Wednesday, May 30, 2007

Foreign Aid 7: Wolfowitzoellickation of the WB

Out Mr. Paul Wolfowitz, an American, as World Bank (WB) President by June 30 this year. Coming in will be Mr. Robert Zoellick, an American, as another WB President.

Wolfowitz fell from grace after a big scandal where he gave handsome salaries and transfer package to his partner, a former WB official, then transferred to the US state department. Since the scandal broke up about 2 months ago, Wolfowitz has never recovered. What made his stay a bit longer, by about 1 month more, was the hesitation of Mr. Bush to replace him earlier.

Mr. Zoellick is former US Deputy Trade Secretary. If you follow the Iraq war, his name does not appear there. But if you follow WTO news and the Doha round of trade negotiations, Zoellick’s name can appear anytime. Just like most if not all “trade negotiators”, he’s a free trader and protectionist at the same time. That is, they say, “Yes we will liberalize our markets if you liberalize yours too.” Or, “we have to protect our markets because you protect yours too.” At the end of the day, there are always other guys to blame why free trade does not and cannot happen.

Is the WB “owned” by the US government? Not true, because governments of other countries also contribute for the capitalization of that bank. The US government “controls” the WB? Somehow yes, as evidenced by the dictum, “All WB Presidents should be American”, with a sub-title and extension, “And appointed by the US President”. It’s just a matter of finding a “more acceptable” American bureaucrat from America’s deep bench of bureaucracies, to the bureaucrats and politicians of other countries, the big contributors especially, like European and Japan governments. So that when Wolfowitz was cornered in that scandal, he became “unacceptable” not only to many WB staff but also to many representatives of foreign governments who contribute to the WB.

So, the Wolfowitzoellickation of the WB is a continuum of Pres. Bush’s (and all other US Presidents’) international policy to “develop” the world. Part of that policy is hiring tens of thousands of soldiers and gunners to “fight terrorists” in Iraq, Afghanistan, and possibly Iran, elsewhere. Another part is hiring thousands of bureaucrats and economists to “fight poverty” around the world. And a big component of that “fighting poverty” is collecting plenty of taxes from private citizens, and exempting from taxes the bureaucrats who will be the poverty fighters.

But the US government does not own the sole distinction of monopolizing presidency and leadership of a multilateral institution. The Europeans also do it, in its dictum, “All Managing Directors of the IMF should be Europeans”. And the Japs too, with their special banner, “All ADB Presidents should be Japanese”. It’s been the practice in the past, and shall be practiced in more years to come. And so if you work in the WB, IMF, ADB, OECD, other multilateral bodies and institutions, you get the double distinction of being a “poverty fighter” with fat salaries, and at the same time, exempted from income confiscation by any government around the world. Cool deal, right dude?

Meanwhile, I’m curious if Mr. Zoellick will replicate their earlier proposal to governments of poorer countries: “We can’t open up rich countries’ markets that big, but we can increase foreign aid to your governments”. If this happens, then what most of those international trade negotiations will achieve is more to enrich the airlines and hotels flying and housing those trade bureaucrats. After all, those airlines, expensive hotels and restaurants, and their respective owners and personnel pay lots of taxes to pay for the salaries and travels of those trade and foreign aid bureaucrats. Still a cool deal. Yeah man!

The Growing Irrelevance of WB-IMF

For a number of poor and indebted economies like the Philippines, the IMF has become more and more irrelevant. The country remains indebted, yes, but not much to the World Bank and IMF anymore, but to private bondholders. And the bondholders who want to lend to debtor countries don’t look up much to the IMF for “guidance” but to private ratings agencies like S&P, Fitch, Moody’s. So much so that either the IMF should merge with other international bureaucracies to remain relevant, or collapse upon its own weight like a black hole.

The WB, sometimes it competes with the Asian Development Bank and other regional development banks in the world on convincing fiscally-irresponsible governments to borrow more from them. The politicians and bureaucrats, and sometimes the consultants, often have no qualms in wasting those money. If government officials of indebted countries can waste and steal their own people’s money, why not the tax money of the rich Americans, Europeans and Japanese, injected into those foreign aid institutions?

Besides, private financial flows -- like remittances of overseas workers (from rich countries to poor countries) approaching $300 billion a year -- are much bigger than all those foreign aid by rich countries combined. If governance of those poor countries (or better, less governance and less bureaucracies) are improved, then the big amount of such private transfers should translate to more local job creation and more economic growth.

Can a new policy of less aid, less taxes be tried by leaders of rich countries? When their citizens have more money in their pockets through lesser taxes, they’ll use that money to hire workers and nannies from poorer countries. Or buy more mangos, bananas, pineapples, other tropical products from poorer countries. Or visit the tropical white sand beaches, tropical forests and waterfalls, golf courses, of the poorer countries more often. This is a more direct people-to-people transfer of money. Unlike aid which is government-to-government.

See also:
Foreign Aid 1: MDG Goals = More Debt Addiction, October 26, 2005
Foreign Aid 2: Circuitous and Leaky Process, November 03, 2005

Foreign Aid 3: Bob Geldoff and More Aid, November 10, 2005
Foreign Aid 4: Easterly vs. Sachs, May 01, 2006
Foreign Aid 5: Failure in East Timor, May 31, 2006
Foreign Aid 6: IMF is Engineerable and Abolishable, September 05, 2006

1 comment:

pakman said...

Once the gold standard was swept under the carpet in the 70s. These organizations lost its raison d'etre.

Credit creation no longer had any limits.

Therefore, you don't need such bodies to coerce capital from favourable returns to unfavourable ones. These bodies afterall, are nothing more than capital allocating bodies.

What if there are so much credit that it overflows everywhere?

Andrew Shuen
Research Director
Lion Rock Institute
Hong Kong