to the Bank to ameliorate these problems, and the Bank

has been making efforts to improve in this area.

Data from the 737 IBRD and IDA projects evaluated in 1993 and 1994,

displayed in table 3.3, confirm that this combination of factors also

negatively impacted these project outcomes. They show that the lack of

borrowing countries’ commitment and the poor quality of institutions in

borrowing countries were the most prevalent negative factors—each

identified as such in nearly one-third of evaluated cases. Bank

performance was a negative factor for about one-fifth of the projects, as

were domestic shocks external to project management, such as political

upheaval, natural disaster, and economic disruption.

Table 3.3: Major Factors Negatively

Influencing Project Outcomes (for

projects evaluated 1993-94)

Major factors negatively influencing outcome

Percentage

of projects

negatively

affected

Government commitment 32

Quality of implementing agency management 32

World Bank performance 22

Domestic shocks 22

Source: World Bank, OED.

Projects Increasingly

Challenging

Bank projects have become more challenging in recent years, which could

also help explain poor performance. OED analysis indicates that during the

1980s Bank projects became increasingly complex, risky, and demanding

on the borrowers. Complex projects may involve a wide range of reforms;

a large number of institutions, project components, and cofinanciers; or

wide geographic dispersion. Risky projects are ones that are based on key

assumptions about the underlying conditions in a country that may be

especially vulnerable to changes. Demanding projects may stretch the

country’s implementation capacity. According to OED, given this increased

difficulty, the recent stabilizing trend in outcome ratings may actually

represent a noteworthy achievement by project implementers.

Economic and Sector Work

Underutilized in Projects

Another important factor identified more recently as affecting portfolio

performance is the use of economic and sector work to support the

development of new projects. The Bank conducts economic and sector

work to identify and diagnose countries’ development problems. This

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work includes specialized sectoral studies, policy research that supports

project development, and other analytical and advisory work. A 1995 Bank

study found that when sector- and project-related economic and sector

work is conducted, it can contribute to the eventual success of a project.

This work has the advantage of focusing on issues of institutional support,

budgetary provisions, project alternatives, and risks. The report concluded

that “relatively small expenditures by the Bank on economic and sector

work can leverage up large increases in development impact on the

ground in client countries.”

However, the results of the study suggest that not enough economic and

sector work has been done. The study indicates that only 39 percent of the

431 completed projects that were examined for this study had been

preceded by relevant economic and sector work in the 3 years prior to

approval.10 The report stated that for the 35 poorest performing countries,

“greater attention to country fiscal performance—a function of economic

and sector work—might have reduced the number of poorly performing

projects.” Another OED study concludes that more attention to policy

research during project preparation and appraisal and policy dialogue with

stakeholders can significantly overcome borrowing governments’

reluctance to press ahead with policy reforms.

10Some Bank officials commented that the Bank’s economic and sector work effort may be

understated in this study because some relevant analyses were not considered as economic and sector

work. However, the report did not include this qualification.

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World Bank Reform Efforts

The Bank has taken a number of steps in recent years to improve IDA and

IBRD portfolio performance. Some of these reforms appear promising,

especially increased efforts by the Bank to link lending to countries’

performance in establishing a market and policy environment conducive

to development. Other reforms, however, such as improving project design

and implementation, have been slow to take hold, and their discernible

impact on portfolio performance has been limited. However, it is too early

to assess the long-term impact of these reforms on development

effectiveness. Decisive evidence on this issue may not be available for

several years, when projects designed and implemented under the new

environment are completed and evaluated.

Portfolio Management

Problems Being

Addressed

Since the 1992 report of the Portfolio Management Task Force, the Bank

has undertaken a wide variety of initiatives to address its performance

problems. The Bank has taken measures to implement this report’s

recommendations under the Next Steps Program, which involves

• linking country portfolio performance to the bank’s core business

practices,

• providing for more active project and portfolio restructuring,

• improving the quality of projects entering the portfolio,

• defining the Bank’s role in and improving its management of project

performance,

• enhancing OED’s role as an instrument of independent accountability and

giving greater emphasis to evaluation of completed projects,

• creating an internal environment that promotes better portfolio

management, and

• giving attention to generic and institutional factors that affect portfolio

performance.

Many of these efforts are in their early stages, and for some of them it is

too early to see results reflected in current performance measures.

However, in some cases, data are available to evaluate to what extent

specific reforms are taking hold and are having a discernible impact.

Linking Lending

Levels to Country

Performance

The 1992 report of the Portfolio Performance Task Force criticized the

Bank for not assessing its overall program in particular countries but

instead assessing proposed loans largely on their individual merits. A key

component of the Bank’s reform efforts has been to make IBRD and IDA

lending decisions based on an in-depth reexamination of the portfolio

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performance and policy reform progress of each country. Through the

Country Assistance Strategy (CAS) process, established in 1992, the Bank

can set lending levels for a country and periodically reassess them on a

well-reasoned basis. These levels can be changed based on a country’s

performance, as the Bank has done in several of the countries we visited.

Linking performance to lending levels could be an effective way for the

Bank to (1) leverage change in country practices and (2) increase the

likelihood that Bank projects will achieve their development objectives.

Quality of CASs Uneven

but Improving

The effort to create well-researched CASs, backed up by in-depth,

country-specific analyses of poverty, private sector performance, and

government expenditures, is a demanding one. Early efforts were very

uneven in quality. In January 1995, the Bank issued updated guidance for

CAS preparation. Among other things, the new guidance calls for clear

linkages between country performance and lending levels as well as

defined scenarios to justify lending decisions. According to OED, CASs

prepared in the last half of 1995 expanded their coverage of portfolio

performance issues. However, while OED officials and a senior Bank officer

agreed that the format and content of more recently prepared CASs have

improved, they also commented that the overall quality of CASs is uneven

and further improvements are still needed. According to a January 1996

status report on the Bank’s Mid-Year Operational Work Program, CASs

need to demonstrate better linkages between portfolio management and

new lending and create more measurable benchmarks for evaluating

progress and the size of the country program. According to a Bank official,

the recognition of this problem by Bank management in this report is, in

itself, an important indicator that the Bank is taking the CAS process

seriously and discussing its portfolio in relation to country performance.

Lending Levels Adjusted

Based on Country

Performance

Our review of CASs for five borrowing countries supports the Bank’s claim

that it has begun to develop performance criteria that will serve as a basis

for adjusting lending volumes. Furthermore, the Bank has, in some

instances, reduced or withheld lending to countries that do not meet

established performance criteria. For example, new IBRD commitments to

one major borrower in fiscal year 1994 were reduced to about

$100 million, down from a planned $1 billion, because of the government’s

slow progress toward policy reform associated with specific projects. Due

to poor economic management practices, one sub-Saharan African country

received only about 30 percent of the new IDA credits that the Bank had

originally envisioned. In addition, IDA reduced its lending to another

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sub-Saharan African country in fiscal years 1994 and 1995 because of years

of inadequate policy reform and macroeconomic management. Bank

officials have not yet reached agreement on new funding levels for this

country.

