The May/June 2005 edition of Foreign Affairs is out. There are a number of good and interesting pieces in the current edition, including Sebastian Mallaby's take on the present and future of the World Bank: Saving the World Bank.
Mallaby argues that the current effectiveness of the World Bank is supported by its financial structure. As a bank, it makes a large number of profitable loans to creditworthy nations, including China, Mexico, and the Philippines. The profits from this business enable the World Bank to pay well its very capable professional staff, and to engage in many of its development activities.
Mallaby believes that this structure is under threat. Its operations in commercial lending and "soft lending" - loans to developing nations with generous repayment terms - are under attack from the political left and right - in the United States and elsewhere.
The "soft loan" program has been compromised, according to Mallaby, by debt forgiveness programs that would not compensate the "soft loan" fund. The Bush administration, in particular, has proposed that the World Bank simply cancel many of these debts.
If this proposal is extended to the 33 HIPCs (highly indebted poor countries), in 2025 the bank's soft loan window will be a fifth smaller than it would otherwise be.
The commercial lending operations are under threat from both conservatives and progressives. The former believe that the international capital markets are now well-developed enough that nations such as China and Mexico do not need the World Bank. The latter believe that
the bank should finance a utopian version of development. The bank's lending, in the left-wing view should be tied to exacting environmental and social standards: it should do no harm to the forests, it should not disturb the lifestyles of indigenous peoples, and it should be entirely untainted by corruption.
In Mallaby's view, while these goals are laudable, they make the lending process at the World Bank very cumbersome and slow.
At the moment, in Mallaby's view, the World Bank is one of the best of the agencies associated with the United Nations. With these threats, however, Mallaby foresees potentially a long decline into mediocrity and irrelevance.