DEVELOPMENT ECONOMICS AND THE WORLD BANK'S IDENTITY CRISIS

The World Bank is an institution that grew and affirmed itself out of confronting crises or challenges. Since the 1980s it has faced three of them. First, the growth strategy it originally adopted has blurred since the late 1970s, when development economics fell into a deep crisis and the role of the state in the economy was challenged. Second, the very idea of a development bank is at bay, as the Bank tends to lose the role of a net provider of funds to developing countries. Third, the Bank performed poorly when the foreign debt crisis broke out in the early 1980s. The three problems could be summed up as an identity crisis. After all, what is the World Bank? Does it remain a development bank, as was the design of its founders, or is it changing into a kind of commercial bank that rolls over debts and a service institution that advises developing countries, taking advantage from the fact that it assembles the largest group of competent economists specialized in economic and social development in the world? Is it mainly an institution oriented to economic development or a political and ideological institution obeying the policies of its main shareholders? In a world where development remains a major long-term challenge, is it a valid role for the Bank to try to solve short-term stabilization and balance of payments problems, as it was compelled by the debt crisis in this way directly competing with the International Monetary Fund - or should it redefine and pursue a new growth strategy?
Fifty years after its creation, the strategy the Bank should follow to accomplish its development mission is not as clear as it had been. The mission
212 itself remains clear: to promote economic development, to reduce poverty. But the very idea of a development bank is at bay. First, if the Bank accepts the conservative assumption on economic development that it is possible to rely exclusively on the private sector to achieve prosperity, why do we need a development bank? And where do development economics, which inspired the Bank's initial strategies, or the new endogenous theories of growth, that represent a revival and a sophistication of these ideas, stand? Second, does the Bank possess the financial means to remain a development bank? When it was created, the assumption was that the Bank would finance countries in a similar way to investment banks financing industrial projects. For some time the Bank would have a negative cash flow with a given country, but, once this nation turned developed, the flow of funds would be reversed. Presently, for most countries this flow has indeed been reversed, it has become negative, although a satisfactory stage of growth has not been achieved. If this is so, if it is not realistic to expect new substantial capital increases for the Bank nor a higher external indebtedness, so that it has no other alternative but to stop being a net provider of funds to developing countries, may the Bank still be regarded as a development bank? Third, given the fact that today most developing countries are highly indebted, needing debt reduction rather than new flow of funds, what role can the Bank play in relation to them? Is it sufficient just bailing out the commercial banks, substituting public financing for private, and asserting that the debt reduction involved in the Brady Plan is enough, or is there a more sensible alternative?download