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TRADE: Audit Calls for Reform of World Bank Advocacy

Emad Mekay

WASHINGTON, Mar 23 2006 (IPS) - Hefty investments by the World Bank to promote cross-border trade have fallen short of their stated mission of alleviating poverty and have been overly focused on opening developing countries’ markets, the Bank’s own watchdog says.

Civil society groups say the report by the Independent Evaluation Group (IEG), an autonomous body reporting directly to the executive board of the World Bank, underlines what they have long been campaigning for – a slowdown in technical advice from international organisations like the Bank that are dominated by industrialised countries, and thus tends to reflect those countries’ interests.

IEG says in its newly released report that the Bank has led developing countries in Africa, Latin America and Asia to open their own markets but has failed to supplement the process with measures to encourage investments, institution-building and other actions to ease the adverse effects of free trade.

Between 1987 and 1995, barely a third of trade adjustment loans included compensation measures to cushion the social and economic impacts of trade reform on the poor, the report says. Since then, 38 percent of trade adjustment loans have done so.

“The evaluation confirms that liberalising trade alone is not enough to generate growth and fight poverty,” said Vinod Thomas, IEG’s director-general. “The World Bank has done the right thing in promoting more open trade worldwide, but not necessarily done everything right to help generate the desired payoffs.”

The IEG says that the public lender spent 38 billion dollars on free trade programmes from 1987 to 2004, and was unjustifiably optimistic about the results of more open trade.

“It underestimated the constraints and local complexities involved in harnessing those benefits,” said Yvonne Tsikata, lead author of the report.

The authors note that a pick-up in the World Bank’s trade promotion efforts came in the wake of the 1999 collapse of the World Trade Organisation (WTO) ministerial meeting in Seattle, when protestors brought the talks to a halt.

In 2001, a decision was made to expand the bank’s work on trade issues. By July 2002, the Washington-based institution had a new sector unit dedicated to trade, along with a virtual Trade Department.

Ever since, the lender has presented itself as a knowledge bank, assuming a higher profile in global trade advocacy, increasing its volume of trade-related analysis and research publications, and intensifying its trade capacity-building and operational support.

>From 1987 to 2004, the Bank supported the reform of trade policies in its client countries to the tune of 8.1 percent of its total lending – amounting to 38 billion dollars. These loans went to 117 countries to help them “better integrate into the global economy”, the report says.

The World Bank invested the money in infrastructure-related trade facilities, such as air freight and ports. Some funding also went to private and public trade finance, as well as to technical assistance for trade negotiations.

Non-governmental organisations and anti-poverty campaigners have long been sceptical of the efforts by the World Bank, an institution created in 1944 by victors of World War II, to convince poor nations of the benefits of free trade. They maintain that liberalising markets before fragile economies are ready leads to social disruption, environmental degradation, more poverty and hunger.

Subsistence farmers, for example, are often forced from their land when it is converted to plantations or planted with crops for export.

“The Bank has also often promoted specific trade policies in countries without adequately assessing the potential impact they might have on affected communities,” says the report, noting that many of the Bank’s clients in Africa have been unable to diversify their exports, and some have actually lost market share. Those that failed to diversify were also left open to commodity price shocks.

Despite the criticisms, the report does praise the “high quality” of the World Bank’s research on trade issues, and notes “the important role being played by the institution in recent years in advocating on behalf of a more equitable global trading system”.

However, it says that while the World Bank’s sustained efforts succeeded in opening markets in developing nations – with average tariffs falling, non-tariff barriers diminishing, and foreign exchange shortages shrinking – the benefits did not take root, especially in Africa, home to some of the world’s poorest nations.

“These findings confirm our daily experience. Policies to open markets have benefited the world’s largest corporations, but have a devastating impact on millions of the world’s poorest people,” said Alberto Villarreal of Friends of the Earth of (FoE) Uruguay in a statement.

Critics of the Bank say it should draw lessons from this review, which echoes calls for reform from local communities around the world affected by the rush to liberalise trade.

“The World Bank should stop imposing trade policies that clearly fail to support the poor,” said to Janneke Bruil of FoE International.