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107 December 12, 1979 THE WORLD BANK AND THE FUTURE OF UmSm PARTICIPATION I I INTRODUCTION Growing worldwide economic integration raises profound political, economic, and philosophical challenges for the United expansion of U.S. participation in Third World development efforts through multilateral channels, grows increasingly troublesome.

The actions of OPEC which continue to severely frustrate economic growth efforts in many lesser developed countries ( ldcs), combined with the need to tighten government spending, raise both the financial and political costs of such participation for the U.S.

Consequently as the costs rise so do the expectations for tang ible results States on many fronts. One aspect of U.S. global relations, the .I The United States currently directs its international develop ment efforts through a host of multinational organizations, many of which fall under the auspices of the United Nations. In addition, the U.S. belongs to several r e gional development banks the Asian Development Bank, the Inter-American Development Bank and the African Development Fund. It is, however, the official U.S. foreign assistance transfers through the international financial institutions IFIs) comprising the World Bank Group which receive the majority of the U.S. funding for multilateral development asssistance and, as such, they are the main focus 'of concern here. The Administration's FY 1980 foreign aid appropria tion request included 277 million for all U . S. voluntary contri butions to international organizations (approximately twenty programs) and $1,842 million for paid-in capital subscriptions to all the multilateral development banks. The World Bank Group capital requests account for $1,228 million of t his total. Created largely through U.S. initiative, the Bank Group includes the International Bank for Reconstruction and Development (IBRD commonly referred to as the World Bank the International Develop ment Association (IDA and the International Financ e Corporation IFC I I With the International E r T.--y c 7 I 2; I I c I conclusion of the annual joint meeting of the Monetary Fund (IMF) and the World Bank in Belgrade Yugoslavia, during the second week of October and the winding up' of congressional acti o n on the FY 1980 foreign aid appropriations bill, foreign and domestic interest has resurfaced on the question of economic development and the so-called North (industrialized West South (lesser developed countries) confrontation. Intense concern on the pa rt of all nations over the worldwide economic situation, where stability is no longer the norm, has heightened both the economic and political'frustrations that surround global resource transfers.

Following a brief discussion of the concept of multilateral development assistance, a more detailed look at the operations and functions of the World Bank Group leads to many questions, one of which deserves immediate attention: Could the role of the IFIs in the global development process be augmented or even sup e rseded through alternative bodies such as private enterprise lending institutions? More 'generally, what alternatives exist for the United States and other industrialized nations who wish to participate in development projects without sacrificing politi c a l or economic principles and commitments TEE CONCEPT OF MULTILATERAL DEVELOPMENT.AID Today most discussions of foreign aid, and. economic develop- ment programs, whether in an international forum or in the chambers of the U.S. Congress, commence with plea s for morality and justice to be heavily weighed in all resource allocation decisions. It is generally assumed that support to past recipients must be substantially augmented and often those countries achieving the least economic progress demand the greate st additional assistance.

Debate over a New International Economic Order (NIEO proposed by the ldcs and adopted by the United Nations General Assembly in 1974 continues, often with emotional rhetoric. The espoused tenets of the NIEO center around the redis tribution of global wealth from the Ithavesfit to the fthave-nots,lt presuming this is what world justice requires in general.

Complementary to this is the more specific demand that the industrialized West must exonerate itself for having exphited other nations for years while neglecting to Itenlightenlt them.

