Albion Monitor /News

Skeptics Doubt World Bank 'Pro-Poor' Message

by Johanna Son

(IPS) MANILA -- World Bank President James Wolfensohn pro-poor message in his recent East Asian swing was familar, but critics doubt they will go far in cushioning the social tensions wrought by austerity measures underway in the region.

The Bank was uttering the right words that should fall well with those in East Asia who have been chafing against prescriptions by the International Monetary Fund (IMF).

After all, the Bank has called for "safety nets" for the poor, and the need to maintain a rational level of public spending to keep economic activity going.

But to interpret this thrust as fundamental opposition to the IMF's brand of economic restructuring in the Asian financial crisis is wishful thinking, development analysts say.

"Perhaps Wolfensohn is starting to recognize the errors and misjudgments of the past, so he's singing a different tune," said Leonor Briones, a professor at the University of the Philippines and head of the Social Watch Asia network of NGOs meeting in Manila this week.

"But whatever they say, the Fund will always have the upper hand because the bailout money is coming from the IMF, since these are stabilization measures," she said.

Unofficial estimates say Indonesia's unemployed could reach 9 million people by year end
At the core, the goals of the World Bank and IMF remain very much the rapid, massive liberalization of economies, she said. "That has not changed."

Roberto Bissio, executive director of Social Watch, concedes the Bank has become more aware of social development and the importance of human capital in recent years.

But the Bank's talk of looking after the poor and drafting programs for Asia's new unemployed is due more to a desire to keep a lid on simmering public dissatisfaction, than to a rethinking of old ways, he says.

"I think this is more a difference in nuance than a fundamental opposition to the Fund, because the World Bank's role continues to be to consolidate the short-term reforms started by the IMF," Bissio explained.

The World Bank is now working on programs in Thailand and Korea to help the ranks of the growing unemployed. "They are trying to ease the more urgent political tension that could make it inviable to implement their model (for economies)," he said.

In other words, the Bank can "take some of the most urgent aspects and provide you life vests, but won't get you out of the water," he added.

In the Bank's own words, which come after mounting criticism of the Fund's prescribed cure for East Asian economies, "protecting the poor during this uncertain period is of the highest priority and will be critical in maintaining long-term popular support for economic reforms."

Since the financial crisis began in July and spread through East Asia, the IMF has put together more than $100 billion in financial aid for Korea, Indonesia and Thailand, with bulk of the funds going to servicing foreign debt.

The World Bank has contributed some $16 billion to the bailouts by the Fund, but has not said how much money it is setting aside for programs to ease social damage caused by the crisis.

The IMF plays the major role in bailouts given to stabilize financial emergencies in the short term, while the Bank comes in later with advice for economic policy in the longer term.

As Wolfensohn earlier this month started his six-nation, 11-day trip through Thailand, Singapore, Malaysia, Indonesia, the Philippines and South Korea, Asian governments were keen to see whether the Bank brings something different and if its advice will vary sizably from the Fund so far.

The Bank has addressed the issue of poverty by saying the crisis may well reverse decades-long gains made by East Asia in reducing poverty incidence.

"The ongoing crisis threatens to aggravate these problems and erase the gains made by millions," the Bank explained. "Public spending is the only way to ensure adequate social protection."

The crisis is already taking its toll on the social fabric in countries like Malaysia, Korea and Thailand, which had nearly eradicated absolute poverty before financial woes came about. Indonesia had been inching toward that goal as well, but is now seeing riots over rising food prices erupting in the country.

Unofficial estimates say Indonesia's unemployed could reach 9 million people by year end, and 3.7 million in Thailand. Unused to joblessness, South Korea's unemployment figure reached 3 percent last year.

The financial crisis was set off not by governments mired in debt, but by private sectors gorged on cheap foreign loans
Already, Thailand and South Korea are seeking some changes in programs agreed upon with the IMF, given the continued collapse of their currencies. Fund officials now concede their programs have so far not jump started the region's limping economies.

Last week, Thai Finance Minister Tarrin Nimmanhaeminda, who was in Washington recently for talks with IMF and U.S. officials, said new economic targets would be draftedthis month.

Thai businessmen and economists have been saying the IMF's terms -- its usual formula of budget cuts, high interest rates -- have been depriving economies of remaining resources with which to stimulate activity.

Critics say the IMF's dose of austerity may be ill-suited for economies that, unlike the Fund's usual patients, had reasonable records of spending, healthy levels of foreign reserves before the crisis and to this day, record levels of domestic savings.

Likewise, the financial crisis was set off not by governments mired in debt, but by private sectors that gorged on so huge an amount of cheap foreign loans that their inability to service them now threatens entire financial systems and economies.

South Korea wants fiscal requirements eased, saying too little room for growth and commercial activity hampers its ability to cope with unemployment.

Even unlikely critics of the Fund, like free-market economists and fund managers, have been speaking out against the IMF's "misdiagnosis" of Asia's ills, worried by the prospect of recession amid poor market response to the IMF's reforms.

In any case, activists say the discussion of social effects of "recovery" programs needs to catch up with much more dominant talk of financial and monetary matters and macroeconomic targets.

Said Briones: "We hear endless discussions on exchange rates, on interest rates. We hear the views of bankers and economists. It is time we listen to how different sectors of society are affected."

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Albion Monitor February 24, 1998 (

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