The World Bank, founded to fight poverty, is searching for the right role in places that need its he
Tuesday, September 11, 2007
A typical bank will do its very best to retain customers who are relatively mature and reliable. Whenever it deals with these favoured clients, it will try to offer a personalised service, devise innovative products and keep rival lenders away.
The World Bank is certainly not a typical bank, but in this respect it follows the norm. It relishes dealing with its ?best? customers: the middle-income countries (MICs), a group whose GDP per head typically ranges from about $1,000 to $6,000. In general, these countries have the decent habit of repaying loans and showing results in their efforts to reduce poverty, which is the bank’s main job. Bank-supported projects in middle-income countries?like dams in the Philippines (see the picture above)?can plausibly be presented as contributions to a broader story of success.
Pleasant and rewarding as this MIC business may be, is it doing anything useful that could not be done just as well by others? And if not, is there anything else the bank should be doing? That was the question asked by the Independent Evaluation Group, an in-house monitor, which this week issued a report on the bank’s work in the MICs over the past decade.
The MICs are not simply the best but also the biggest customers of the World Bank?accounting for 63% of its loans and over half of its administrative budget. But the trouble with promising prot?g?s is that one day they no longer need you. The MICs are now heading for the exit: over the past 12 years, they have repaid an annual average of $3.8 billion more than they have taken out in new loans. Financing from the multilateral lender accounted for just 0.6% of the MICs’ national investment in 2005, down from twice that in 1995.
There are several factors at work here, mostly benign. The MICs are growing faster than either the poorest or the richest states. Five countries have ?graduated? from the bank in the past ten years (while several, notably China, have joined the middle-income group). But most crucially for the bank’s future, the MICs have started doing a better job at nursing their own balance sheets. This means they can raise capital from private lenders: 31% of the bank’s middle-income lending now goes to countries with investment-grade credit ratings. A further 62% goes to countries with credit ratings below investment grade. Just 7% of MIC lending goes to countries with no credit rating and virtually no access to private capital at all.