Can World Bank fight poverty on pocket change?
Three dollars and 84 cents. That's the amount the world's leading development bank has on hand to lend to each of the globe's 5.2 billion poor and near-poor each year.
What the World Bank has to offer sounds paltry. Clearly, it's not enough to pull the disadvantaged into the middle class of rich industrial nations - earning, say, about $30,000 a year per household. But it may be enough to at least help the poorest people, many in Africa, move out of dire poverty.
Remedying severe poverty will be the key arena in which the success of the newly appointed World Bank president, Paul Wolfowitz, will be judged.
His nomination by President Bush was highly controversial. That's because, in his former job as deputy secretary of Defense, he was seen as an architect of the Iraq War, and because he woefully miscalculated the depth of the insurgency in Iraq and the need for the continued high levels of US troops there. Critics fear he will radically alter the way the bank does business by pursuing American goals instead of international ones.
More reconstruction money for Afghanistan and Iraq? Sure! New loans for Pakistan? Yes sir! More aid for Palestinians to tempt them to make peace with Israel, despite growing Jewish settlements on the West Bank? Of course.
Mr. Wolfowitz assured the bank's directors that he would act as an international civil servant, promoting world development from a neutral basis, and not as an American pawn. A former ambassador to Indonesia and dean of international studies at Johns Hopkins, he has experience in international development.
But the bank's European directors, who in the end voted for him, were concerned enough that they issued a two-page statement spelling out what they thought his stated commitment to reducing world poverty should mean. It basically calls for continuation of the bank's current development strategy.
Unfortunately, success in fighting world poverty may prove harder than fighting Saddam Hussein's armies.
In dollar terms, the World Bank is more mouse than mammoth. Annually, it lends some $20 billion to developing countries. That's not even a third of the $68 billion that rich nations doled out in foreign aid in 2003. Even that sum is "pocket change" in a $34 trillion world economy, says William Easterly, a former senior adviser to the bank, now an economist at New York University.
More money is flowing into developing nations from nongovernmental organizations - up $5 billion between 1990 and 2003 and equivalent to 17 percent of official foreign aid, the bank notes. Far more comes from immigrants who, working in well-to-do nations either legally or illegally, keep sending money back home. Their remittances reached $126 billion last year, way more than foreign aid.
Then there's foreign investment. Last year, private companies poured in some $301 billion in loans and investments in plants, equipment, offices, stocks, etc., - up $51 billion from the previous year.
So what makes the World Bank so special?
Despite its modest resources, it still ranks as a leading player because of where it invests. Its loans and grants are concentrated in the poorer nations, increasingly in Africa, that are often not attractive to private investors.
Lately, all this money has helped boost growth in developing countries to a record level. Their economies grew at an average rate of 6.6 percent last year, according to the bank's annual Global Development Finance Report. More important, private enterprises have started to thrive in many poor nations.
But economic challenges remain. The same report, for example, warns that ballooning global imbalances, especially the $666 billion US current account deficit, could put at risk the solid economic gains of developing countries.
On the political front, supporters of the World Bank worry about attacks from the left and the right. The left wants the bank to allow the poorest countries to cancel repayment of its loans. That's so they can devote more of their resources to health and education. But debt forgiveness shrinks the bank's income and thus perhaps its future loans.
The right prefers to leave development to private enterprise. But the World Bank receives most of its income from loans to middle-income nations and then turns some of the modest profit on these loans to help poorer nations.
Given those pressures, Wolfowitz's biggest challenge may be keeping the World Bank on its current track. Many nations will be watching him closely.