Even After 50 Years, The World's Poor Still Cannot Bank On Sufficient Aid
The Age
Tuesday May 3, 1994
`THE TIMES OF INDIA', the morning paper of Delhi's English-speaking elite, keeps a reporter travelling around the poorest regions of India to send back dispatches so its rulers know what their country is like.
They make compelling reading.
One day in the backblocks of Orissa he caught a boat - crowded to five times its capacity - across the waters of a hydro dam to what is officially called ``the Cut-off Area": some hills with no road access where the villagers who once occupied the flooded valley had been resettled.
The river by which their ancestors lived turns out 720 megawatts of electricity; yet the 30,000 residents in the Cut-off Area have none.
Some had a hectare or so of land; the rest fished, raided the forests, or worked as laborers for 20 cents an hour.
Sometimes the Government sent sacks of nuts for them to plant, but the hungry villagers usually ate them. Even the local moneylender had stopped lending. The only hope was the boat taking them off to some crowded city with jobs.
It is now 50 years since the Allies, fired by the same idealism for the post-war world that led Australia to promise full employment, decided to set up twin institutions to fight poverty and spread global prosperity.
At the resort of Bretton Woods, New Hampshire, they agreed on an international development fund to help countries rebuild their economies, and a new international bank to help maintain their solvency and protect their currency.
Economists being what they are, the names got muddled. The development fund was called the World Bank. The new bank was called the International Monetary Fund. But in 1994, they are more central than ever - and more controversial - in the lives of most of the world's people.
For while most of us are far richer now than 50 years ago, 1.1billion people - one-fifth of the Earth's population - live in absolute poverty. Their numbers almost doubled in the 1980s, and some hold the World Bank and IMF partly to blame.
The bank has been savaged for financing dams that have displaced tribespeople and poor villagers, farms and plantations that have wiped out rainforests, transmigration schemes on disputed land, and - along with the IMF - structural adjustment programs that have slashed services to the poor.
The bank concedes some of the criticism. It now requires environmental impact statements on all projects, has pulled out of India's giant Narmada dam project, and is urging Asia's new tigers to tackle pollution hard. ``Poverty reduction," says its president, Mr Lewis Preston, ``must be the benchmark against which our performance as a development institution is judged."
Much has gone right for developing countries. Take Indonesia: a generation ago, 60per cent of Indonesians lived in absolute poverty.
Today they number only 15per cent, output per head has trebled to $4000 a year (in buying power), Indonesians eat as much as their neighbors in Singapore, virtually all kids are at school, and life expectancy is 60.
The bank's vice-president for East Asia, Mr Gautam Kaji, said recently that its scorecard had far exceeded the expectations of Bretton Woods.
``We can take pride that in east Asia, hundreds of millions of men and women and children have better, longer lives, in part because the international community decided 50 years ago to embark on an experiment called `development'."
But for every Indonesia, critics argue, there are countries like the Philippines, where per capita income is lower now than a decade ago.
Latin America essentially lost a decade in the 1980s to the debt crisis. Much of Africa has lost a generation.
The main target of critics is structural adjustment: the program by which the bank and IMF lend funds to countries in trouble on condition that they implement a package of tough measures to restore fiscal and/or current account balance. Too often, they say, the pain of those budgets falls squarely on the poor.
After reviewing structural adjustment in 55 countries, Dr Azizur Khan, a former bank economist, reported that 27 suffered a fall in income per head, 13 still had very high deficits and debt, seven more had declined on social indicators, while Brazil had seen investment collapse. Only seven of the 55 adjusted successfully.
Labor MP John Langmore argues that structural adjustment programs would do less damage if they were implemented gradually, financed more by progressive taxes and cuts in military spending, and left basic health and education spending alone. He wants both bodies to prepare ``poverty impact statements" for all future lending.
``There hasn't been much of a shift in the economic paradigm ruling at the bank, and there's certainly been none at the fund," Mr Langmore says. ``It's the IMF's job to get growth in per capita income, but that has been retarded by some of its structural adjustment programs."
Officials say that is not their fault. Nicholas Hope, the bank's director in Jakarta, says Africa stagnated because its governments followed the wrong policies. They kept food prices too low; invested little on education, basic health, roads, research and agricultural extension; and failed to tackle population growth. (African women on average have 6.5 children, compared to 2.9 in Indonesia and 1.8 in the West.) By contrast, Mr Hope says, Indonesia succeeded because its policy- making was ``probably the best of the developing countries". It invested scarce funds wisely, changed course quickly when it had to, and built few white elephants. It also ensured that its new wealth got to the poor, whereas in Thailand poverty has risen as growth was concentrated in Bangkok (to choking point).
In a recent seminal study - `The East Asian Miracle: Economic Growth and Public Policy' - the bank tried to identify the common factors in the success stories of Asia. Its conclusions backed up both sides of the development debate, noting that tough, street-smart economic management and well-directed social spending both played crucial roles.
The basic lessons were the importance of high investment and high savings rates, good investment choices by governments, the flexibility to respond quickly to crises and opportunities, and the need to pour resources into basic education (especially for girls) and health care rather than elite institutions.
Mr Kaji sums up the bank's position as a search for the right balance - between the state and the market, growth and the environment, ``trickle down" theories and targeted intervention. ``The truth is that there is no single prescription appropriate for every circumstance," he said.
Thus it seizes opportunities where it can. The bank is funding redundancy payments for one-third of the Ugandan army, funding improvements to Indonesia's financial regulation, and urging Asian countries to invest more on environmental health. (It estimates that traffic congestion in Bangkok alone costs $4.5billion a year in health costs and lost time: 10per cent of the city's output.) Still, the bank's 50th birthday finds it with few friends. Britain and the US are demanding that it direct more loans to the private sector and fewer to government. Aid bodies, adopting the slogan ``50 years is enough", are holding seminars to insist that it direct more loans to tackling poverty.
But Treasury's assistant secretary for international and development finance, Mr Ken Waller, says the bank is being made a scapegoat. ``At the end of the day, whatever the agencies say, it's the commitment to reform by governments themselves that gets things going," he says.
``Governments are the key element."
© 1994 The Age