The Wall Street Journal
Copyright (c) 1985, Dow Jones & Co., Inc.
Monday, September 30, 1985
Behind the Words at the World Bank
By James Bovard

As some 9,000 interested parties gather in Seoul this week
for the World Bank's annual meeting, accolades will be heard
for the bank's new awareness of the private sector, and its
crucial role in spurring international development. But what
changes the bank has made in recent years don't add up to an

Bank President A.W. Clausen often praises private
enterprise these days, but the vast majority of World Bank
loans still go to strengthen government bureaucracies and
reinforce their control over the economy. Loans to communist
countries alone have increased fourfold since 1981 and will
constitute 13.4% of the bank's 1985 lending. The bank has
been the driving force behind the nationalization of oil and
natural gas throughout the Third World. And all the while, it
has shown too little concern for human-rights violations in
its projects.

The bank has given the government of Indonesia more than
$600 million to remove -- sometimes forcibly -- several
million people from the densely populated island of Java and
resettle them on comparatively barren islands elsewhere in
Indonesia. Despite reports of violence, the bank continues
lauding the project as "the largest voluntary migration" in
recent history.

The London-based Anti-Slavery Society for Human Rights
reported to the United Nations that at least one supposedly
vacant island being given to the migrants was already
inhabited -- and that the Indonesian army cleared the island
by setting the original inhabitants' crops on fire. Indonesia
is sending hundreds of thousands of migrants to the island of
Irian Jayaand the island's original inhabitants claim they
are being driven from their lands by the Indonesian army. The
Indonesian government is also resettling Javanese on the
island of East Timor -- which the army seized in 1975.
According to a 1983 Washington Post account quoting relief
workers, an estimated 150,000 of the island's 700,000
inhabitants were killed or left to die of starvation in the
ensuing strife.

The transmigration project is supposed to make the
migrants more productive. But the project mainly moves poor
farmers from small amounts of good land to large amounts of
nearly worthless land. The government often fails to honor
its promises to provide water, roads, schools and tools. It
costs about $6,000 to move each family, yet most families
that are moved end up making little or no income from their
new habitats, and many who previously supported themselves in
Java have gone on welfare.

The Polonoroeste project in Brazil is a similar fiasco.
The bank has poured almost half a billion dollars into a
scheme to move landless farmers into cleared areas in the
Amazon tropical forests. But about all the project succeeded
in doing was building a road and encouraging tens of
thousands of people to move to an area with terrible farm
land and almost no infrastructure. The project has
pointlessly cut down hundreds of square miles of rain forests
and engendered much violence between the new arrivals and the
indigenous Indians. The bank specified in the original loan
agreement with Brazil that the Indians' rights must be
respected, but then did nothing when the Indians' lands were
trampled. After two years' uproar by U.S. environmental
groups and extensive congressional hearings, the bank has
temporarily stopped funding the project.

To its credit, the bank has contributed funds to help
privatize a few government corporations in Africa and Asia.
But at the same time the bank is spending a few million
dollars to resurrect private companies that previous bank
loans often helped nationalize, it is pouring billions into
maintaining state-owned enterprises (SOEs) throughout the
Third World.

The bank's latest kick is "public sector improvement
loans" -- basically, transferring the cost of socialist
inefficiency from the recipient government to the World
Bank's donors. Morocco received $200 million for "actions to
improve public investment planning and the functioning of the
public enterprise sector." Chile received $11 million to help
the government "orient and guide the process of resource
allocations" among SOEs. Ecuador received $14 million "to
increase the public sector's contribution to economic growth
by improving the management of key public enterprises."

The bank's biggest socialistic binge is occurring in
energy projects. Most World Bank energy loans either displace
foreign private investment or deter the development of
private companies in recipient countries. World Bank 1985
energy loans include $92 million to the Yugoslavian
government for oil and gas exploration, $233 million to the
Pakistani government oil companies, $248 million to the
Indian government for coal-mine development, and $110 million
to the Bangladesh government for natural gas exploration.
These loans do nothing to increase development -- but only
add to the size of Third World governments, breeding more
bureaucrats and fewer entrepreneurs.

The biggest change at the bank since Mr. Clausen took over
in 1981 is the huge increase in lending to communist
countries. Since 1981, China, Romania, Ethiopia, Yugoslavia
and Hungary have received more than $6 billion -- including
almost $2 billion in 1985. Even though China has easy access
to commercial credit, Mr. Clausen favors doubling World Bank
lending to China from the current $1 billion a year. Nor is
World Bank financing being used to pry China away from
socialism -- the bank gave China a $47 million zero-interest,
50-year loan for the development of its state farms.

The bank also is busy subsidizing America's trade
competitors. South Korea received $556 million in World Bank
loans this past year for purposes like providing "much needed
capital for economically and financially viable industrial
projects" and enhancing rail capacity in the Seoul industrial
corridor. South Korea is better managed than most World Bank
borrowers -- but, like most borrowers, it has long had easy
access to commercial credit and need not rely on the bank's

The bank, like most international organizations, has tried
to use the African famine to drum up support to boost its own
budget. Though much of Mr. Clausen's rhetoric is devoted to
Africa's dire straits, barely 10% of the bank's 1985 loans
have gone to sub-Saharan Africa. And the biggest beneficiary
was Ethiopia.