The Bank is also rewarding strong performance. For example, the Bank

responded to one small eastern European country’s commitment to reform

by providing about $145 million in loans in fiscal years 1994 and 1995. The

Bank’s strategy for this country provides for as much as $250 million in

additional loans over the 3 ensuing years if progress is sustained in

implementing stabilization and structural adjustment measures or as little

as $50 million if this expectation is not met. In the case of one major Asian

borrower, the Bank has refrained from linking lending levels to specific

performance triggers because a major slippage in this country’s reform

program is viewed as unlikely. Almost all of the completed Bank projects

in this country have achieved satisfactory results, and, as pointed out in a

March 1996 CAS progress report, the quality of this country’s portfolio

remains high.

Data provided by the Bank suggest an increased focus on performance in

allocating funds among IDA-eligible countries. As table 4.1 indicates, the

top-performing countries1

 tended to receive more assistance under IDA-10

than under IDA-9,2

 while weaker performers received less. In fiscal 

years 1994-95, the top fifth of IDA performers received an average per

capita increase of about 30 percent, while the bottom fifth experienced a

reduction of about 53 percent.3

1

Performance ratings were based on evaluations of macroeconomic stability, structural reforms,

poverty reduction, and the quality of portfolio implementation.

2

IDA categorizes its loans according to the number of the replenishment in which IDA members donated

the funds for the loans. Thus, the terms IDA-9 and IDA-10 refer to loans made under the 9th and 10th

replenishments, respectively, of IDA’s concessional loan fund.

3

While the correlation between lending levels and country performance appears to be stronger in

IDA-10 than in IDA-9, other factors, such as shifts in lending priorities and the absorption capacity of

certain countries, may also have affected lending patterns.

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Table 4.1: IDA Commitments and

Country Performance (IDA-only

countries)

Annual average commitment per

capita

Level of performance

IDA-9 (fiscal

years 1991-93)

IDA-10 (fiscal

years 1994-95)

Change from

IDA-9 to IDA-10

Top 20% $7.0 $9.1 30%

Upper 20% 6.5 6.1 –6%

Middle 20% 10.1 6.0 –41%

Lower 20% 6.7 5.7 –15%

Bottom 20% 1.7 0.8 –53%

Source: World Bank, Resource Mobilization Department.

Comparable data for IBRD lending was not available at the time of our

review, and we did not find evidence of a similar shift in IBRD lending

toward better performing countries.

Quality of Project

Design

One of the Bank’s major reform initiatives, resulting from the 1992 report

of the Portfolio Management Task Force, has focused on improving the

quality of projects entering the portfolio. According to this report,

ensuring quality at entry is critical to achieving project success; this

entails, among other things, demonstrating borrower commitment and

careful analysis of the risks. Since 1992, units throughout the Bank have

reported initiatives to improve quality at entry through the use of clear and

realistic goals, better defined studies, detailed action plans that can be

monitored, performance indicators, regular project reviews, and emphasis

on borrower ownership, beneficiary participation, and application of

lessons learned.

Design Problems Persist in

New Projects Despite

Some Improvement

Despite the Bank’s efforts, recent studies indicate that project design

problems continue. A 1994 OED assessment of Bank initiatives to improve

quality at entry concluded that “these initiatives have yet to show their

effects on quality at entry.” A staff survey conducted by OED supported the

conclusion that improvements in quality at entry have been slow to take

hold, especially in assessing risks.

In a 1995 Bank study, the quality of the Bank’s project economic

analysis—a key element in ensuring new project quality—was strongly

criticized. The study concluded that economic analyses were less than

satisfactory in 38 percent of the projects approved in calendar year 1993

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and that the ratings had shown no significant improvement since 1991.4

The report commented that “this finding is cause for concern, since there

is every indication that the quality of economic analysis makes a

significant difference in project performance. . . and is a robust proxy for

quality-at-entry more generally.” According to a senior OED official,

unpublished results from a new study show a small improvement in the

quality of economic analyses for new projects in the first half of fiscal 

year 1996.

The Bank undertook a special study of 34 policy adjustment projects

approved in fiscal years 1993 and 1994 to assess their quality at entry. The

results of this study indicated that the following project design problems

were common:

• insufficient consideration of borrowers’ level of political commitment,

• inadequate implementation capacity in borrowing countries,

• inadequacies in risk assessments, and

• borderline to excessive complexity.

OED has independently assessed quality at entry as part of its review of a

sample of recent project proposals and concluded that quality at entry

appeared to be improving but that problems remained. For the 128 project

proposals OED reviewed in fiscal years 1994 and 1995, progress was

mixed—problems worsened in some areas and other areas showed

improvement (see table 4.2). Most noteworthy among the improvements is

a substantial decrease in project proposals with unsatisfactory provisions

for monitoring and evaluation. However, project managers declined to

take OED’s comments into account in 50 percent of the 1994 project

proposals that OED could track.

Table 4.2: Quality at Entry Problems in

New Project Proposals Percentage of projects

with deficiency

Project design deficiency 1994 1995

Poorly defined project objectives 27 36

Inadequate use of evaluation experience 60 65

Unrealistic risk assessments 48 34

Unsatisfactory provisions for monitoring and evaluation 67 32

Source: World Bank, OED.

4

The Portfolio Management Task Force report cited work carried out in 1990-91 by the Working Group

on Economic Analysis, which concluded that economic analysis was less than acceptable in 45 percent

of the reviewed projects. The 1995 study concluded that this 7-percentage-point change was not

statistically significant.

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Project Management

Reforms

Among the criticisms included in the 1992 report of the Portfolio

Management Task Force was the Bank’s reluctance to take action to

remedy ongoing problem projects. In response to this criticism, the Bank

has increased the amount of staff resources devoted to project

supervision. Intensity of project supervision has increased steadily, from

an average of 12.5 staff weeks per project per year in fiscal year 1991 to

17.2 in fiscal year 1995. This supervision has included use of mid-term

reviews and country portfolio performance reviews to identify and assess

implementation problems and project restructuring to resolve them. In

addition, individual regional offices within the Bank have undertaken a

wide range of complementary initiatives to further enhance the quality of

new projects and portfolio management. The Bank has also made a greater

effort to be more realistic when assessing performance so that it can

identify and remedy problems that arise during project implementation.