The often-quoted theory of Western guilt over the poverty trap in the Third World unfortunately consists largely of an emotional argument. For, as P. T. Bauer and other prominent development economi sts so quickly illustrate, most of the former lcds which have emerged through industrialization, such as Taiwan, Brazil Mexico, etc have had the greatest contact with the West. On the other hand, most of the. existing backward nations, in Afxica for insta n ce, have had little exposure to Western culture and remain primitive fashioned after western nations is automatically.desirable for every country, but only that some countries presumably "exploited This is not to imply that economic growth I 3 I s I most v igorously by the West are now the wealthiest Third World nations a A- z F4 i THE LDC CHALLENGE There has been a whole panorama of slogans and demands uttered at various United Nations Conferences of Trade and Develop ment (UNCTADs) in recent years, with l i ttle rebuttal from the developed nations duling," to untied aid, unrestricted capital flows, and trade concessions. These have in turn been answered by the little acknowledged desires of the North for "trade not aid Within the realm of official U.S. assis t ance for economic development purposes, during the past decade, there has been a noticeable increase in the percentage of total economic aid distributed through the multilateral development banks (MDBs). In fiscal year 1969, 28 percent of the total aid (e x cluding security support ing assistance and callable capital) went to MDBs, while in FY 1979, it was 51 percent. Concurrently, the level of hostility of the recipient ldc nations appears to be a function of the increas ing contributions to their developme n t from the industrialized nations. Demands for assistance have become more vocal. This is readily witnessed in the shift of the factions in the United Nations, where the non-aligned nations (which include the prepon derance of Third World countries) const a ntly speak out against any American viewpoint In all the rhetoric, the role of the IF1 is often ignored The ldc demands have ranged from debt "resche Deputy Assistant Secretary of the Treasury for International Affairs C. Fred Bergsten has summed up what m any government officials believe is still the function of the IFIs in stating These international lending institutions also provide the forum for collaboration between industrial ized and developing countries which is very pragmatic functi.ona1, and econo m ically oriented in contrast to some of the more politicized forufps where there is a lot of talk, but nothing is dona However, in view of the emerging political confrontations between the North and South, it is time to re-examine an observation made in 19 7 2 by John White a scholar and writer in the field of development economics banks, White commented In a study on the regional development international agencies have in general been estab lished as their name implies, as agencies, i.e as 1. C. Fred Bergste n , "North-South Interdependence: Government and Business Initiatives it' Top Management Report, September 1978 (Washington, D. C International Management and Development Institute, 1978), pp. 21-22'.a j 5 A F 4 3 i organizations capable of performing certa i n functions in the service of their clients broader functions that they.have acquired, as vehicles for general trends in the conduct of international relations They were not designed to take on the Following White's suggestion, one might logically ask whe t her During the past several or not the World Bank Group has become too bureaucratized and policy oriented on a macro-economic level to be of significant service to Third World development needs years of his tenure as President of the World Bank, Robert Mc N amara has spoken out each fall during the Bank's annual meeting (the thing of which happens to coincide with congressional considera tion of the foreign aid appropriations bill on the vital support needed for the Bank's operation. McNamara's appeals are f r equent ly humanitarian in nature and extreme in implication. In speaking of action taken earlier this summer in which the House of Repre sentatives restricted indirect aid transfers to several countries McNamara declared The blunt truth is that if this am e ndment is finally enacted into law, Congress literally will have destroyed the largest single source of economic assistance to 1 billion people living in the poorest of the developing nations...I do not believe that me United States wishes to turn its bac k on more than 1 billion pegple in the poorest countries of the developing world.

Insinuating that any reskrictions placed on U.S. contributions to the World Bank would result in its hedate demise, McNamara raised inordinate fear in the minds of many development supporters.

There has been no public mention by official sources that the United States government wishes or plans to cease its role in the worldwide development effort. On the contrary, the U.S. is cognizant of the economic and political importance of the Third Worl d nations, both singly and as a region THE EFFECTIVENESS OF AID What is now being challenged, or rather sought, is the most effective. means through which U.S. aid resources can be channeled to guarantee their optimal economic utilization. This year, as in the past, Administration witnesses sent to Capitol Hill to support its'request for U.S. subscriptions to the MDBs rested their case on three main arguments: first, the banks provide z 2. John Alexander White, Regional Development Banks, The Asian, African , and Inter-American Development Banks (New Yorh: Praeger Publishers, 19721 p.5 October 3, 1979, p. 11 3. Eric Bourne A McNamara Plea for Third World Christian Science Monitor,economic and financial returns to the U.S secondly, this type of participation c o ntributes to the policy of burdensharing in global development efforts; third, the U.S. must support effective institutions which are promoting economic growth in the ldcs support of point one, Bergsten repeated in congressional testimony the now familiar statistics: that for every one dollar the U.S. pays into the World Bank 2.40 to $3.40 of additional U.S. GNP has been generated; and between 50-100,000 new jobs are created annually. However, the real dilemma in using this justification has been succinctl y expressed by Representative Clarence Long D-Md Chairman of the House Appropriations Subcommittee which manages the foreign aid bill and an economist in his own right. Long asserts In 1 You're either out to help the poor or the economy.

