World Bank admits Asia mistakes, seeks changes
By Janet Guttsman
WASHINGTON, Feb 21 (Reuters) - The World Bank, which admits it failed to tackle problems leading to Asia's economic demise, should change the way it lends to member states, according to a policy paper from the head of the bank.
The internal document by World Bank President James Wolfensohn says the bank should take a longer-term, holistic approach to the problems facing countries, looking at the whole picture rather than at individual sectors.
''Too often in the past we have gone after the easy targets, saying that we would attack the more difficult (and often institutional) problems later on,'' Wolfensohn said in the paper, which was made available to Reuters. ''In doing so we failed to recognize the essential complementarities.''
Giving examples, Wolfensohn said it was pointless to privatize firms without also creating a competitive environment and a sound rule of law, or to build schools if there were no roads that children could use to get there.
''We know, at least from hindsight, that part of the failures in Russia were due to paying insufficient attention to the preconditions for a market economy,'' he said in the report, ''A proposal for a comprehensive development framework.''
Wolfensohn's report, to bank staff and governments, more or less coincided with the release of a deeply self-critical World Bank document which said the bank had been lulled into a false sense of security about Indonesia, then a big borrower and now one of the countries at the center of the economic crisis.
''The enthusiasm associated with rapid growth created a halo effect in country relations,'' said the country assistance note on Indonesia, written by the bank's independent Operations Evaluation Department.
''The bank ... could not have predicted the timing and the severity of the crisis, but it could have been better prepared, had past successes not bred overconfidence.''
The bank rated its performance in Indonesia prior to the economic crisis, as well as the performance of the Indonesian government, as ''marginally satisfactory.''
''While the government's development strategy has had remarkable positive results, issues of poor governance, social stress and a weak financial sector were not addressed and contributed to the depth of the crisis,'' it said.
''The bank's neglect of those same issues and its underestimation of risks and lack of contingency planning dampened the overall effectiveness of its assistance.''
Governance is the word the World Bank and the International Monetary Fund use when they talk about high-level corruption.
''Seeking equity when government is riddled with corruption and has inefficient and untrained officials is an objective that will never be realized,'' Wolfensohn said.
The World Bank is contributing $4.5 billion to the international community's $43 billion rescue package for Indonesia and is a big player in other bail-outs.
But the World Bank, like many others, was dismally wrong in some of its forecasts for Indonesia and other countries.
A report released in September 1997, two months after the devaluation of the Thai baht triggered the economic crisis, said five big developing countries -- Brazil, China, India, Indonesia and Russia -- would emerge as key players in the world economy, creating new chances for trade and development.
''The rapid growth and integration of the Big 5 developing and transition economies over the next quarter century will generate important net benefits for the world economy, but also significant economic adjustments,'' the 1997 report said.
Brazil, Indonesia and Russia have since turned to the international financial community for tens of billions of dollars in loans. Their economies, like those of Thailand and South Korea, have plunged into recession.
''The great Asian tigers are no more,'' Malaysia's outspoken Prime Minister Mahathir Mohamad told a developing nations' conference in Jamaica earlier this month.
''Reduced to whimpering and begging, they are but a shadow of their former selves.''
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