Limited Impact on Problem

Projects

The Bank measures the performance of its portfolio of ongoing projects by

the number of projects it deems to be problem projects. A problem project

is one in which managers have concluded that unsatisfactory progress has

been made in implementation or in meeting development objectives. The

Bank’s increased supervision efforts are beginning to show some

promising results for long-standing problem projects, which were of

particular concern in the 1992 task force report. The percentage of

projects that have been in problem status for 3 or more consecutive years

has declined by 16 percentage points from fiscal year 1993 to fiscal 

year 1995.

However, data on problem projects indicate that little or no improvement

has been made in the overall performance of ongoing projects.

Assessments of progress in the implementation of projects and the extent

to which the projects are likely to meet their development objectives,

updated annually, provide an early indication of the likely effectiveness of

the Bank’s current portfolio. Table 4.3 presents recent results of these

assessments. The data indicate that virtually no improvement has been

made in implementation or the prognosis for projects’ eventual impact on

development. For ongoing projects, the Bank does not differentiate among

types of development objectives as it does after completion. Therefore, we

were unable to separately evaluate the Bank’s progress in meeting physical

and nonphysical objectives for these projects.

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Table 4.3: Extent of Problem Projects

in World Bank Portfolio Percentage of problem projects

Type of problem 1991 1992 1993 1994 1995

Poor implementation progress a a 16.9 18.4 17.8

Low likelihood of meeting

development objectives

12.7 11.8 12.1 13.4 11.5

aNo data was available for implementation progress prior to fiscal year 1993.

Source: World Bank, Operations Policy Department.

It is too early to discern how the Bank’s greater use of restructuring,

mid-term reviews, and country portfolio performance reviews has affected

portfolio performance. Assessments of ongoing projects in fiscal 

years 1993-95 did not show consistent improvement in projects that had

undergone special reviews or restructuring. However, Bank studies show

that these tools are potentially valuable for improving portfolio

performance if used more effectively. OED has found that many mid-term

reviews need to be more extensive and that country portfolio performance

reviews should be done more frequently for smaller countries, which tend

to have more problem projects.

Some Progress in Ability to

Recognize Problems

In the past, the Bank has had difficulty recognizing deep-seated problems

in ongoing projects that require additional supervisory attention. Typically,

a significant number of projects were not identified as problem projects

during implementation but were ultimately judged unsatisfactory after

completion. This disconnect is partly attributable to undue optimism

about potential outcomes during implementation. This optimism is

especially pronounced for projects in their early stages, because problems

are rarely expected and are more difficult to discern. The 1992 Portfolio

Performance Task Force report highlighted excessive optimism, and it is

recognized within the Bank as a barrier to resolving problems and

improving portfolio performance.

The disconnect in ratings between implementation and completion of

projects has improved considerably in recent years. In fiscal year 1988,

29 percent of projects rated satisfactory at the time of their final

supervision rating were downgraded to unsatisfactory by OED after

completion. The disconnect was reduced in fiscal year 1994 to

12 percent—its lowest point since the Bank started measuring this

phenomenon in 1980.

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Despite the encouraging progress in reducing the disconnect in ratings,

OED pointed out in 1995 that overoptimism is still a major concern because

problems are often not identified early enough to be remedied. For

example, during fiscal years 1991-95, less than one-fourth of projects

ultimately judged to be unsatisfactory were flagged as problem projects

midway through implementation. OED found that to improve, the Bank

needed a better definition of project objectives and greater attention to

those objectives during supervision. According to OED, “what is needed is a

change in supervision culture, to one which emphasizes early recognition

of problems related to development objectives.”

Staff Monitoring and

Evaluation Still Deficient

but Improving

A 1994 OED report on staff monitoring and evaluation in ongoing projects

and projects completed in the previous 20 years concluded that

performance in this area had been “dismal.” A 1995 follow-up study

indicated that some significant improvements had been made but that

major monitoring and evaluation deficiencies remained. The study

reported that 47 percent of the projects appraised by the Bank in fiscal

year 1995 had inadequate or negligible provisions for monitoring and

evaluation. Moreover, the institutional support promised by Bank

management in response to the 1994 study had not materialized by the end

of 1995. One Bank Executive Director we spoke to cited the slow pace of

Bank action in this area as a major cause for concern but added that in the

spring of 1996 management had finally taken meaningful steps toward

providing needed support for monitoring and evaluation.

Increased Management

Attention to Problems

Holds Promise

Bank management has sharpened its focus on reform and performance

issues and taken steps that have potential for improving oversight and

project quality. In 1994, the Board of Directors formed a Committee on

Development Effectiveness (CODE) to oversee the operations evaluation

function. CODE is intended as a vehicle for focusing in-depth Board

attention on evaluation studies and management responses to OED

recommendations. According to one CODE member, CODE was instrumental

in prompting increased management commitment to improved monitoring

and evaluation systems.

In June 1996 the Bank’s Operations Policy Department and OED took stock

of all OED recommendations and management responses and presented a

report of their findings to CODE. This report indicated that substantial

progress had been made overall in implementing actions promised by

Bank management in response to these recommendations.

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In addition, Bank management has created a Quality Assurance Group that

will enable management to undertake objective, independent project

evaluations throughout the project life cycle. However, the Quality

Assurance Group just became active in 1996, and it is too early to assess

its impact.

Greater Emphasis on

Market and Policy

Conditions and

Nonlending Services

As described in chapter 3, Bank lending projects have achieved relatively

little success in fostering market and policy reform in borrowing countries

compared to their achievement of other project objectives. In addition, the

Bank has not made optimal use of economic and sector work to maximize

the effectiveness of its lending services. According to senior Bank officials,

the Bank has recognized these shortcomings and has been taking steps to

remedy them. If successfully implemented, such reforms could be very

positive, since Bank research has concluded that these activities have

strong potential for boosting development effectiveness. However, the

magnitude of these reforms and, hence, their probable effectiveness in the

future are difficult to determine.

Bank officials stated that they have increased and broadened their focus

on policy and market reform. According to these officials, the Bank has

moved away from pursuing policy reform primarily through adjustment

loans, which represent only about a quarter of the Bank’s portfolio.5

Instead, the officials indicated that emphasis on reform has been

broadened by a greater use of conditionality in loans throughout the

portfolio. One indicator of the shift toward policy reform is that, according

to OED, the number of Bank lending operations with private sector

development components increased almost 30 percent between fiscal 

years 1988 and 1995. The Bank’s revised policy on electrical power

projects also indicates a shift toward market and policy reform objectives.

This policy, revised in 1993, places less emphasis on providing electricity

to the poor and greater emphasis on transparent regulation, commitment

to reform, commercialization and corporatization, and greater private

investment in this sector. In its strategy statement for fiscal years 1997-99,

the Bank’s Africa Region indicates that it intends to devote greater

attention to economic reform, including public finances and

macroeconomic stability. However, since the Bank does not maintain

detailed data on project objectives for new and ongoing projects, we could

not measure the extent to which it has shifted toward policy and market

reform objectives.