If your purpose is the latter, you shouldn't be giving money away to foreigners. We have millions of 'Americans who'd love to buy AmErican goods, if we gave them the money eo do it with The second and third justifications for U.S. participation in IFIs have not been fulfil l ed, leaving one to ask if the MDBs constitute the best organizational structure to implement these policies. With respect to the second argument, although the U.S percentage share of total subscriptions to each of the Bank Group bodies has decliped slight l y over the years, the U.S. remains the outstanding single largest contributor to each, still tripling the effort of the next largest contributor. This reflects neither burdensharing nor equity when one considers the capability of OPEC nations to contribut e promote some degree of economic growth in recipient nations.

However, in examining some of the more prosperous developing nations which have benefitted from private capital inflows, the question of whether the IFIs are the most effective development inst itutions becomes apparent Lastly, it is true that the MDBs do TBE 1NTERNAT.IONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT The IBRD, or World Bank, was founded in 1945 during the Bretton Woods Conference which reviewed post-war economic condi tions. Set up a s a counterpart to the International Monetary Fund (whose purpose is to maintain global exchange rate stability the Bank draws its members only from those nations belonging to the IMF their capital subscriptions. The United States has contributed almost 2 4 percent of total subscriptions plus supplemental re sources and in return possesses 21.48 percent of the total voting power To date 134 governments own the World Bank through The multilateral character and distribution of development 4. Ann Crittenden, " Foreign Aid Has Friends Back Home Times, July 30, 1979, p. 5.

Businessmen," New York I i d?a L I 3 responsibilities in this institution is rather askew since the next largest subscriber is the Federal Republic of Germany contributing only slightly over 6 p ercent of.the total and holding 5.52 percent of the voting power. (See Table A The purpose of the IBRD found in Article One of its Articles of Agreement is Itto promote private foreign investment by means of guarantees or participation in loans and other i nvestments made by private investors; and when.private capital is not avail able on reasonable terms to supplement private investments.Il Additionally, lending to developing countries must be both produc tive and stimulating to economic growth. As of June 30, 1979 the World Bank had extended 1,731 loans to 100 countries totaling 51,697,200,0

00. The major recipients of these loans have been countries such as Brazil ($4,618.7m Colombia ($2,243.4m the Phillipines ($1,977.9m Yugoslavia 2,387.h and Mexico 3,81 3.6m ranking as both high and d,ddle in per-capita income levels (from $321-in excess to $1,290 Development loans are extended normally with a twenty-year maturity and a five-year grace period borrowing incurred by the Bank, but all have recently ranged f r om 7 to 7.9 percent. According to Eugene Rotberg, Vice President and Treasurer, the Bank has never'suffered a loss on a loan and actually it is a profitable institution. The present return on assets is 7.8 percent while the cogt of total funds (debt plus e quity) has now reached 6 percent. The twenty Executive Direc tors, to whom the Governors delegate policy-making authority have recently authorized a $40 billion general capital increase Interest rates vary according to the cost of ASSESSING THE WORLD BANK While the economics of its lending operations, from the standpoint of making a profit, draws praise for the IBRD, it is the future policy direction of the Bank which causes concern.

Several thorough.studies of the World Bank's operations and effectiveness in meeting the needs of the poor have been conducted.

Both the 1978 study by the Congressional Research Service and the March 1979 House Appropriations Committee Investigative Staff Report on IFIs found numerous shortcomings in the Bank's policies.

As e xpressed in the' reports, there is a growing consensus that the Bank has not taken a dynamic role in facilitating self-reliant development in the ldcs. Critics have suggested that perhaps the Bank has become too centralized in its policy-making and that n e w staff who have !'grass roots experience" could be hired in order to promgte the integration of research findings with actual Bank policy. With such first-hand knowledge of the priority of needs 5. Eugene H. Rotberg, The World' Bank's Borrowing Program a n d Answers (Washington, D.C The World Bank, 1979 p. 14. 5 6. Congressional Research Semice Towards An Assessment of the Effective ness of the World Bank and the Inter-American Development Bank in Aiding the Poor Washington, D.C U.S. Gcrvernment Printing Of fice, 19781, pp 116-117 Some Questions I I' r 7 in the ldcs, a reorganized Bank staff, it'is asserted, could better effectuate self-help projects.

