While the bank remains powerful and prestigious in the developing world-it will lend more than $18 billion this year-it has become less and less relevant to the world’s poor (chart). During the debt crisis that started in 1982, it sat on the sidelines. Countries like the Ivory Coast and the Philippines, once touted as World Bank success stories, slid backward. After Eastern Europe’s Communist governments collapsed in 1989, the European Community insisted on starting a separate institution to help the region recover from four decades of misrule.
Traditional bricks-and-mortar projects fell out of favor in the late 1980s; the World Bank finally figured, out that irrigation schemes won’t boost farm production so long as the government keeps food prices artificially low. Instead, the hot trend at the bank’s sprawling Washington headquarters has been loans to reform economic policy along the lines suggested by its economists. Countries that take the advice, decontrolling prices or cutting subsidies, can get lots of money: reform-minded Mexico is now the biggest borrower. Less compliant countries, like Brazil, find the spigot harder to open. Brazil is “clearly not taking the steps it is necessary to take,” says Moeen Qureshi, head of the bank’s lending operations.
Trouble is, there is no scientific certainty about what those steps should be. The bank economists who now push poor countries to adopt extreme free-market policies are, in some cases, the same ones who urged them to adopt central economic planning in the 1950s. “They sometimes get pretty firm in their assertions. A careful economist might be more skeptical,” says Princeton University economist John P. Lewis, who is writing a history of the institution. Last spring, for example, the bank pushed Argentina to eliminate export taxes to free up trade, although International Monetary Fund economists thought the Argentines should keep the taxes to balance their budget.
For many developing countries, the World Bank is no longer the critical source of money it once was. The surge of private capital into Asia and Latin America offers proof that when economic policies are sensible, investment will follow. The major exception is Africa, where prospects in many countries are so bleak that special World Bank loans, bearing interest rates of only .75 percent, are irreplaceable. Yet even with such giveaways, the bank’s record in Africa is an embarrassment; the fruits of the $24 billion it lent there in the 1980S are hard to find. “Governance”-Shorthand for fighting corruption-is among the bank’s watchwords for the 1990s, but holding the money and just sending advice is out of the question. Contends finance chief Ernest Stern: “Advice with money is much more influential than advice without.”
Outside Africa, however, the bank increasingly finds itself treading on others’ turf. Many loans now aim to help countries stabilize their exchange rates, which is the IMF’s job. Lending to the Soviet Union may be the bank’s next big venture, although the Soviets’ most pressing economic needs-a functioning central bank and a freely tradable currency-are normally beyond the World Bank’s scope. In the new world order, it badly needs a mission-and perhaps a narrower one than before. Money, while potent medicine, is not a cure-all.