5

Adjustment loans provide funds in exchange for an agreement by the borrowers to make certain

policy and market reforms. These operations do not involve the construction of physical

infrastructure.

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Senior Bank officials have also indicated that the Bank will devote more

attention and resources to nonlending services, including economic and

sectoral work. The Bank had been reducing its funding for these activities:

in fiscal year 1996, for example, the budget for economic and sector work

was cut 17 percent from the previous year, while lending was cut by less

than 4 percent. However, in studying the effects of economic and sector

work as part of its reform efforts, the Bank concluded that conducting this

work can contribute to eventual project success and increase development

impact. According to senior Bank officials, an increase in the budget

allocation for economic and sector work is planned for fiscal year 1997.

The Bank’s President told us that he intends to devote to nonlending

services a level of effort on par with that devoted to lending.

New Direction’s

Impact Uncertain

The full impact of the current reform efforts on the ability of the Bank to

achieve its objectives will not be apparent for several years. The

management improvements described above, especially the use of the CAS

process to direct greater Bank resources to those countries that are most

committed to positive change, should improve the Bank’s effectiveness.

However, the Bank’s commitment to addressing key development

challenges, while appropriate, may have an adverse effect on the

satisfactory ratings of Bank projects.

As described in chapter 3, the Bank’s experience to date shows that policy

and market reform objectives have been relatively difficult to achieve.

These reform efforts rely on the active cooperation of the recipient

country, and national leaders are often reluctant to accept the short-term

economic and political costs of making many of these changes. These

political realities often limit what the Bank can reasonably expect to

accomplish. In one country, for example, Bank officials working to

rationalize the inefficient, state-dominated banking system decided, out of

political necessity, to retain a large number of superfluous bank

employees. The likely alternative would have been intense labor union

opposition.

Effective implementation of improved management practices and

concentration of resources on countries that display a greater

commitment to reform may enhance the ability of Bank projects to

achieve satisfactory outcomes. However, increased concentration on more

challenging tasks and more challenging environments (e.g., implementing

effective basic policy changes in sub-Saharan Africa) may make project

success even more difficult to achieve in the future. It is possible that the

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Bank’s reforms will sharpen the focus on efforts that have a greater

potential for long-term positive impact but may result in little or no

improvement in the proportion of projects that are judged to have

achieved satisfactory results, at least in the short run.

It is also possible that the Bank’s increased emphasis on country

performance as a criterion for lending will hold overall lending below the

levels experienced in the past. Bank and Treasury Department officials

pointed out that 1994 and 1995 lending in sub-Saharan Africa was already

lower than expected as a result of the Bank’s holding back funds until

policy environments improve.

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U.S. Foreign Policy Considerations

The United States has influenced the Bank’s policy orientation through its

leadership position. The Bank has supported important U.S. foreign policy

goals such as addressing transition difficulties in the former Soviet Union

and Central Europe and in directing resources for crisis situations like

those in Bosnia, Haiti, Mexico, and the West Bank and Gaza. Insofar as

U.S. leadership influences the Bank’s agenda, the United States multiplies

its scarce foreign assistance funds by directing them through the Bank.

However, compromise has sometimes been necessary since the United

States has not always concurred with the views of a majority of its fellow

Bank members.

Changes in Bank

Orientation Reflect

U.S. Views

The United States maintains the largest voting share in the Bank

institutions and is the only member country that can veto changes in IBRD’s

Articles of Agreement. U.S. government officials stressed, and Bank

officials concurred that, through the offices of the Secretary of the

Treasury and the U.S. Executive Director at the Bank, the United States

has played a leading role in shaping the development of the Bank’s general

orientation and in shifting its focus to new challenges. Treasury and State

Department officials commented that U.S. leadership has in recent years

played a critical role in the Bank’s increased commitments to

environmental protection,1

 market-oriented reform, and private sector

development and concern for the impact of its programs on the poor in

borrowing countries. One senior bank official commented that no major

Bank initiative has gone forward without the support of the United States.

Bank Supports U.S.

Foreign Policy

Objectives

Bank activities generally support U.S. foreign policy goals in the post-Cold

War environment. For example, the Bank is addressing transition

difficulties in Central Europe and the former Soviet Union. Since the

collapse of the former communist governments in this region, the World

Bank has been working to facilitate the successor governments’ movement

toward market-oriented systems. The Bank committed over $20 billion to

Europe and Central Asia (including the former Soviet republics) during

1990-95, including $4.5 billion in 1995.2

1

A high-level Bank official agreed that the Bank’s efforts regarding the environment can still be

improved. However, the Bank has adopted uniform environmental standards and is allocating

$485 million in 1995 to environmental projects. Also, the Bank and the United Nations created the

Global Environmental Facility in 1991. Through the end of fiscal year 1995, $558 million was allocated

for 63 World Bank Global Environmental Facility investment projects.

2

This figure includes loans made to Turkey and to the following former communist states: Albania,

Armenia, Azerbaijan, Bulgaria, Croatia, Estonia, Georgia, Hungary, Kazakstan, the Kyrgyz Republic,

Latvia, Lithuania, the former Yugoslav Republic of Macedonia, Moldova, Poland, Romania, the Russian

Federation, Turkmenistan, Ukraine, and Uzbekistan.

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The U.S. foreign policy agenda has also been supported through the Bank’s

ability to direct resources to crisis areas. Recent examples where such

support has been provided include Bosnia, Haiti, Mexico, and the West

Bank and Gaza. In Bosnia, Treasury officials commented that the scale and

rapidity of the Bank’s response to the need for resources to support the

U.S.-brokered peace process was helpful in furthering U.S. goals in that

country. The Bank created a special $150 million trust fund for Bosnia in

February 1996 to provide assistance in advance of the country’s

membership in the Bank and announced in April 1996 that it intended to

provide Bosnia with substantial IDA reconstruction assistance over the

ensuing 3 to 4 years.

The Bank also initiated a lending program that supported U.S. interests in

reconstruction in Haiti following the reinstatement of President Aristide.

IDA lending in that country was curtailed in 1996 in an effort to encourage

reforms, an effort that is also supported by the United States. In Mexico,

the Bank provided $2 billion in loans and associated technical assistance

in cooperation with the U.S.-led effort to help that country address its 1994

financial crisis.3

 In the West Bank and Gaza, the Bank has played an

important role in support of U.S. foreign policy objectives. In 1993 the

Bank prepared an initial economic strategy for these territories that served

as a basis for discussion at a donors conference, at which over $2 billion

was pledged. Since then the Bank has continued to act as a conduit for

donor funding and provided its own funds through a $170 million trust

fund.

