Put Borrowers on Notice

On June 1, former Deputy Defense Secretary Paul Wolfowitz became the next head of the World Bank. His mission: to end global poverty. The trouble is, few agree on how to go about it. So Foreign Policy asked five of the world’s leading development experts to offer Wolfowitz some free advice on getting the job done.

Around the world, there is broad consensus that poverty alleviation should be the banks principal goal. However, under pressure from critics, the bank has decided its mission is to directly lend money for projects in poverty-stricken regions. Regrettably, the bank eschewed the very issue that developing countries are forced to confront: comparative advantage and the fungibility of public expenditures.

The developing world would be better served if the bank linked its overall volume of lendingsubject to broad, prespecified criteriato spending on critical institutions, such as basic education, basic health, and nondiscriminatory legal frameworks. In this way, the bank would fund the very things that drive growth, be it infrastructure or higher education.

Such a shift is essential for a couple reasons. Virtually all aspects of human development, including basic education and healthcare, are neither capital nor foreign exchange intensive. Unless the funds are grants, it makes little sense to add to borrowers debt burdens. Second, the crowding out of infrastructure can prove to be very expensive to the poor in the long run, especially because it removes an important check on corruption, which invariably hurts the poor. It also puts borrowers on notice. If a country is unwilling to act vigorously on issues such as primary education or healthcare, that country is clearly uninterested in development and deserves little support from the bank.

The only way the banks borrowers will take true ownership is if they choose projects based on their priorities and design them on their own conditions. Of course, this means they will make mistakessometimes expensive ones. But that is precisely how developing countries will learn and grow. Such a system would put a smaller administrative burden on the bank and result in considerable savings that could underwrite other projects in the public interest, such as malaria vaccine research, that are likely to have a greater impact on global welfare.

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