For more than two years, the staff of the World Bank have been developing a new lending instrument that would link financing to measurable results within countries. If approved, it would be the third instrument at the World Bank; the two that exist now are “investment loans” under which inputs, not results, are financed; and policy based loans, under which policy changes are financed.
Lending for measured results (after the fact) would have huge benefits – as I with colleagues have pointed out in our proposal for Cash on Delivery Aid (COD Aid). Among those are “ownership” – that borrowing countries would have the responsibility and bear the risks of getting results; and support for better governance as governments would become accountable to their own citizens for results, instead of accountable to donors – mostly for reporting on how they spend donor money whether there are results or not.
The current proposal under consideration by the Board of the World Bank is not perfect. In this critique of an earlier draft of the proposed new instrument my colleagues Bill Savedoff and Alan Gelb explain why.
Still the proposal is a big step in the right direction. That’s why I am concerned that it appears the U.S. is the only board member so far withholding support for this initiative. At the U.S. Treasury (from which the U.S. Board member gets his cues) and in the Congress, there is concern fed by a small number of influential NGOs that World Bank staff would not need to be concerned with social and environmental safeguards when using this instrument. I disagree. As I point out in a recent letter to Senator Patrick Leahy safeguards receive heavy emphasis in the proposed guidelines. Individual loans will still need case by case approval, and can be suspended or cancelled in the event that there are serious violations of agreements. The approach can be seen as a tradeoff between enforcing specific safeguards on the funding provided by a donor and long-run development effectiveness including wider application of safeguards to an overall program. As with any new approach it will be essential to ensure open and timely data and transparent monitoring.
I also point to what is missing from the proposed guidelines: independent verification of the results – as in not by the World Bank and not by the country, but by a third party agreed by the lender and the borrower. Independent verification is a key feature of COD Aid – you can read all about why that matters in my book with Bill Savedoff.