Time to Foreclose on the World Bank

Article excerpt


An adage holds that bureaucracies can pursue their original goals successfully only for a generation at most. After that, their efforts go to feathering their bureaucratic nests. Freddie Mac and Fannie Mae are examples: outrageous executive compensation and payoffs to congressional friends, all contributing to a housing bust now requiring ever more billions of dollars in taxpayer bailouts.

Another example might well be the World Bank, which, along with the International Monetary Fund, is one of the two great post-World War II institutions for restructuring the world economy. John Maynard Milord Keynes, the author of the Bretton Woods accords setting them up, said the clerks got it wrong: The bank should have been called a fund and the fund should have been called a bank.

Created to rebuild Western Europe, the World Bank soon was eclipsed by the Marshall Plan and its appendages as West European capital markets recovered. Looking for new fields to conquer, it turned to what then were unambiguously called undeveloped countries, entering its golden age under Eugene Black (1949-1963), a former Wall Street bond salesman. Black's aw-shucks hillbilly act masked a wily Washington politician - although one longtime World Bank insider quipped, Gene Black was a figment of Nate McKitterick's imagination, a reference to Black's anonymous policy adviser and aide.

Black stuck to underwriting specific subsidized infrastructure projects, fudging later with parallel lending for soft currencies. His lending record, some $15 billion in the currency values of the day, theoretically without default, masked disastrous policies such as supporting India's Soviet-style planning for three decades and initiating vast Indonesian (corrupt) lending that would underpin the 36-year Suharto dictatorship.

But it was under Robert McNamara's leadership from 1968 to 1981 that the World Bank went cosmic. (McKitterick once remarked that cosmic lovers are people who cannot relate to human beings, so they fall in love with the cosmos. ) McNamara called in the management experts at McKinsey & Co. to supply the usual bloviated rationale for the client's preconceived strategy, in this case a vast expansion. He proceeded to ignore charter requirements for specific projects, funding social welfare schemes and muscling in on the IMF with balance-of-payments loans. In his search, apparently, for expiation of his perceived Vietnam War sins as Lyndon B. Johnson's secretary of defense, McNamara played down capitalist enterprise. He neglected the bank's International Finance Corp., its free-enterprise window designed to guarantee foreign capital partnering with locals to encourage private-sector growth. …