U.S. Contributions to

Bank Are Highly

Leveraged

Insofar as U.S. leadership influences the Bank’s agenda, the United States

leverages its foreign assistance funds by directing them through the Bank.

The annual volume of activity generated by the Bank far exceeds that

which the United States could generate if it were to apply its contributions

to the Bank to U.S. bilateral foreign assistance programs. The United

States provides about 22 percent of total donor contributions to support

the Bank Group institutions, and these contributions are further

augmented through cofinancing with other donors and the private sector.

For example, as of July 31, 1996, about $2 billion in U.S. paid-in capital had

supported IBRD loans of nearly $286 billion.

The Bank’s perceived neutrality helps to further increase the potential

impact of these funds. Developing country officials generally perceive the

3

For more information on the events in Mexico, see Mexico’s Financial Crisis: Origins, Awareness,

Assistance, and Initial Efforts to Recover (GAO/GGD-96-56, Feb. 23, 1996).

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Bank—a multilateral institution counting their own governments as

members—as a neutral institution that provides objective advice. Bank

officials, developing and donor country officials, and private sector

representatives commented that Bank advice is less likely to be viewed as

motivated by self-interest than advice offered by private businesses or

bilateral donors and is therefore more likely to be acted upon, particularly

in cases where proposed changes are costly and politically difficult.

Compromise

Necessary in

Multilateral

Environment

In some instances, the United States has not concurred with the views of a

majority of Bank members. The United States has voted against proposed

loans that were nonetheless approved. One former Bank executive

director commented that during the 1980s the United States

unsuccessfully opposed Bank lending to India, arguing that the Indian

government should be required to undertake reforms before further credit

was granted. More recently, the United States opposed the granting of

additional IDA credits to China, despite the fact that China has a level of

per capita income that justifies continued access to IDA. U.S. government

officials pointed to China’s high level of foreign currency reserves and its

relatively high credit rating on international capital markets, which

provide it with substantial access to other sources of finance. The United

States has taken the position that concessional IDA resources should be

reserved for countries that, unlike China, do not have the creditworthiness

to access alternative finance. In recent negotiations, the United States

proposed that China be denied eligibility for IDA credits. However, other

donor countries, particularly Japan, opposed this position. In the end, a

compromise was reached wherein China’s IDA borrowing will rapidly

decline over the next few years and end in 1999. Despite the need for such

compromises, many analysts agree that U.S. views on the overall direction

of the Bank’s operations have generally prevailed.

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Comments

Bank operations support U.S. economic and foreign policy goals and

leverage other donors’ funds for doing so. However, significant

performance weaknesses limit the effectiveness of Bank projects, and

management reforms intended to improve the quality of the Bank’s

portfolio have had limited impact to date.

Bank efforts are enhancing the environment for private sector investment.

We found that the Bank’s guarantee programs and legal and regulatory

reform efforts are important elements in attracting private sector

investment. We also found that the Bank did not appear to displace private

foreign investment in developing countries, except in a limited number of

markets with substantial private sector involvement.

During the past decade, IDA and IBRD projects have experienced significant

problems in achieving development goals. Bank managers and evaluators

have judged 36 percent of the most recently evaluated projects to be

unsatisfactory and, thus, having made an unacceptable contribution to

development. The greatest rate of success of these projects has been in

building physical infrastructure. The projects have had much more

difficulty achieving policy and market reform objectives, which the Bank

has shown to be crucial for economic development. Weak performance

has been the result of a variety of shortcomings on the part of both the

Bank and the borrowers as well as external factors. Pervasive project

design and implementation problems must be overcome in order for

ongoing and future projects to improve.

The Bank has implemented a series of reforms in recent years to improve

the performance of its lending portfolio. Preliminary indicators show

mixed results, though the full impact of these reforms on development

effectiveness will not be discernible for several years. Among the more

promising results is a greater linkage between IDA lending and borrowing

countries’ performance in making Bank-recommended policy and market

reforms. Other reforms have made slower progress, especially efforts to

improve the quality of new projects.

Through its historical position of leadership at the Bank, the U.S. has

ensured that Bank activities generally support the U.S. foreign policy

agenda. This continues to be true in today’s post-Cold War environment.

For example, in countries in Eastern Europe and the former Soviet Union

the Bank has financed projects supporting transition from communism.

The Bank has also complemented U.S. bilateral efforts in crisis areas, such

as Bosnia, the West Bank and Gaza, and Haiti. The United States has been

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Comments

able to magnify the impact of its assistance by financing projects through

the Bank and, thus, leveraging funds from other donors. Occasionally,

however, the interests of the majority of members have taken precedence

over U.S. priorities, as in graduation of China from IDA eligibility.

Recommendation Although continued participation in the Bank is in the U.S. interest, the

benefits of the Bank are limited by problems with project effectiveness.

Through its leadership, the United States is positioned to ensure that Bank

reforms continue to progress and have a positive impact on development

effectiveness.

To ensure that Bank reforms have the desired impact, we recommend that

the Secretary of the Treasury monitor and periodically report to the

Congress measurable indicators of progress, such as the extent to which

(1) the Bank allocates financing to those countries that make

Bank-advocated policy and market reforms, (2) projects substantially

achieve policy and market reform objectives, (3) project design problems

decrease, and (4) implementation problems are identified and resolved

early in the project cycle. If the indicators do not show satisfactory

progress, the Secretary should report on the actions being taken by the

Department to improve progress.

Agency Comments We received comments on a draft of this report from the Department of

the Treasury and, through it, the World Bank; the Department of State; and

the Agency for International Development. These letters are reprinted in

appendixes III-VI, along with our additional comments where appropriate.

In addition to their overall comments, Treasury and the Bank offered

several clarifications and technical corrections as well as updated

information, which were incorporated throughout the report as

appropriate.

Comments From the

Department of the

Treasury

Treasury agreed with many of the report’s basic findings and conclusions,

stating that they tracked well with its own views and with major positions

taken by successive U.S. administrations. In addition, Treasury supported

our recommendation that Treasury monitor and periodically report to the

Congress on Bank progress in improving project quality and effectiveness.

Treasury also noted that existing legislation already imposes heavy

reporting requirements on those elements of the Department that are

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Comments

concerned with the multilateral development banks. As a general

principle, we support periodic reevaluation of reporting requirements to

ensure that they do not require agencies to invest scarce resources in

providing information that is not useful in Congressional oversight. We

believe, however, that the reporting requirement recommended by this

report will provide meaningful information for effective oversight of the

Bank’s operations and reform efforts.