The administrative procedure which requires continual surveil lance in any large lending institute is the process of evaluating the effectiveness of the loans in achieving development goals.

The lack of adequate statistics and data from the ldcs permits however, only general observations. Speaking in terms of all the IFIs, the House Investigative Staff raised a fundamental problem.

The pressures to demonstrate growth by committing an increased amount of lending each year tends to overstrain the absorptive capacities of LDGs and thus be counterproductive in making them dependent rather than building their own indigenous institutions.

Considering the backlog of undisbursed loans, there is a continuous need to borrow and, in turn, a continuous need for new infusion of capital. Whether callable capital really is "free" depends upon the soundness of the economics of the Third World in the decades ahead.

Allegations have been made concerning the abuse of World Bank funds in various recipient ldcs. in implenenting.the projects funded by Bank loans arid the immobil ity of funds once they reach the inner circle of many h ost govern- ments have both been the target of complaints. Difficulties quickly arise in verifying such charges; however, even the IF1 c economists in general support the contention that the income share of the poorest 40 percent in ldcs has probably wors e ned The economic policies used In one discussion of the Investigative Staff IF1 report, the following harsh criticism was made What strikes us as worse is the way in which the World Bank and its ugly sister institutions openly and arrogantly channel funds to purposes collectivized farms, for example, or the callous uprooting of whole communities and populations euphemistically known as transmigration that no society which calls itself free should tolerate, much less support. Far from blazing a trail to eco n omic development or social progress,' t$ey are pressing relentlessly down the road to serfdom. j 7. Surveys and 1nves.tigative Staff of the House Appropriations Committee, "A Report to the Committee on Appropriations, U.S. House of Representatives on Inte r national Financial Institutions Washington, D.C U.S. Govern ment Printing Office, 1979 1979, p. 42; as reprinted from Barron's (April .2, 1979 8. Robert M. Bleiberg, "Bankrolling Socialism," Conservative Digest, June a T +4 Specific reference can be made A ugust 1978 IDA credit totaling $60 Vietnam for an irrigation Project in the above context to the million which was extended to DesiQned to promote rice production, the project evolved into a means of hrther collecti vizing the farming population of Vietna m. The failure of the Bank to properly oversee the implementation of this and other projects has raised serious questions over future U.S. participa tion in the organization.

Furthermore, a clear-cut example of World Bank &d other IFIS' actions which conflict with U.S. policy concerns the appli cation of human rights in determining the eligibility of certain countries for loans and credits P.L. 95-118 instructs the U.S.

Execytive Directors of the IFIs to oppose or abstain from voting on projects for countries which violate internationally accepted standards of human rights. As reported by the Investigative Staff, in 60 aut of 800 instances during the past two years U.S.

