document: How can 6,000 civil servants , mostly based in Washington , best promote development in the Third World ? That is the vexing question facing Mr Lewis Preston , the former chairman of J P Morgan , the New York bank , who takes over as president of the World Bank this September . As bankers and finance ministers gathered in Washington this weekend for the spring meetings of the bank and International Monetary Fund , there was no shortage of advice . The US Treasury wants the bank to bypass the governments of developing countries and lend sizeable sums directly to the private sector . The bank is also under pressure to follow the example of Mr Jacques Attali 's European Bank for Reconstruction and Development -LRB- EBRD -RRB- and attach strict political conditions to its loans . Development economists , meanwhile , are urging the bank to respect the rhetoric of last year 's World Development Report and focus more on poverty alleviation . Mr Preston may relax on one count . Few in Washington now doubt that the bank is needed : new imperatives , such as reconstruction in eastern Europe and the Middle East , have merely been superimposed on older , unsolved problems : Grinding poverty is a near universal condition in much of the world : 1bn people live on less than Dollars 1 a day . More than 110m Third World children lack access even to primary education . Horrific inequality abounds . In Mexico , life expectancy for the poorest 10 per cent is 20 years less than for the richest 10 per cent . What kind of bank will Mr Preston inherit from his predecessor , Mr Barber Conable ? Most reports are mixed . ` It is not an impressive bureaucracy , ' says Mr John Williamson , a senior fellow at the Institute for International Economics . ` The morale of staff is lousy , ' says Mr Charles Flickner , a senior analyst on the Senate Budget Committee and close observer of the bank . Mr Conable , a former Republican congressman , arrived at the bank in 1986 knowing little about either banking or development . Although now well-liked -LRB- partly for championing causes such as women 's rights in the Third World -RRB- , many observers say he never fully recovered from a rocky start involving a divisive internal reorganisation of the bank . Mr Percy Mistry , a scholar at Queen Elizabeth House , Oxford , and former senior adviser at the bank , says it suffered from ` presidential failure ' during the 1980s . Mr Robert McNamara , a forceful chief executive in the 1970s , built a presidential institution that responded to firm leadership from the top . But neither Mr Conable nor his predecessor , Mr A W ` Tom ' Clausen , a commercial banker , could fill his shoes . For a decade the bank has effectively been run by two senior - and strong-willed - vice-presidents : Mr Ernest Stern -LRB- who nearly left last year to join the EBRD -RRB- and Mr Moeen Qureshi . Mr Preston 's first challenge , says Mr Mistry , will be to wrest control of the bank from Messrs Stern and Qureshi ; his second , to prune legions of ` useless advisers ' and install managers with real-world experience . His third , one might add , will be quickly to establish his independence from the US Treasury which always browbeats a newcomer . What kind of development legacy will Mr Preston inherit ? In spite of recent progress in a few countries , such as Mexico , the past decade has been one of relative failure . Many Third World countries have gone backwards . Real per capita incomes have declined substantially in sub-Saharan Africa and the Middle East , and mildly in Latin America . The biggest drag on growth is the huge debt accumulated in the 1970s and early 1980s . Many optimists see the debt reduction strategy launched by Mr Nicholas Brady , the US Treasury Secretary , in 1989 , as a ` final solution ' to the debt crisis . Under the plan official agencies assume some of the burden of developing countries ' private debts on condition that they implement market-oriented economic reforms . ` The Brady plan is enough , ' says Mr Williamson , if developing countries are willing to embrace reform and if it is matched by greater forgiveness of official debt . Officials such as Mr David Mulford of the US Treasury say the recent forgiveness of about half of Poland 's official debt will not set a precedent for other debtors . Mr Williamson laughs . ` In the long run it will be impossible to isolate Poland , ' he says . ` It is not so much more deserving than other countries . ' But why was a Brady-type solution not launched much earlier ? For most of the 1980s , the First World doggedly refused to consider debt forgiveness . The result of delay and compound interest is a total debt burden today of some Dollars 1,341 bn compared with a relatively manageable Dollars 639bn in 1980 . ` The bank failed to take a timely leadership position on the debt crisis , ' concludes Mr Richard Feinberg , director of the Overseas Development Council in Washington . -LRB- The IMF was equally short-sighted . -RRB- As incoming president , Mr Preston must review the bank 's strategies for promoting development . The main innovation of the 1980s was a switch from project lending to ` structural adjustment ' lending . Making finance conditional on structural reforms was supposed to transform the economic performance of developing countries . But studies indicate the results have been fairly unimpressive . This is both because countries failed to abide by the loan conditions and because the bank 's policies were sometimes misguided . Professor John Toye , director of the Institute for Development Studies at Sussex University , recently completed an exhaustive analysis of bank programmes . He concludes -LRB- as do internal bank analyses -RRB- that policy-based lending has ` achieved something , particularly in relation to the external account , but not nearly as much as the bank and donor community hoped ' . On average programmes have reduced balance of payments gaps , had a negligible impact on Gross National Product and led to falls in the ratio of investment to GNP . Mr Feinberg calls the decline in investment the ` great shortcoming of structural adjustment lending in the 1980s ' . -LRB- Investment to GNP ratios have fallen markedly in Africa , the Middle East and Latin America . -RRB- He says the bank was naive to expect entrepreneurs to respond to the austerity of adjustment by increasing