In its budget submitted to Capitol Hill, the Clinton administration argues the importance of maintaining U.S. appropriations to the multilateral development banks to support post-Cold War foreign policy.
The document warned justifiably that the former Soviet Union and sub-Sahara Africa may face a grim future without the development banks' resources and expertise, but current funding patterns at the World Bank, endorsed by the major industrial country shareholders, already divert money and personnel from these regions.
The institution's biggest borrowers continue to be advanced developing economies in Latin America and Asia that are now able to access international commercial finance.
At a Crossroads
Congress should be hesitant about greater commitments until lending is redirected to the neediest cases in conformance with the bank's charter mission of poverty alleviation and intervention where private investment is inadequate.
In its 50th anniversary year, the World Bank, like many of its newest and oldest members, is at a crossroads. A series of internal reports cited frequently by legislative opponents has highlighted poor portfolio performance, a lending preference for large capital-intensive schemes, and project design lacking sufficient attention to social concerns and the environment.
One report found that the percentage of failed credits had doubled over the past decade, and another criticized the 'ill-conceived' community dislocation and lack of consultation associated with the Narada dam in India.
Social Concerns
The regional banks have echoed these conclusions in their own studies. The Asian Development Bank estimated that 60% of credits in a sample survey were performing below standard, while at the African Development Bank management consultants commissioned by the executive board put the figure at 30%.
A task force at the Inter-American Development Bank has also released a review which calls for less politicization and bureaucratic control and heightened emphasis on social sectors in lending operations.
Meanwhile the newest regional entity, the European Bank for Reconstruction and Development, has just moved into a position where external funding exceeds internal administrative expenses.
More Sober Stance
Such expenses reached dramatic proportions under the presidency of Jacques Attali, who eventually was forced to resign. Extravagances included gourmet chefs, private jets, and lavish headquarters renovations.
Under Mr. Attali's successor, former International Monetary Fund head Jacques DeLarosiere, the regional bank has reorganized departments and adopted a more sober stance on expenses.
For example, business class air travel may no longer be automatic for all personnel. Yet in the turmoil, the institution has languished and the target set at its creation for a 60%-40% split between private and public sector activity awaits accelerated engagement.
Less Needy Get More
However, most important for Congress, the administration, and the American taxpayer, the bulk of World Bank and regional bank assistance continues to go to recipients that already attract sizable levels of private capital -- as illustrated by the bank's own statistics.
These flows have increased more than twofold in the past two years to record sums of direct and portfolio investment, which outstrip official aid and render World Bank infusions slight in comparison.
Of the estimated $180 billion in overseas capital targeting developing countries, 60% is privately sourced in the form of loans and equity for factories and equipment and holdings of stocks and bonds.
Foreign interest in emerging securities markets throughout the developing world is well documented by the bank's own International Finance Corporalion affiliate.
Equity portfolio investment has surged from less than $1 billion in the late 1980s to $13 billion, according to the bank's latest annual figures, as investors pursue double-digit and triple-digit gains available in these high-risk, high-reward areas.
Yet only a handful of countries account for the vast bulk of this inward investment. Argentina, Chile, Mexico, China, Indonesia, and Thailand dominate the group with their rapid economic growth and reform progress, which in recent years has accompanied debt reduction as agreed to by creditor banks.
Their GDPs are expanding at double the rate of the industrial world, and they have managed to slash inflation, shrink budget deficits, export heavily, and eliminate protectionist barriers.
In contrast, Russia, the newly independent states, and sub-Sahara Africa have missed out on the boom. They suffer from economic policy blockage and stagnation, capital flight, and growing debt burdens.
The Lion's Share
The same investor favorites in Latin America and Asia have in recent years received one-half to two-thirds of total World Bank credit - which is in the $20 billion range - despite their capacity to easily secure such sums elsewhere.
By comparison, commitments to Africa dropped in fiscal 1993, and Western allies have conceded in recent months that lending to the former Soviet Union through the IMF and World Bank has been slower and smaller than planned.
In particular, structural and sector-based adjustment operations which helped produce the Latin American and Asian success stories have lagged behind pressing reform needs. and U.S. taxpayers are right to question assistance being given instead to their fiercest foreign competitors through World Bank channels.
Shareholders must demand the phasing out of concessional credit as nations proceed to obtain global capital on commercial terms. Such a graduation mechanism already exists within our general system of preferences, which reflects multilateral duty-free arrangements.
With the United States taking the lead and pushing for such common-sense change, the World Bank in its golden anniversary year can gain new luster in the eyes of desperate clients and skeptical lawmakers alike.
Mr. Kleiman is senior partner of Kleiman International Consultants Inc., Washington.