Direct ors have voted no or abstained, 50 times for human rights reasons. However, such a negative U.S. vote has never succeeded in halting the funding of a project once it has been presented to the Board of Governors, This type of record and repeated pattern of resignation on the pakt of the U.S. does little to foster the implementation of a consistent human rights policy IBRD Top World. Bank country United States United Kingdom Germany, Fed. Rep. of Japan France India Canada Italy Netherlands China, Republic IB R n country Brazil Mexico India Indonesia Korea, Rep. of Yugoslavia Colombia of Cumulative Table A Ten S-ybscribers, June 30, 1979 Annual Report 1979, Appendix F) of Tokl Subscriptions 23.88 8.97 6.08 4.67 4.41 3.91 3.84 2.94 2.65 2.59 4 of Voting Power Len d ing Top Ten Recipients, June 30, 1979 21.18 8.12 5.52 4.26 4.03 3.58 3.52 2.71 2.45 2.40 5 No. of Loans Amount (U.S inillicas 89 59 57 i 44 43 53 8.1 4,618.7 3,813.6 2,645.6 2,476.0 2,404.5 2,337.1 2,243.4 I Phillip ine s Turkey Thailand 9 62 41 50 1,977. 9 1,807.4 1,418.4 Additional figures appear in the Appendix to this study THE INTERNATIONAL DEVELOPMENT ASSOCIATION IDA was created in 1960 to fill a void in the World Bank's operations in dealing with the lowest income level ldcs. This llsoft-loanlt windo w of the Bank extends interest-free credits for up to fifty years, with a ten-year repayment grace period. The only additional cost to the recipient country is a .75 percent annual service charge on the principal. Special attention should be given to the f i nancial operations of IDA for, unlike the IBRD which borrows on the private capital market and charges near commercial interest rates to borrowers, IDA credits are funded by taxpayer contributions and involve a large subsidy or grant element. Among the 12 1 members, the U.S. is the largest subscriber accounting for 30 percent of total subscriptions and supplemental resources while holding only 20.58 percent of the total voting power. The United Kingdom, Germany, and Japan are the next largest contributors ( w ith respective percentages of 12.4, 12.21 and 10.5 and among the OPEC nations, Saudi Arabia is the most influential member with a negligible contribution (in terms of capability) of 2 percent of total subscriptions. The table below indicates both the amou n t contributed and voting power of the ten most important IDA supporters In conjunction with the 1973 U.S. legislative emphasis on Wew Directions" in foreign aid came the commitment of the Bank Group to l1new-stylel1 projects. IDA is the affiliate which be a rs the responsibility for fulfilling this objective of increasing the assistance to solve basic human needs requirements in the ldcs. However, examination of the cumulative lending of IDA by sectors does not bear witness to this goal. Through June 30 1979 , IDA had extended 870 credits totaling $16,732,300,000.

India, Bangladesh, and Pakistan together netted the overwhelming majority of this support ($9,017.3 million, of which India alone received $6,750.2 million), a pattern repeated in FY 1979.

Approxima tely 33 percent of total IDA credits extended through June were for the purpose of agriculture and rural development, as should be expected. The shocking statistic, however, shows that only a little over 1 percent of IDA f~ds have been allocated for popul a tion and nutrition, while 17 percent has been spent on transportation and another 13 percent on so-called non-projects often providing foreign exchange for purchases of imported technology IDA credits are too widely dispersed in various economic sectors. T he poorest of the ldcs continue to suffer from disproportionate over-population and starvation. conditions will not ameliorate themselves merely in the face of plans for industrial progress; they require concentrated attention r Those two 10 Along with th e credit allocation procedure, there are two operating principles of IDA which have been the target of much criticism that require investigation. First is the direction of IDA credits, this time with respect to the actual recipient nations. Most of the adv e rse publicity recently directed toward IDA from within the U.S. deals with the June 1978 credit of $60 million extended to Vietnam. Yearly efforts in Congress, led by Rep. Bill Young (R-Fla to halt the indirect flow of U.S assistance to Vietnam and other n ations whose policies are in conflict with U.S. interests and/or security draw public attention to the involuntary use of taxpayers1 money. Testifying before the House Appropriations Foreign Operations Subcommittee on FY 1980 requests from the Administrat i on for U.S. contributions to the IFIs, Bergsten retorted to objections to further U.S. contri butions to the Bank because of the Vietnam loan with the following: if 99.9 percent of the loans go to countries c that we do sympathize with or do not oppose, a n d if we only pay one-fourth of a declinigg share of the total it is a cost benefit comparison I However, if the return on U.S. dollars is the primary considera tion, bilateral transfers are more prosperous for all the'money can be tied to purchases in the U.S whereas in the MDBs, the U.S. competes for contracts against other member nations. Second ly, it is not necessary even to support .2 percent of total loans if they are not in the best interest of the U.S The other source of major 'contention lies at t h e heart of IDA'S existence, that beins the efficacy of llsoft-loansll' vessus hard loans or p&e grants as the most beneficial means of provid- i nm rlnvnl nnmnnf rsni tal are extended for projects which could afford a higher rate of return on capital, fut ure development'resources have escaped.

