World Bank markets new social protection loans

by Gumisai Mutume

Washington, 25 Jan (IPS) -- The World Bank is marketing a new loan portfolio for poor countries, urging them to adopt social safety nets as a permanent feature of their economies.

In a just released report titled ‘From Safety Net to Springboard’, the Bank outlines the new social protection strategy that may see developing countries come to Washington to borrow money to invest in social programmes that “mitigate risk”.

Using the recent East Asian crisis that battered emerging economies as reference, the Bank warns developing countries of the urgency of protecting poor and vulnerable populations during times of economic upheaval through the use of “social safety nets”.

Such risk mitigating factors would include unemployment benefits, old-age income security, saving schemes for those working in the informal sector, public works programmes, labour market reforms and supporting community-based coping mechanisms related to the Acquired Immune Deficiency Syndrome (AIDS).

“With this new risk management strategy, the Bank would offer developing countries, in consultation with their poor communities, help in tailoring their social protection plans to fit their own assessment of where they might be vulnerable,” says Robert Holzmann, the World Bank’s director of social protection and the lead author of the new report.

The new strategy is currently being piloted in various countries in the Americas, including Argentina, Colombia, Dominican Republic, Jamaica, Guatemala and Uruguay. Lending in this, one of the Bank’s youngest sectors, has increased more than six-fold since 1994. New lending in the social protection area in the 1999 financial year was nearly 4 billion dollars - 13 percent of the World Bank’s total new lending.

However, the new strategy comes at a time when there is talk of the need for reforms within the Bank. Some reformists have charged that the Bank is too eager to disburse loans as solutions to problems in developing countries.

Those to the far right of the debate have even suggested it pull out completely from lending because it is crowding out private lending in middle income countries and greasing the wheels of wasteful and corrupt government practices.

“We are a bank,” says Bank vice president for human development and former Costa Rican education minister Eduardo Doryan. “So we are in the business of lending, but we are a bank with two legs - one is the lending leg of the Bank and (the other) one is the knowledge bank.”

He says while the challenge is to balance the two roles “the world is a complex world. We don’t have an easy answer for complex problems. So, indeed, we think that this strategy, what it brings is a fresh look on how to deal with the issues of vulnerability and how to introduce the sense that risk, and particularly social risk, has to be managed”.

Bank observers, however, have been saying that the fundamental problem that has increased poverty in many developing countries has a lot to do with the macro-economic policies sold to them by the Bank and International Monetary Fund and until that changes, such schemes are merely nibbling at the bigger problem.

“My reading of the new report is that it is just another small step towards recognising that the neo-liberal, structural adjustment policies have not worked,” says Doug Hellinger of the Development Group for Alternative Policies, a policy think-tank in Washington DC.

“However, the Bank and IMF cannot bring themselves to address the fundamental causes of poverty. So much evidence has been brought to them about how labour market reforms and trade liberalisation are hurting the poor but their response is that you cannot prove cause-and-effect.”

Hellinger is part of the Structural Adjustment Participatory Review Initiative (SAPRI) launched in 1997 that has been monitoring Washington-led economic reforms in countries such as Bangladesh, Ecuador, El Salvador, Ghana, Hungary, Mali, Uganda and Zimbabwe. SAPRI says a number of adjustment measures have had devastating consequences on production, employment and social services in these countries.

The World Bank says that less than a quarter of the world’s population is protected at any given time by government safety nets and that less than five percent can rely on their own savings, land or other private assets to weather crises such as economic downturn, civil war, or natural disasters.

The report notes that between 1990 and 1997, more than 80 percent of all developing countries experienced at least one year of negative per capita output growth as a result of these setbacks.

While social protection programmes in high-income countries have become steadily more sophisticated since the birth of the welfare state, many developing countries view safety nets as measures of last resort mainly because they cannot afford them.

Bank critics say that many developing countries have been forced to cut social spending that could ease poverty in order to chase the budget deficit requirements of the international financial institutions and pay their foreign debts. Government incompetence and a waste in a number of developing countries have also contributed to growing poverty.

In the 1999 financial year, the Bank’s social protection portfolio consisted of 92 purely social protection loans and another 183 loans containing significant social protection components. Argentina borrowed 200 million dollars in 1997 for its second social protection project known as ‘Trabajar’. It provides temporary income support to poor, unemployed workers hired in a public works programme.

Trabajar involves small, labour-intensive projects such as minor construction, repair, expansion, or remodelling of schools, health facilities, basic sanitation facilities, and small roads and bridges.

The Bank intends to include social protection in its Country Assistance Strategies (CAS) which set out a joint country/Bank business plan for achieving a country’s development goals. – SUNS4822