Treasury commented that our analysis relied heavily on data from projects

that were completed prior to the 1992 report of the Portfolio Management

Task Force (Wapenhans report) and the start of the Bank’s recent reform

efforts. Our analysis of 737 recently evaluated Bank projects is based on

systematic and reliable performance data and provides the most current

picture available of project outcomes. This analysis also illustrates the

effectiveness problems that the Bank is currently attempting to resolve

through its reform efforts. Performance data from these evaluations

provide an essential baseline for the evaluation of improvement in the

outcomes of ongoing and future projects. Data on the outcomes of

projects initiated since the Wapenhans report will not be available for at

least several more years. However, in chapter 4 we present other

information, including performance data for all ongoing projects, to reflect

the impact of these reforms.

Treasury stated that the report’s observation that Bank projects were less

successful in achieving policy reform than in achieving physical objectives

was based on a data set in which the vast majority of projects discussed

are investment projects. Treasury commented that investment projects

should be discussed separately from adjustment loans, which are the

Bank’s primary instrument for promoting policy reform. However, we

found in our discussions with Bank officials that investment lending has

been a major tool for promoting sector policy reform, and the Bank

provided us with additional data to support that this is the case. The

principal focus of our discussion of development effectiveness is on the

Bank’s rate of success in achieving various types of objectives, including

policy reform. As discussed in chapter 3, adjustment lending has had a

somewhat better record in achieving policy reform objectives than

investment projects have; however, the rate of success of adjustment

lending is still relatively low. Our report acknowledges the impact that

Bank-promoted policy reforms have had when substantially implemented,

especially their generally positive effect on reducing poverty.

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Comments

Treasury asserted that our report does not sufficiently highlight the wide

regional differences evident in project success rates. Treasury believes

that these differences suggest that local conditions rather than inherent

design flaws and implementation management are a key determinant of

project success. Our report does point out regional differences in project

success rates (see table 3.1), but our analysis of available data did not

indicate that local conditions were necessarily a more important

determinant of project success than other factors such as the adequacy of

project design or implementation management. The Bank also considers

factors other than local conditions to be critical, and several of its reform

initiatives focus on them.

Finally, Treasury emphasized that the Bank is making a serious effort at

meaningful reform but that continued monitoring of the results of these

reforms is important to ensure that they have a positive impact. Treasury

also believes that continued U.S. leadership will be indispensable for

following through on the World Bank’s reform agenda. We concur with

Treasury on these points.

Comments From the World

Bank

The Bank criticized our “exclusive reliance” on the results of the Bank’s

project evaluation system as a vehicle for assessing development

effectiveness. The Bank stated that our failure to evaluate the entire scope

of its activities prevented us from presenting a balanced view of the Bank’s

operations and effectiveness. According to the Bank, the report missed the

Bank’s catalytic role in development, because it overlooked the most

important areas of Bank involvement, including policy dialogue

undertaken outside the framework of specific projects and efforts to

enhance the underlying environment for private sector investment.

We acknowledge that project effectiveness is only a partial measure of the

overall impact of the Bank’s efforts. We report these data in detail because

they capture, in coherent fashion, the effectiveness of a very large portion

of the Bank’s activities (representing 86 percent of the Bank’s outlays in

fiscal year 1995). Similar data was not available to capture the overall

effectiveness of the Bank’s other activities, and in our view anecdotal

information is not a satisfactory substitute. Furthermore, as noted on the

first page of chapter 3, measuring the Bank’s broader impact on

developing countries is virtually impossible, given the variety of other

factors at work and the fact that one can only speculate as to what might

have happened in particular countries in the absence of the Bank’s

activities.

Page 66 GAO/NSIAD-96-212 World Bank
Chapter 6 

Conclusions, Recommendation, and Agency

Comments

While we do not attempt to capture the overall impact of the Bank’s

nonproject operations, our report does acknowledge and describe these

activities and comments on their effectiveness to the extent possible.

Chapter 5 reports that the Bank’s overall efforts, both lending and

nonlending, support U.S. foreign policy goals. As the Bank’s response to

our report noted, chapter 2 states that the private sector officials with

whom we spoke viewed the Bank as a positive force for market-oriented

reform in the developing world. Chapter 4 reports that the Country

Assistance Strategy (CAS) process, initiated 4 years ago, is helping the Bank

to focus its resources more effectively. Chapter 4 also reports that we

reviewed a number of CASs and that this review, in addition to other

available data, shows that the Bank appears to be adjusting lending levels

to reward better performance in borrowing countries. As Bank officials

have often pointed out, the impact of these efforts on project performance

will not be fully demonstrated for several years.

The Bank also commented that the report neglected to credit IFC for its

wide range of activities promoting private investment throughout the

world. A significant portion of chapter 2 is devoted to describing IFC’s

efforts to enhance private investment. The report highlights IFC’s lending

and advice services as well as its efforts to facilitate the entry of

businesses into new markets.

The Bank commented that our report gave little attention to the progress

of its reform efforts. We reviewed the Bank’s reform actions and agree that

the Bank has made some progress and that the reform agenda addresses

key performance problems. However, in several areas the impact of the

reforms has yet to be demonstrated or it was too soon to assess actual

results. Continued monitoring and reporting by Treasury on the progress

of these reforms, as we recommend, is important to ensure that the

reforms have a positive impact.

Comments From the

Department of State and

the U.S. Agency for

International Development

In its comments, the State Department emphasized the important role that

the World Bank plays in development as well as in furthering U.S. foreign

policy. The State Department reiterated the World Bank’s concern that we

did not fully acknowledge the Bank’s role in promoting market-oriented

reform in developing countries. The State Department also mentioned the

importance of U.S. leadership in promoting reform at the Bank.

The U.S. Agency for International Development stated that the World Bank

plays an important role in the effectiveness of the U.S. bilateral aid

Page 67 GAO/NSIAD-96-212 World Bank
Chapter 6 

Conclusions, Recommendation, and Agency

Comments

program. USAID noted that at the country level the Bank coordinates policy

reform and donor assistance efforts of bilateral donors, including the

United States. USAID also stated that the Bank has played a leadership role

in coordinating donor efforts in pursuing environmental concerns.

Page 68 GAO/NSIAD-96-212 World Bank
Page 69 GAO/NSIAD-96-212 World Bank
Appendix I 

International Bank for Reconstruction and

Development and International

Development Association Project Cycle

The International Band for Reconstruction and Development (IBRD) and

the International Development Association (IDA) project cycle includes six

phases: identification, preparation, appraisal, negotiation and board

presentation, implementation and supervision, and evaluation. Each phase

can last several months or years, depending on the nature and complexity

of the project. The following description of the six phases is derived

primarily from The Project Cycle, a pamphlet by Warren C. Baum,

published by the World Bank.

