ft.com Monday November 29 1999
http://www.ft.com/nbearchive/email-ftibwcq2ea9c6.htm
World Bank
aid strategy flawed says Stiglitz
By Alan
Beattie
The World Bank's
policies of imposing conditions on countries seeking economic
aid have failed, says its departing chief
economist.
Joseph Stiglitz, who resigned last week,
writes today in The Economic Journal, published by the
UK's Royal Economic Society, that the policy of
"conditionality" is flawed and may have undermined democracy
in countries receiving loans.
"Was imposing
conditionality an effective way of changing policies?" Mr
Stiglitz says. "There is increasing evidence that it was not.
Good policies cannot be bought."
Instead, he says,
countries should be encouraged to arrive at a national
consensus to create their own strategies for
development.
Mr Stiglitz's term was due to end in
February. His 2½-year stint was marked by regular criticisms
of the "Washington consensus", a set of economic prescriptions
- including rapid trade and capital account liberalisation and
the privatisation of state-owned enterprises - that, he said,
dominated thinking in the International Monetary
Fund.
His strong views placed him in conflict with the
IMF, the World Bank's sister institution. During the World
Bank's annual meeting in September, James Wolfensohn, the
Bank's president, rebuked Mr Stiglitz for criticising, with
the benefit of hindsight, the reform process in
Russia.
But in today's publication, Mr Stiglitz
continues to question whether the market-based reform
strategies followed by the World Bank over the past 20 years
have been either sufficient or even necessary for economic
development.
"China, which is by all accounts the most
successful of the low-income countries, did not follow many of
the key precepts of the Washington consensus," he
says.
Mr Stiglitz's views about the ineffectiveness of
attaching strict conditions to loans from international
financial institutions are supported by a study by leading
development economists, Paul Collier and Jan Willem Gunning,
also published in today's Economic Journal.
Mr
Collier and Mr Gunning studied the IMF as part of an external
review last year of its effectiveness. They conclude that
imposing conditionality outside times of macro-economic crisis
may actually reduce borrowing governments' incentive to comply
with IMF programmes by inducing resentment and make
international investors doubt their genuine commitment to
reform.
Governments of poor countries should in future
be given more freedom to choose their own economic policies
outside crises, they say.