Subcommittee on International Trade and Finance

Oversight Hearing on Multilateral Development Institutions

Prepared Testimony of Dr. Adam Lerrick
Senior Staff Member
International Financial Institution Advisory Commission

9:30 a.m., Thursday, June 8, 2000

It is a privilege to address the Senate Subcommittee on International Trade and Finance.

The World Bank is under siege and the decibels are rising in the defense of the status quo. Many of the central questions have already been addressed in Congressional hearings: the Bank concentrates its lending on 11 major borrowers to which it is an insignificant source of funds; the private sector is willing and able to finance programs of social benefit and institutional reform and does so every time a country sells bonds in the capital markets; grant financing is not only feasible but will support a greater volume of development programs than the Bank's traditional loan format.

A close look at the key issue of effectiveness may serve as proxy for the larger debate. To fully understand the discourse, outsiders must consult a lexicon of Bankspeak where familiar words have acquired foreign meanings and must use a Global Positioning System to reestablish a solid bearing.

In a seemingly straightforward statement by a senior Bank official in a recent publication, every substantive word creates a misleading impression. The Bank's Director of Operations Policy and Strategy wrote "…recent data from the Bank's independent Operations Evaluations Department show substantial improvement in project outcomes, especially for adjustment lending. For operations evaluated in FY98-99, 81% of funds lent and 93% of funds lent for adjustment were in operations rated satisfactory or better by OED. Even by the very stringent test of likely sustainability, the respective scores were 66% and 84%…"

When the Bank's statement of overwhelming success is examined, word by word and number by number, the translation into the language of the real world reads: "For projects where the disbursement of loan monies to borrowers was completed in 1998-99, but years before physical or policy practical effect can be measured, Bank staff estimate that less than half (47%) are likely to maintain satisfactory results in the future and to generate benefits that exceed debt service payments, operation and maintenance costs."

Independent normally denotes freedom from control or influence. Yet the OED evaluation unit is predominantly staffed by Bank employees on a rotating tour of duty, who, save the Director General, look forward to a return to standard line jobs in the Bank. A temporary change of desk and a new nameplate do not alter the signature on the paycheck. The Executive Board, to which the group reports, is passive at best; and, because results are public, there is strong pressure to display performance gains by what is policy to describe as the "New Bank".

Outcomes are usually equated with results and are measured after the fact. At the Bank, judgments are determined at the time of final loan disbursement, often years before physical plants are up and running or policy changes are executed and can impact the economy. Estimates or projections are the terms employed in the real world. Adjustment programs, which represent almost 40% of the collective total and receive the most elevated marks, are also the most difficult to quantify. Is there a staff soothsayer who predicts ten-year results, even before reforms are implemented?

And what is satisfactory? For the Bank, it runs the wide and undifferentiated gamut from marginally satisfactory to highly satisfactory and is divorced from the sine qua non of development, that of sustainability. In the Bank's 1997 Annual Review of Development Effectiveness, sustainability was defined as "the likelihood that the project will maintain its results in the future…The evaluator must determine whether, given the risks, future benefits are likely to exceed debt service payments, operation and maintenance costs." Is this not a necessary condition of a "satisfactory" outcome? As Bank President Wolfensohn testified before the Meltzer Commission: the Bank can have:

Numbers are only as good as the data and the Bank has chosen to ignore the record in its most widely-used table of evaluation which focuses on numbers of projects and has based its argument instead on dollar amounts of lending. This leads to overstatement of success rates by imparting greater weight to the large, prosperous countries that borrow in the form of multi-billion dollar structural adjustment loans. As would be expected, success for this group is uniformly higher----an implausible 98% satisfactory and 99% predicted sustainability in 1998-99. For the most needy nations, ratings are 69% for satisfactory outcomes and 45% for sustainable results.

A look at the Bank's primary data classified by number of projects reveals a different picture in which success figures are sharply lower. For the 1998-99 time span, 72% of all projects were rated as satisfactory, while likely sustainability falls to 49%. When the OED was asked to combine the criteria of satisfactory outcome and likely sustainability of benefits, only 47% of projects qualified in the 1998-99 period. For two previous periods, 1990-93 and 1994-97, the figures were 41% and 44%. All were below 50% success.

The current trend is down not up. Rather than the substantial improvement in project outcomes claimed by the Bank, the data show a recent deterioration: satisfactory ratings have fallen over the past two years from 74% in 1997 back to 1996 levels of 69-70%.

Semantics aside, there is the substantive issue of whether any of the numbers are accurate gauges of effectiveness. During testimony before the Meltzer Commission, Mr. Wolfensohn was asked: one, why the Bank measures its success at the time of the last loan disbursement and two, why performance of programs is not scrutinized routinely, four or five years later, after an operating history is available? He could only respond:

Since both the President of the Bank and the Commission concur that the data are of limited usefulness and that it is urgent to ascertain the true effectiveness of Bank projects, why not establish a program of truly impartial audits by private sector firms to examine on site the lasting viability of projects after a four to six year operating history. Individual program audits and complete evaluations of performance would be published and the exercise repeated every three years to provide a continuing benchmark for Bank efforts. Auditors would report directly to the legislative and executive branches of the Group of Seven.

Never before have those current bywords of accountability and transparency been more clearly indicated. Both the responsible use of donor country taxpayer monies and the increasingly desperate condition of the global poor demand it. Why should the Bank not set the example for the standards it requires of its borrowers?

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