This past year, much to the bank's embarrassment, its loan
volume fell 7%. A classified internal World Bank memo late
last year outlined plans to relax all types of loan
requirements in order to spur borrower demand. The bank
subsequently abolished its one-quarter percent "handling fee"
on loans. The bank currently has $17 billion in unlent cash

Despite the bank's inability to meet its loan goals, Mr.
Clausen wants to expand. Earlier this year he said he hoped
to request a $40 billion increase in callable capital
(existing total: $55.8 billion), though he may be retreating
from that goal now. Whatever, Mr. Clausen wants the bank to
have a larger role in managing the international debt crisis
-- which would be akin to appointing Mrs. O'Leary's cow chief
of the Chicago Fire Department.

Mr. Clausen and his predecessor, Robert McNamara, beat the
bushes to encourage more commercial lending to Third World
governments. Now we have a debt problem that is indeed
serious, and foolish American banks are in trouble. But if
the U.S. wants to bail out its banks it should give them the
money directly and not launder the handouts through the World
Bank and Third World governments.

Mr. Clausen's term as bank president expires in mid-1986.
The U.S., as the bank's largest shareholder, has effective
power to appoint a new bank president. One hopes the Reagan
administration will find a replacement, but in the meantime
the funding issue must be addressed.

The bank can sustain a lending level of $13 billion a year
simply by relying on its principal repayment and interest
earnings. Its 1985 lending amounts to $14.4 billion. That's
more than enough to cover good projects to well-managed
countries that do not have access to commercial credit. A
poorer bank would be a wiser bank -- and a better friend to
the Third World.


Mr. Bovard is a Washington-based freelance journalist.




The Wall Street Journal
Copyright (c) 1985, Dow Jones & Co., Inc.
Monday, October 21, 1985
Letters to the Editor: World Bank Abets Competition

James Bovard (editorial page, Sept. 30) argues that World
Bank loans reinforce government control over the economy of
Third World countries. In fact, most adjustment loans,
including those to Morocco, Chile and Ecuador, have been
conditioned on dismantling controls or improving efficiency
of public-sector management. They aim at increasing
competition and helping private-sector activity.

The parallel claim that the Bank has been the force behind
nationalization of oil and gas is just as unfounded. For
example, the $92 million loan to Yugoslavia was made to three
companies, none of which is owned by the government; the loan
to Pakistan was not for the national oil company but mainly
for power generation. The Bank will simply not finance any
energy scheme which the private sector is willing and able to
take on. In energy, as in other sectors, our advice is to
facilitate the involvement of private enterprise. In most oil
and gas ventures, the Bank has been a catalyst for major
private-sector participation.

Mr. Bovard criticizes the limited share of lending to
Africa and the high rate of growth of lending to communist
countries. In fact, in fiscal 1985, lending to Sub-Saharan
Africa from the Bank and its affiliates was about 11% of
total lending. But Africa's share of lending by the
International Development Association (IDA), the Bank's
concessional lending affiliate, was about 36%. Many
Sub-Saharan countries can't afford to borrow from the Bank,
which lends at market rates. They depend on highly
concessional sources such as IDA. Such funds are scarce, but
the Bank has recently made a successful effort to increase
concessional finance for Africa by mobilizing an additional
fund of $1.2 billion from its members.

Except for the special case of China -- a new member whose
entry into the World Bank signaled major policy reforms
toward liberalization in that country -- total lending to
centrally planned economies has actually declined. The real
point, however, is that Bank statutes prohibit political

Mr. Bovard criticizes support for transmigration projects
in Indonesia and settlement projects in Brazil. In both
countries, extraordinary population pressures in heavily
settled areas have caused major environmental and social
problems. Most development experts see the necessity of
facilitating the movement of people to sparsely populated
areas. World Bank assistance has concentrated on improving
management by the governments.

We agree with Mr. Bovard that we should be judged not only
by what we say but also by what we do. We are the first
international development agency to have set up an
independent system of economic audit for our activities. The
Operations Evaluation Department (OED) reports directly to
our directors, representing the member countries. OED
assesses the outcome of every project financed by the Bank.
These evaluations confirm that about 90% of the projects
financed by the Bank have been successful.

The Bank focuses on poverty alleviation anchored in sound
policies. The Bank, its concessional affiliate, IDA, and its
private-development-finance affiliate, the International
Finance Corp., neither have the mandate nor are equipped to
police human-rights violations. But their record in helping
the poor and in liberating the creativity and enterprise of
developing countries is not fully seen by the public. And yet
it is directly relevant to the public because the Bank
contributes to economic growth, and growing markets in Third
World countries mean greater exports and more jobs in
industrial countries.

H. Martin Koelle

Acting Information Director

World Bank



The Wall Street Journal
Copyright (c) 1985, Dow Jones & Co., Inc.
Wednesday, October 30, 1985
Letters to the Editor: World Bank Loans

I would add a footnote to James Bovard's Sept. 30
editorial-page piece on problems with the World Bank's
lending practices: The public and the Bank have not heard the
last from Congress on the need for reform of these policies
with regard to environmental concerns.

My involvement in the Brazilian Polonoroeste project,
where we've already halted funding because of the irreparable
environmental damage caused, is continuing. As chairman of
the Senate subcommittee overseeing World Bank funding, I am
determined to see a greater commitment from all multilateral
development banks to protecting the environmental resources
of borrower nations.

Robert W. Kasten Jr. (R., Wis.)


Foreign Operations Subcommittee

Senate Appropriations Committee