Originally published on the CGS blog on May 11, 2007.
One of the looming threats of Wolfowitz’s 2-year tenure at the World Bank has been the uncertainty about whether the World Bank’s donors–particularly the European countries?would maintain their financial contributions to the institution. Over the course of the two years, they have sparred with the bank’s president over the anti-corruption strategy and have raised concerns about his qualifications for the job (although not loudly enough to prevent him from getting it!) and management style. From early on in Wolfowitz’s term, there were signs that European donors were willing to take their money elsewhere?UNDP or other multilateral agencies. While increasing funds to these other agencies is a good thing, taking it away from the World Bank could damage the bank’s ability to carry out its unique function of concessional lending to developing countries to meet their development needs. One may not agree with how the bank has operated over the years but the need for such an institution, is clear.
A reduction in financial support for the bank is particularly problematic now because donors are in the process of negotiating their contributions to the bank’s zero-interest lending window, the International Development Association, for the next three years and because the 2005 Multilateral Debt Relief Initiative cancelled 100% of the debt owed to the World Bank by some of the world’s poorest countries wrote off repayments that the World Bank relies on to finance its lending. The debt relief deal was good for the countries that benefited but to avoid penalizing other developing countries the deal included a commitment that donors would increase contributions to make up for the loss in repayments. If European donors lose faith in the bank, as it seems they may as Steven Weisman reports in today’s New York Times:
European leaders have told the Bush administration that Paul D. Wolfowitz must resign as president of the World Bank in order to avoid a vote next week by the bank’s board declaring that he no longer has its confidence to function as the bank’s leader, European officials said Thursday. The officials said the board was drafting a resolution reflecting its view that the relationship between Mr. Wolfowitz and the governing body of the bank had ?broken beyond repair. They noted that, if he remained in office, some European countries were planning to reduce contributions to the World Bank that would aid poor countries and instead would channel the money to European agencies and other groups for distribution.
…the World Bank may find itself in a financial squeeze?this will not be good for its client countries that would then be forced to look elsewhere for loans, under conditions that could actually be worse! One advantage of a multilateral financial system is that there is international oversight, even though it may not always be as effective as it should–that’s the subject of another blog post.
