Record Lending by World Bank

by Abid Aslam

Washington, Jul 28 (IPS) -- Financial crisis and natural disasters drove its loans to a record level in the fiscal year that ended Jun 30, the World Bank announced Wednesday.

The overall quality of loans also improved, with the share of projects deemed at risk of failing to achieve their development objectives falling "significantly" - despite internal reports critical of the agency's performance.

New lending commitments to the Bank's client countries reached an unprecedented $29 billion in fiscal 1999, up from the previous record of $28.6 billion in fiscal 1998 and $19.1 billion in 1997.

Actual disbursements of money were down slightly to $24 billions, from $25.5 billion in fiscal 1998.

East Asia and the Pacific, struggling to recover from the financial crisis of 1997-98, received the most new lending ($9.8 billion), followed by Latin America and the Caribbean ($7.7 billion). The region suffered ripple effects from the East Asian meltdown and ravages of Hurricane Mitch in Central America in October, 1998.

Europe and Central Asia came third, with $5.3 billion in new commitments, followed by South Asia ($2.6 billion), sub-Saharan Africa ($2.1 billion) and the Middle East and North Africa ($1.6 billion).

Argentina, hit by aftershocks of the Asian financial crisis directly and as a result of worsening economic conditions in neighbouring Brazil, rose from seventh place last year to become the Bank's largest borrower, garnering $3.2 billion in commitments from the Bank in fiscal 1999.

The remainder of the Bank's top ten borrowers were Indonesia, with $2.7 billion in commitments, China ($2.1 billion), South Korea ($2 billion), Russia ($1.9 billion), Brazil ($1.7 billion), Thailand ($1.3 billion), India ($1.1 billion), Bangladesh ($1 billion), and Mexico ($950 million).

Financing designed to support over-arching policy themes such as privatisation of state enterprises and commercialisation of services dominated the new commitments, with loans for 'multi- sector' projects and policy reforms amounting to $10.3 billion. In addition, some $2.9 billion were targeted specifically at borrowing countries' financial sectors and $1.4 billion were committed to 'public sector management'.

Some $4.5 billion went to transportation, industrial, oil and gas, energy and mining projects, with another $2.8 billion for agriculture, $753 million for water and sanitation, $647 million for urban development, and $10.8 million for telecommunications projects.

Population, health and nutrition projects accounted for another $1.1 billion. Education garnered $1.3 billion, and $2.7 billion were earmarked for social programmes. Environmental lending amounted to $540 million.

The figures included both market-rate loans from the International Bank for Reconstruction and Development (IBRD) and soft loans from the International Development Association (IDA). IBRD financing in fiscal 1999 rose to $22.2 billion, from $21 billion the previous year. IDA commitments, reserved for the Bank's poorest borrowers, fell from $7.5 billion in 1998 to $6.8 billion in fiscal 1999.

"While we see for a second fiscal year that the financial crisis has resulted in record lending, I am cheered to see the increase in the quality of loans we have provided, as this points to real results on the ground," World Bank President James Wolfensohn said in a statement.

'Quality' was measured against development targets laid out in individual loan agreements but also reflected administrative and financial criteria such as adherence to disbursement and repayment schedules.

The Bank said the quality of new loans entering its portfolio also had improved. This assertion followed recent internal reports faulting the agency's performance in lending for structural and sectoral adjustment programmes as well as health, nutrition and population projects.

A leaked May 1999 draft Bank review of structural and sectoral adjustment loans severely criticised their treatment of environmental and social issues. The review assessed 54 such loans approved between July 1997 and December 1998 and found that only 20% contained a environmental goals or conditionalities - down from 60% in 1994. Also, "the majority of loans do not address poverty directly, the likely economic impact of proposed operations on the poor, or ways to mitigate negative effects of reform."

Some 60% of Bank loans for population, health and nutrition programmes were rated "satisfactory" in a December 1998 internal report by the agency's Operations Evaluation Department (OED).

Most projects did achieve their short-term physical objectives, according to the report, but only 44 percent were likely to be sustained after completion - largely because staff appraisals underestimated the projects' recurrent costs, which would have to be borne by the agency's borrowers.

Concerns about 'project sustainability', or the lasting impact of loans, have long plagued the Bank's operations, especially in Africa. The latest OED analysis echoed earlier criticisms that the lender in most cases failed to yield decision-making power to the people implementing and affected by the projects - although it increasingly had acknowledged the importance of doing so.

The above article by the Inter Press Service appeared in the South- North Development Monitor (SUNS) .