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World Bank Faces New Demands

Outgoing president sees need for developing countries to slash excessive defense spending. INTERVIEW BARBER CONABLE

AS he steps down from a five-year tour as president of the World Bank, Barber Conable surveys the state of the the world's poorest nations - the ones he has labored most to help."I believe their condition is better today than it would have been if we weren't here," he says of the giant lending institution that last year alone pumped over $6 billion into third world economies. "I think we gave them some reason for hope." But behind this guardedly upbeat retrospective lies the grim reality of 1 billion people held in poverty by forces that threaten to overwhelm the Bank's limited capability to assist. "Eight hundred fifty million poor people will be born into the developing world between now and 2000. That's nine out of every 10 people born," says Mr. Conable. "No issue poses such a crucial barrier to development." Soaring birth rates have hit sub-Saharan Africa worst, overwhelming the modest economic growth achieved during the past few years. The result, says the former New York Congressman: 100 million more Africans will live in absolute poverty - that is, on less than $1 per day - by the end of the decade. "It's pretty obvious that population must be addressed if poverty is to be significantly reduced," says Conable in a Monitor interview. Conable became president of the World Bank in 1985 and retires on Aug. 30. He will be succeeded by Lewis Preston, former chairman of J. P. Morgan & Co. The sagging economies in Africa and Latin America, plagued by high birth rates and huge external debts, have been the most formidable challenges the World Bank has had to cope with under Conable's leadership. But competition among countries for the money needed to alleviate poverty has grown far faster than the Bank's gradually expanding lending capacity, which now totals more than $22 billion. In fact, the demands on the Bank have never been greater since its founding in 1945 to forge economic cooperation out of the havoc produced by World War II. The newest call for World Bank support has come from the Soviet Union, where incipient economic reform has produced a huge demand for outside capital and technical expertise. On Aug. 27 the Bank was expected to approve a $30 million trust fund to finance technical assistance for restructuring Soviet industries and creating a new financial sector. Conable expects the pool to expand with outside contributions. "Our interest is in improving the quality of life there not through subsidizing consumption but by getting more efficient organization to permit economic growth," says Conable. The collapse of the command economies of Central and Eastern Europe has created other new demands as seven nations in the region have initiated or renewed applications for membership in the world body. About 20 percent of the Bank's resources now go to former communist-bloc nations. Conable says Czechoslovakia, Hungary, and Poland - the so-called "vanguard countries are at the forefront of market reforms. Poor nations in Asia and Africa say the diversion of Bank funds to hasten the transition from communism in Europe has hurt the Bank's ability to respond to their own more pressing needs. The Bank was also called on to provide support to nations hard hit by the temporary increase in world oil prices caused by Iraq's invasion of Kuwait a year ago. The Bank was a funnel for money raised internationally by a United States government-led Gulf Crisis Financial Coordination Group. Almost all of the crisis-affected countries, he says, are now "in pretty good shape." Beyond the collapse of communism and one-shot crises like the Gulf war, there have been new demands of a different nature under Conable's tenure. Pressed by family-planning organizations, women's rights advocates, and environmentalists, the Bank has had to reallocate millions of dollars to special projects supported by these groups, including a first-ever and widely criticized annual report on the environment issued by the Bank earlier this year. Bank shareholders have been stingy about financing these programs. Critics charge that the well-heeled organization still isn't doing enough. "All these things we have to do by reallocation, by taking money away from people who are used to doing what they know they're doing well," says Conable. "You don't want to become supply-oriented. If you're a relevant institution you have to do what the world expects and not just what you do well. That's the big risk." The Bank has also been under sustained pressure from the US during the Reagan and Bush administrations to condition more of its lending on free-market reforms such as privatizing state-run industries and lowering barriers to trade and foreign investment. Although roughly a quarter of the Bank's lending is in the form of structural adjustment loans, Conable says there are limits to how fast centralized and closed economies can be turned around. According to Conable, one of the major impediments to development has been trade protectionism, which has encouraged economic inefficiency in many less developed countries (LDCs). "The problem is that if they don't produce efficiently for their own people, all their money goes into subsidizing local manufacture instead of health care and schools," says Conable. Conable points to countries like Mexico and Indonesia as success stories in the Bank's efforts to condition loans on trade liberalization. But he worries that even as some third world governments are making needed reforms, developed nations are slamming the door by raising trade barriers and forming economic blocs - like the European Community - that leave LDCs out in the cold. "What credibility do we have in telling Mexico it's in their interest to open their economy at the same time the people who own the bulk of this institution are closing theirs," asks Conable. "Lowering trade barriers is twice as important as all the official development aid in the world." Another huge barrier to development is defense spending, which in some third world countries has reached 20 percent of national output. Former World Bank president Robert McNamara last year called on the Bank to refuse loans to countries that spend more than 4 percent of their gross national product on defense. Conable hasn't agreed to such a rigid formula but acknowledges that the World Bank should draw the line: "You shouldn't be supporting to the maximum governments that are spending more on military than on health and education combined." The World Bank has been widely criticized for spending too much on huge infrastructure projects at the expense of small-scale business and agricultural projects that many development experts say is the key to economic development and food self-sufficiency. "There's a real limit to what you can do in the way of micro-lending," responds Conable. "An institution of this sort, with only 6,500 people worldwide, is not going to be able to give a $50 credit for women in Africa. We do it though a profusion of intermediaries and that becomes a source of criticism for us because they're very difficult to ride herd on." Conable says the bank increasingly relies on nongovernmental organizations, which have become "eyes and ears" that provide information on the performance of World Bank projects.