Moreover, as has been recently discussed in simple economic terms, if the projected yield on projects is used to determine I the type of capital support extended, soft loans normally place last in economical terms.

Professor Wilson Schmidt in a recent article entitled "Re thinking the Multilateral Development BanksII provides a simple illustration involving the differentials in investment yields between benefactors and recipient nations to explain how soft- loans ar e inefficient. When the yield on investments in the recipient country exceeds that in the benefactor, both are better off With a hard loan because it is possible to set an interest rate between the two yields such that both parties gain General izing furth e r, Schmidt explains, Varadoxical as it may seem, it 9. Foreign Assistance and Related Appropriations for 1980, Hearings before the Subcommittee on Foreign Operations of the House Appropriations Commit tee, 96th Congress, 1st Session, Pt. 6, p. 734 11 F'Sp r is in fact cheaper to give the money away than lend it when the yield18n investment in the recipient is below that'in the benefac tor Country Table B IDA Top Ten Subscribers, June 30, 1979 World Bank Annual Report 1979, Appendix E United States United K i ngdom Germany, Fed. Rep. of Japan France Canada Sweden Nether lands Australia Italy of Total Subscriptions of Voting Pa-ier 30.42 12.40 12.21 10.50 6.29 5.54 3: 3.87 3.25 1.98 1.95 20.58 7.51 6.75 3.95 3.90 2.66 2.00 1.50 1.99 5.74 a IDA Cumulative Lendin g , Top Ten Recipients, June 30 1979 country India Bangladesh Pakistan Indonesia Egypt, Arab Rep. of Tanzania Ethiopia Sudan Kenya Zaire i NO. of, Loans 112 54 42 44 19 34 24 19 19 18 Amount (U.S m 6,750.2 1,187.2 1,079.9 757.8 568.6 429.2 368.1 352.5 286.3 247.5 Additional figures appear in the Appendix to this study TRE INTERNATIONAL FINANCE CORPORATION 7 Established in 1956 as an affiliate of the World Bank, the IFC's current membership totals 109, of which 88 members are categorized as developing countri es. The explicit purpose of the IFC is Itto further economic development by encouraging the growth of productive private enterprises 'In member countries, particular ly in the less developed areas Article One, Articles of Agreement).

A more specialized role as described in the annual report is 10. Dr. Wilson Schmidt, "Rethinking the Multilateral Development Banks,"

Policy Review, No. 10 (Fall 1979), p. 59. I 1 12 to mobilize private resources on commercial terms for development pro; pcts where a. market-or iented approach is not only applicable but economically prefer able and where they would not be. undertaken in a timely of appropriate way without the corporationls participa tion Annual Report 1979, p. 10 The operation of the IFC is somewhat unique from o ther international lending agencies as it has the ability to make both equity and loan investments terms with the normal maturity dates between 7 and 12 years recipient government guarantees 'are demanded and the IFC will not invest in countries where a p o tential host government raises objection is through syndication, most often by offering sale in participa tion of an IFC loan at the initial stage of investment fiscal year 1979, the total cost of projects where the IFC invested was $1,714 million, of whi c h only 25 percent or $425.4 million was actually put up by the Corporation. Fifty-four percent came from developing countries themselves, and 21 percent from addition al multinational financial agencies and banks. In 1979 the program for the first time ai m ed at directing more of the Corpora tion's attention to ldcs. As a result, 52 percent of its invest ments went to countries with per-capita GNP below $581 Financing is based on commercial No The principal means of supplementing its own resources In Consis t ent with the dominance of American financial support in the World Bank and IDA, the U.S. share of total subscriptions in the IFC is approximately 35 percent and 31 percent of the total voting power. U.S backing is clearly predominant, for the United Kingd om contributes the next largest proportion, about 17 percent, followed by Germany with 7 percent.