Identification The first phase of the cycle is identification of projects that are suitable for

Bank support within the context of the Bank’s Country Assistance

Strategies in particular countries and that are a high priority for the

borrowing entities.1

 The Bank encourages and helps borrowing countries

develop their own planning capabilities, and it often assists in planning by

carrying out economic and sectoral analyses to provide a framework for

understanding a country’s problems and the potential for development.

The Bank also assesses a country’s creditworthiness and, according to a

senior Bank official, reviews the potential for private sector support of

proposed investments. For a project to be considered for Bank financing,

the cost of likely technical and institutional solutions must be

commensurate with expected benefits. Once identified, projects are

incorporated into a multiyear lending program for each country.

Preparation In the preparation phase of a project, a brief is written that describes the

project’s objectives, identifies principal issues, and establishes a timetable

for its further processing. Formal responsibility for preparation rests with

the borrower; only in exceptional cases does the Bank itself do

preparatory work. However, the Bank can provide financial and technical

assistance for project preparation, either independently or in cooperation

with other bilateral and multilateral donors. Documents prepared during

this phase must identify and compare alternative approaches and address

the full range of technical, institutional, economic, and financial

conditions necessary to achieve the project’s objectives.

Appraisal Appraisal constitutes a comprehensive review of the technical,

institutional, economic, and financial aspects of the project and lays the

foundation for implementing the project and evaluating it when

1

A borrower from the Bank may include a member government, a public agency or corporation, or a

private body or corporation with the government’s guarantee. IDA credits are made only to

governments, to be passed on, if necessary, to the entity responsible for carrying out the project.

Page 70 GAO/NSIAD-96-212 World Bank
Appendix I 

International Bank for Reconstruction and

Development and International

Development Association Project Cycle

completed. Appraisal is solely the Bank’s responsibility and is done by

Bank staff, who typically spend 3 to 4 weeks in the field for this purpose.

• Technical appraisal is done to ensure that the project is soundly designed,

appropriately engineered, and follows accepted standards. Bank staff

review the technical alternatives, proposed solutions, and expected

results.

• Institutional appraisal addresses whether the institution implementing the

project is properly organized and its management is adequate, local

capabilities and initiatives are used effectively, and policy or institutional

changes outside the entity are required to achieve project objectives.

• Economic appraisal includes final review and assessment of the

cost-benefit analysis of alternative project designs to ensure that the

design selected contributes most to the country’s development objectives.

Bank personnel also examine the country’s entire investment program for

the sector, the strengths and weaknesses of relevant public and private

sector institutions, and key government policies.

• Financial appraisal is conducted to ensure that the borrower will have

sufficient funds to implement the project, that the project is financially

viable, and that pricing and cost recovery policies are appropriate.

The Bank staff prepare a staff appraisal report that sets forth its findings

and recommends terms and conditions of the loan. A project may be

extensively modified or redesigned to correct flaws identified during the

appraisal. Bank management officials review the report before approving

further negotiations with the borrower.

Negotiations and

Board Presentation

At the negotiation phase, the Bank and the borrower come to agreement

on the measures necessary to ensure the success of the project. These

agreements are then converted into legal obligations, which are set out in

the loan documents. All of the principal issues that have been raised prior

to and during appraisal are addressed in the loan documents.

After negotiations are completed and the project has been approved by

Bank management, it is presented to the Bank’s executive directors for

final approval. The executive directors review and consider the appraisal

report (amended to reflect the agreements reached), the loan documents,

a memorandum and recommendation of the Bank President/President’s

report, and the related Country Assistance Strategy. These documents

include a discussion of how the proposed project takes into account the

Page 71 GAO/NSIAD-96-212 World Bank
Appendix I 

International Bank for Reconstruction and

Development and International

Development Association Project Cycle

country’s priorities and its portfolio performance.2 If the executive

directors approve the project, the loan documents are signed in a simple

ceremony.

Implementation and

Supervision

Project implementation is the responsibility of the borrower, although the

Bank may provide assistance in such forms as organizational studies, staff

training, or the provision of consultants to help supervise construction.

The Bank supervises implementation to ensure that the project achieves

its objectives and works with the borrowers to identify and deal with

problems. Supervision is also meant to ensure that the borrower procures

goods and services in accordance with agreed-upon guidelines.

During negotiation, agreements are reached on a schedule of progress

reports to be submitted by the borrower. Progress reports are reviewed at

headquarters, and problems are dealt with by correspondence or in the

course of the field missions periodically sent to every project.

Using a standard evaluation form, Bank staff regularly assess the

performance of each project during implementation and upon the final

disbursement of loan funds. The assessments address implementation

progress and the likelihood that the project will achieve its development

objectives. Projects performing poorly in either of these two areas are

deemed problem projects. In addition, the Bank and borrowers may jointly

conduct mid-term reviews of individual projects and more comprehensive

country portfolio performance reviews. If major problems are persistent or

circumstances change significantly, jeopardizing successful

implementation of a project, the Bank and borrower may restructure the

project, modifying its scope, objectives, and/or implementation methods.

Evaluation In 1970, an evaluation system was established as the final phase of the

project cycle. After completion of a project, when the loan funds have

been fully disbursed, the Bank project staff—and/or the

borrower—prepare a completion report. In this report, the project is

assigned one of six ratings, ranging from highly unsatisfactory to highly

satisfactory. The Bank’s Operations Evaluation Department (OED),3

reviews each report and provides evaluative comments to the executive

directors. In addition, for a portion of the projects (currently about

2

The requirement to submit the Country Assistance Strategy was added in January 1995.

3

OED is entirely separate from the operating staff of the Bank and reports directly to the Board’s

executive directors.

Page 72 GAO/NSIAD-96-212 World Bank
Appendix I 

International Bank for Reconstruction and

Development and International

Development Association Project Cycle

25 percent), OED conducts an independent audit and assigns its own

project ratings. Most audits are based on a desk review of all materials

pertaining to the project and, when necessary, a field review, sometimes as

comprehensive as the original appraisal. Borrowers are asked to comment

on the OED audits. Completion reports and audit reports include

reestimation of the economic rate of return, when applicable, on the basis

of actual implementation costs and updated information on operating

costs and expected benefits. OED also conducts impact evaluations at least

5 years after the last disbursement for a small number of carefully selected

projects.

