A Flawed World Bank Strategy

Paul Wolfowitz’ new plan to speed loans to countries in crisis is fundamentally flawed. Wolfowitz says he’s going to speed “aid” by reducing the time needed for loan approval from nine months to three. Hastily-prepared loans are not aid. Bank staff argue that much of the nine-month preparation time now spent on approval is also needed by the borrowing government to find counterpart staff and funding for large investment loans. Governments have to be sure the loan is bankable – that it can be repaid. African countries became “heavily indebted” in the 80s and ‘90s because governments borrowed money that was not wisely invested or, in some cases, not invested at all. Now that these countries have debt relief, why would the Bank concoct a policy that indebts them all over again by pushing large loans out the door without adequate planning?

When a country emerges from conflict or disaster, it needs grants, not loans. These come from bilateral donors to a trust fund that the Bank administers in these situations. Quite simply, it takes time for shaky post-conflict governments to calculate accurately what sectors make the best investment bets. In the meantime, the country should have access to emergency humanitarian aid.

-- Bea Edwards
 

Comments

[Will Grant]

When I bought my first car, my father offered to co-sign the loan, but he told me something I'll never forget: "If the dealer gives you any trouble about qualifying, tell him you want to buy the car outright."

Sure enough, without a lot of credit and with my father out of state, the dealer was VERY skeptical about me qualifying for the loan and was trying to get me to either come up with a higher downpayment or take a different car. I finally told him to put through the application for the loan and if I was refused, I'd simply buy the car.

He was back in twenty minutes with an approved loan.

Why do credit card companies always raise your limit? Credit card companies wouldn't be able to stay in business if everyone played it smart and simply paid off their cards as fast as possible. It is in their interests for you to stay on the hook, neither going bankrupt and especially not paying off you debt.

Why do loan dudes always encourage you to take out a higher principle than you already have in debt "So you come away with money in your pocket"? They get more money that way, keep you in debt longer. It's nothing personal. It's not like they want to keep you in debt, but they want you to keep making those payments, so they make it as easy as possible to make them. They don't want you to go under, but they don't want you to be that financially stable. Then you wont need them.

Why should the World Bank be any different. Iraq would be a cash cow for them. Iraq needs the money and the World Bank doesn't have any reason not to let them have it, as long as the bottom line say's they'll get it all back with interest.... and no need to rush the deadline either. Iraq is a GOOD country to have owe you one... or more..

As for it being dangerous in Iraq... they can always get more employees. It's the money that's important.