investment . How can the bank do better in the 1990s ? One problem is that it has lost leverage over many Third World governments . The maturing of bank programmes and the failure to expand lending much in the 1980s has led to a marked shrinkage in its net transfers to developing countries . According to Mr Lawrence Summers , the bank 's chief economist , net transfers over the next five years will be about Dollars 2 per person in the developing world compared with Dollars 9 -LRB- in current prices -RRB- in the late 1970s . For the large number of countries that do not qualify for concessional loans , the net flow will be negative . Some analysts , including US Treasury officials , believe lacklustre performance in much of the Third World reflects the inefficiency -LRB- and sometimes corruption -RRB- of governments . The EBRD 's constitution requires borrowers to be ` committed to and applying the principles of multi-party democracy , pluralism and market economics ' . It also says 60 per cent of EBRD resources must be devoted to the commercial sector - private businesses and state concerns in the process of privatisation . The World Bank operates under very different rules : its charter requires it to be non-political and only its small affiliate , the International Finance Corporation -LRB- IFC -RRB- , can make direct loans to private businesses . Should the bank 's charter be amended ? Direct parallels between the bank and the EBRD are dubious . The EBRD is ministering to a region that has historical ties with western Europe and that has declared its commitment to democracy and free markets . Such values are alien in many developing countries , but that does not imply they should be denied the means for economic development . If strict political conditionality had been imposed in the past , the bank could not have lent to a development star such as South Korea . Most analysts , however , say the bank should tighten up a little . Mr Flickner of the Senate Budget Committee says the issue is not whether to insist on Westminster-style democracy but whether the form of governance is such that ` loans will benefit the majority of the people ' . Bank officials say greater attention will be paid to issues such as the rule of law and transparency of decision-taking . Should a significant chunk of the bank 's loans be made direct to the private sector ? Mr Conable , to his credit , is resisting the US Treasury 's pressure . He says the bank 's main aim is to combat poverty and that it will seek a ` balanced relationship between government and the market ' in developing countries . In reality , much of the most badly-needed investment is in spheres such as infrastructure , health care and education where governments play a dominant role even in industrialised countries . Indeed , one conclusion of Prof Toye 's analysis is that policy-based loans would have a greater chance of success if they included measures to expand the role of the state in poorer countries alongside measures to promote economic liberalisation . Sir William Ryrie , the head of the IFC , says the objective of a large volume of public lending to the private sector is wrong-headed . ` What we are trying to do is facilitate the flow of private-sector funds into sound investments . ' Advocates of a switch to direct support of the private sector are surely not arguing for public subsidies for Third World entrepreneurs ; but if subsidies are ruled out , why should the bank 's judgment of market risk be more reliable than that of private lenders in the west ? There are alternative recipes for fostering faster Third World development . During the 1980s the bank placed great faith in free market nostrums . It wanted to impose on developing countries policies that had become recently fashionable in the industrialised world . But the notion that economic liberalisation alone is sufficient is increasingly questioned . The bank 's own research department is highlighting the need to relieve poverty directly and to improve fundamentals , such as education , nutrition and health care . ` Liberalisation matters , ' says Mr Williamson at the Institute for International Economics , ` but education is more important . ' He argues that the best way of stimulating growth and improving income distribution is to put resources into education and primary health care . Mr Feinberg at the Overseas Development Council broadly agrees : the bank has got to find a way of ` melding equity and efficiency as it promotes development ' . The challenge for Mr Preston is clear : put the sterile ideological battles of the 1980s behind the bank and develop policies that put greater emphasis on the formation of human capital . Mr Summers , the bank 's economist , says pessimistically that because development money will be in short supply over the next decade , the bank and other donors will have to concentrate on exporting ideas . Ideas are certainly important , but they do not build hospitals or schools . More money could be made available : a mere 10 per cent cut in western defence spending , for example , would pay for a doubling of official aid . Rather than tamely accepting the status quo , Mr Preston could use his platform to promote a more constructive attitude in rich countries . ----------------------------------------------------------------------- FALLS IN INVESTMENT ----------------------------------------------------------------------- Domestic investment as % of GNP 1975-82 1983-90 All developing countries 26.7 23.6 Africa 26.4 19.4 Middle East 26.3 23.4 Latin America & Caribbean 23.3 18.3 Asia 27.9 28.9 ----------------------------------------------------------------------- Source : IMF ----------------------------------------------------------------------- ----------------------------------------------------------------------- WORLD BANK DISBURSEMENTS ----------------------------------------------------------------------- By region -LRB- Fiscal 1990 -RRB- Billion dollars Gross Net Sub-Sahara Africa 2.70 1.98 Asia 6.27 3.72 Europe , Middle East and N Africa 2.57 0.39 Latin America & Caribbean 6.16 3.25 ----------------------------------------------------------------------- Source : World Bank -----------------------------------------------------------------------
extractive_keyphrases: third world lewis preston poverty alleviation world bank washington president loan conditions