A Heavy Load for New World Bank President
THE GLOBAL ECONOMY
THE World Bank assembles an impressive array of economic statistics on its 150-plus member countries, where more than 90 percent of the world's people live. They range from the most destitute, Mozambique and Ethiopia, with annual per capita incomes of about $100 - to the wealthiest, Switzerland, with a per capita income 300 times that amount.Three-quarters of the bank's members have per capita incomes of $3,000 or less (i.e., not even 15 percent of US incomes). Worse still, the majority of world's poorer countries, and nearly all of those in Latin America and Africa, lost ground in the 1980s. Battered by heavy debts, by low prices for their commodity exports, and by misguided government policies and weak ethics, economies stagnated and incomes declined further. Such is the distressing landscape facing the World Bank's new president, Lewis Preston, who this week presided over the bank's annual meeting in Bangkok. The crucial challenges: to restore economic health and sustained growth to developing countries and simultaneously foster effective action to confront endemic poverty. Yet these tasks may be easier than they were just a few years ago. The World Bank, which obtained a capital replenishment of $75 billion in 1988, and its sister institution, the International Monetary Fund, now have the resources to increase lending to developing nations - even with new demands from Eastern Europe and the Soviet Union. For much of the 1980s, the World bank and IMF together collected more interest and principal from third-world debtors than they provided in new loans - thus contributing to a perverse drain of capital from poorer to richer countries. Both institutions can help reverse this transfer by supplying their own financial resources and by pressing commercial banks to speed debt reduction. They can also help catalyze new private flows by showing borrowers how to create an economic environment more conducive to bu siness confidence. Already, many poorer countries are better able to use international capital because they have undertaken growth-oriented economic reforms - reducing budget deficits, allowing private markets to set prices, and putting new emphasis on trade. This, however, does not insure smooth sailing for the World Bank. The bank's major shareholders in the industrialized world are divided on some critical issues, and Japan and Western Europe are no longer willing to acquiesce to US dominance. The president of the bank has always been an American. Mr. Preston is no exception - but perhaps more than his predecessors he will have to demonstrate independence of the US Treasury Department. ONE divisive issue concerns the role of governments in the provision of public services, income distribution, industrial policy, and export promotion. The United States advocates heavy reliance on the private sector acting alone, an approach uncomfortable to Japan and most West Europe nations. The bank will have to take greater account of the Asian experience, including Japan's own, where government-industry collaboration has produced dynamic growth. A second problem concerns the political conditions that the World Bank should place on its support. Strictly speaking, any overt "political" conditioning would violate the bank's charter, but the US and Europe are increasingly unwilling to countenance "business as usual" with authoritarian regimes or those that abuse human rights. The Bank needs to define policies for the next Tiananmen Square or the next Haitian coup. It must find a way to add its weight to efforts to protect human rights and foster democratic practice - at the same time that it maintains a coherent approach to economic development. These challenges are all interrelated. Winning the struggle against stagnation and poverty will require adequate external resources, sound economic policies, and democratic and humane governments. Helping each country find the right policy mix and the necessary capital to achieve both growth and equity is where Mr. Preston should be directing the Bank's money, skills, and influence.