In congressional testimony, CGD senior fellow Vijaya Ramachandran urged members of the House Financial Services Committee to look beyond a proposed new disclosure policy for the World Bank and instead consider why the bank is so often reluctant to release detailed information about its work. The core problem, she said, is dependence on a single outmoded and often ineffectual product—loans to individual countries.
“As long as the goal is to send as much money out the door as possible, there will be strong disincentives along the entire chain of command—from staff on the ground to management in Washington—to say that things are going wrong or to stop a project before it is completed,” Ramachandran said in congressional testimony last week.
Ramachandran, who previously worked for the World Bank and in the Executive Office of the Secretary General of the United Nations, is an expert in infrastructure and the obstacles to private sector development in Africa. She proposed two fundamental solutions to improve transparency beyond the increased document disclosure stipulated in the bank’s proposed policy:
- Independent evaluation of bank-funded projects, to improve outcome effectiveness
- Increased product innovation, to move the bank away from lending
Ramachandran urged Congress to base future capital increases to the World Bank and other multilateral development banks (MDBs) on their progress in these two areas.
“The lack of impact evaluation has not only hurt poor people but has also undermined the bank’s own credibility with its member country governments,” Ramachandran said during the hearing. “Evaluation by a third party of development projects, with a focus on the beneficiaries, is of much greater use to both the bank and its member countries than any effort to increase the ex post flow of information on financial inputs.”
The House Financial Services Committee oversees matters relating to international economic policy and development, including the policies and programs of financial institutions such as the World Bank and the International Monetary Fund (IMF). The committee, under Chairman Barney Frank (D-MA), has spearheaded various reform efforts aimed at increasing openness at the IMF and the World Bank.
In his opening statement, Frank expressed concern about the threat of corruption and asserted that he would attempt to block future funding to the bank unless it improves its transparency and accountability practices. Gary Miller (R-CA), ranking member of the Financial Services Subcommittee on International Monetary Policy and Trade, said that implementation of a disclosure policy will be the greatest challenge for the bank.
Ramachandran argued that internal reluctance to disclose information about poorly performing loans and projects contributes to the bank’s lack of transparency. As one part of the solution, the bank must diversify its product mix, offering more innovative financial services and reducing reliance on loans to individual countries.
Diversifying products “will provide staff members with a wider range of productive activities and will also scale up the number of alternative financial products that could respond to the changing realities—and risks and vulnerabilities—of an integrated global economy,” she said.
Ramachandran’s testimony hit on many of the same themes as a speech that same day by CGD president Nancy Birdsall, who argued that history, habits, and bureaucratic pressures have led the bank and other MDBs to emphasize disbursement above all else, sometimes at the expense of effective development outcomes.
Other witnesses on the panel—Joseph Stiglitz, Richard Bissell, Alnoor Ebrahim, and Thomas Blanton—proposed additional reforms to increase openness in the MDBs.
Stiglitz, former chief economist at the World Bank and a professor at Columbia University, pushed for governance changes within the bank and other MDBs, including more democratic accountability, increased transparency, and strengthened procedural safeguards.
Bissell, who testified on behalf of the Bank Information Center, Oxfam America, the World Wildlife Fund, and other organizations, directed his reservations about the proposed disclosure policy toward the bank’s leadership.
Following a question and answer period, Chairman Frank reasserted his commitment to reform efforts and encouraged witnesses to submit additional written suggestions.