Page 73 GAO/NSIAD-96-212 World Bank
Appendix II 

Private Sector Firms Interviewed

Firm Location

ANZ Securities, Inc. New York, New York

Chase Manhattan Bank, N.A. New York, New York

Chemical Bank New York, New York

Citibank New York, New York

Daiwa Securities America Inc. New York, New York

Financial Securities Assurance New York, New York

Merril Lynch New York, New York

Peregrine Securities New York, New York

TIAA-CREF New York, New York

Standard Chartered Bank Los Angeles, California

Union Bank Los Angeles, California

Bank of America San Francisco, California

Bechtel San Francisco, California

ANZ Grindlays Bank plc London, England

Chase Investment Bank Ltd London, England

Chemical Bank London, England

ING/Barings London, England

Standard Bank London London, England

West Merchant Bank Ltd London, England

AES China Generating Co. Ltd Beijing, China

Louis Berger International, Inc. Beijing, China

Motorola (China) Electronics Ltd. Beijing, China

Salomon Brothers Inc. Beijing, China

Westinghouse Electric (China) S.A. Beijing, China

Chemical Bank Shanghai, China

Citibank, N.A. Shanghai, China

ING/Barings Shanghai, China

Price Waterhouse Shanghai, China

American International Assurance Hong Kong

Bank of America Hong Kong

Caterpillar China Ltd Hong Kong

Chemical Bank Hong Kong

Citicorp International Ltd Hong Kong

Consolidated Electronic Power Asia Ltd Hong Kong

Credit Suisse Hong Kong

First Chicago Hong Kong

Goldman Sachs (Asia) L.L.C. Hong Kong

Hong Kong & Shanghai Bank Hong Kong

(continued)

Page 74 GAO/NSIAD-96-212 World Bank
Appendix II 

Private Sector Firms Interviewed

Firm Location

Mass Transit Railway Corporation Hong Kong

Morgan Stanley Hong Kong

Parsons Brinkerhoff (Asia) Ltd. Hong Kong

Standard Chartered Bank Hong Kong

Bank of Tokyo/Project Finance Tokyo, Japan

Bank of Tokyo/Capital Markets Tokyo, Japan

Fuji Bank and Fuji Research Tokyo, Japan

Sumitomo Bank Tokyo, Japan

Marubeni Tokyo, Japan

Mitsubishi Tokyo, Japan

Nomura Securities Tokyo, Japan

Yamaichi Securities Tokyo, Japan

Daiwa Securities Tokyo, Japan

Bank of America New Delhi, India

Chemical Bank Bombay, India

Citibank New Delhi, India

Standard Chartered Bank Singapore

Templeton International Singapore

Midland Armenia Bank jsc Yerevan, Armenia

Hill International Overseas, Inc. Yerevan, Armenia

Other private entitiesa

American International Group, Inc. New York, New York

E.W. Payne Ltd/Sedgewick House London, England

HISCOX Syndicates Ltd (Lloyd’s) London, England

Moody’s New York, New York

Morrison & Foerster Hong Kong

Standard & Poor’s New York, New York

Standard & Poor’s Hong Kong

aThese private sector companies were not included in the displacement and enhancement

analysis because they are not directly involved in capital investment.

Page 75 GAO/NSIAD-96-212 World Bank
Appendix III 

Comments From the Department of the

Treasury

Note: A GAO comment

supplementing those in

the report text appears at

the end of this appendix.

See pp. 8 and 64.

Page 76 GAO/NSIAD-96-212 World Bank
Appendix III 

Comments From the Department of the

Treasury

See pp. 64-65.

See pp. 8 and 65.

Page 77 GAO/NSIAD-96-212 World Bank
Appendix III 

Comments From the Department of the

Treasury

See comment 1.

See p. 65.

Page 78 GAO/NSIAD-96-212 World Bank
Appendix III 

Comments From the Department of the

Treasury

See p. 66.

Page 79 GAO/NSIAD-96-212 World Bank
Appendix III 

Comments From the Department of the

Treasury

See pp. 8-9 and 66.

Page 80 GAO/NSIAD-96-212 World Bank
Appendix III 

Comments From the Department of the

Treasury

The following is GAO’s comment on the Department of the Treasury’s letter

dated September 9, 1996.

GAO Comment 1. We agree that the Bank’s follow-through on its commitments is critical.

We also agree that the Bank generates a considerable volume of

information that is useful in assessing progress. We note, however, that

much of this information is not sufficiently highlighted in Bank documents

or is not publicly available. Our recommendation is intended to provide

Members of the Congress and other interested observers with meaningful

and readily available information to objectively evaluate the Bank’s

progress toward achieving greater effectiveness.

Page 81 GAO/NSIAD-96-212 World Bank
Appendix IV 

Comments From the World Bank

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 82 GAO/NSIAD-96-212 World Bank
Appendix IV 

Comments From the World Bank

See pp. 8-9 and 66-67.

See pp. 8-9 and 66-67.

Page 83 GAO/NSIAD-96-212 World Bank
Appendix IV 

Comments From the World Bank

See comment 1.

See pp. 8-9 and 66-67.

Page 84 GAO/NSIAD-96-212 World Bank
Appendix IV 

Comments From the World Bank

See p. 67.

See comment 2.

Page 85 GAO/NSIAD-96-212 World Bank
Appendix IV 

Comments From the World Bank

Page 86 GAO/NSIAD-96-212 World Bank
Appendix IV 

Comments From the World Bank

Page 87 GAO/NSIAD-96-212 World Bank
Appendix IV 

Comments From the World Bank

The following are GAO’s comments on the World Bank’s letter dated

September 9, 1996.

GAO Comments 1. We acknowledge that the Bank invests considerable resources in

evaluating its own operational effectiveness, that the Bank’s evaluation

efforts are commonly held in high esteem by experts on international

development organizations in general, and that the information generated

by these efforts is very useful. However, we did not attempt to evaluate the

Bank’s evaluation systems or compare them to those employed by other

multilateral or bilateral assistance agencies.

2. To avoid as much misinterpretation as possible, we have used the

Bank’s own nomenclature and published definitions and explanations of

that nomenclature to describe project performance. We also included the

Bank’s own caveat that unsatisfactory projects may have made significant

contributions to development. Also, we specifically avoided equating the

term “unsatisfactory project” with failure.

Page 88 GAO/NSIAD-96-212 World Bank
Appendix V 

Comments From the Department of State

See pp. 8-9 and 66-67.

Page 89 GAO/NSIAD-96-212 World Bank
Appendix V 

Comments From the Department of State

Page 90 GAO/NSIAD-96-212 World Bank
Appendix VI 

Comments From the U.S. Agency for

International Development

See pp. 8 and 67-68.

Page 91 GAO/NSIAD-96-212 World Bank
Appendix VI 

Comments From the U.S. Agency for

International Development

Page 92 GAO/NSIAD-96-212 World Bank
Appendix VII 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Jaime Dominguez

John Hutton

Venecia Kenah

Bruce Kutnick

Michael McAtee

Thomas Melito

James Michels

Tetsuo Miyabara

Stanton Rothouse

Michael Zola

Office of General

Counsel, Washington,

D.C.

Mark Speight

Los Angeles Field

Office

Joyce Akins

(711164) Page 93 GAO/NSIAD-96-212 World Bank
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