The IFC can be viewed as a successful operation Since the beginning of operations in 1956, cumulative net losses total only 1,209 million. This amounts to 1 p ercent of disbursed loans and 3.5 percent of disbursed eqyity investment types of projects supported by the Corporation, efforts are being made to finance more small-scale rural industries and development needs. Cumulative IFC dollars spent through June 1 9 79 were concentrated in some of the more advanced ldcs such as Brazil Turkey, Yugoslavia, Mexico, Argentina, and the Republic of Korea. Loans for heavy industrial projects which required otherwise unavailable capital accounted for the large proportion of t otal spending found in these countries successful in engaging private investment in ldc projects, more of its resources must be absorbed by the poorer ldcs. lfSmall is beautiful, but only if prudent" has ?fen a motto suggested for a new loan scheme for th e Corporation. Sincere development assistance in the form of loans requires some risk 17.7 million out of the net disbursement of funds totaling With respect to the Although the IFC has been This is 11. t*Small is Beautiful at the IFC Financial Times of Lo n don, World Business Weekly, October 8, 1979, p. 47 4 e I 13 often difficult for governments participating in multilateral ventures to justify to their constituents, As the IFC becomes more involved in energy exploration, alternative sources of financial b a cking for additional operations of this type might be investigated Table C IFC Top Ten Subscribers, June 30, 1979 World Bank Annual Report 1979, Appendix E country United States United Kingdom Germany, Fed. Rep. of Canada India Japan Belgium France China, Rep. of Argentina A IFC Cumulative country Brazil Turkey Yugoslavia Mexico Argentina Korea, Rep. of Phillipines India Thailand Pakistan of Total Subscriptions 34.89 16.58 6.77 4.61 3.28 3.20 3.06 2.54 1.82 I 1.44 h of Voting Power 31.27 l4.91 6. U 4.22 3. 0 3 2.96 2.83 2.37 1.72 1.39 Gross Commitments, June 30, 1979 of Enterprises IFC Total Amount U.S 27 16 K 1.4 11 18 13 9 11 ia Additional figures appear in the Appendix to this study thousand 211,953 133,959 104,937 95,120 86,064 85,248 77,207 58,417 48,223 44,583 ALTERNATIVES NEEDED In many respects perhaps the most telling statement in the House Investigative Staff IF1 Report is found in the introduction.

Speaking of the cumulative lending of the all the IFIs, the report noted that only 30 percent of fundi ng was allocated to low-income developing nations (under $280 per-capita income capita income), advanced Mediterranean countries t and centrally planned economies. Furthermore, the staff found that the World while 27 percent total went to high-income 1,13 6 -$2,700 per- c 5 5 C 14 Bank has committed 86 percent of its total soft lending to low income countries. While this percentage sounds high, it is in fact disturbing, for all soft loans are presumably handled through IDA and should thus be reserved solely f or the Ilpoorest of the poor In conjunction with the above statistics one finds the tone of Robert McNamara's May speech at the University of Chicago very pessimistic. As a staunch advocate of the World Bank's contri bution to global development efforts, h is rhetoric, as excerpted below, did not reflect favorably on the Bank's policies to date In the past decade, the poor nations have financed over 80 percent of their development investments out of their own meager incomes make even greater efforts little i n agriculture, too little in population planning, e and too little in essential public services much of what they have invested has benefited only a privileged few. That calls for policy reforms, and that is, of course, always politically difficult. But w h en the distribution of land, incomes, and opportunity becomes distorted to the point of desperation, political leaders must weigh the risk of social reform against social rebellion In any event, whatever the degree But it is true they must They have inves t ed too And too of neglect the governments in the poor countries have been responsible for, it has been more than matched by the failure of the developed nationg2to assist them adequately in the development task As the single largest contributor to the Wor l d Bank Group it is the responsibility of the U.S. to seek constructive changes in their policies. U.S. unwillingness or inability to improve the operation should lead to reconsideration of U.S. participation in these institutions there exist any viable al t ernatives which escape the increasing political overtones and questionable economic utility of current official multilateral aid transfers The question left to resolve is whether For purposes of continued U.S. participation in development efforts, the cho i ces range from restricting aid transfers to a bilateral basis, promoting the creation of private development oriented capital outflows, or a combination of the.two. In separating these two choices the assumption is made that aid flows are for "relief of n e eds" and can be handled most efficient ly on a bilateral basis, whereas private capital flows through the masset offer the best source of funds for development pur poses Foreign assistance and development capital serve two distinct purposes 12. Robert McN a mara, Speech Given at Awarding of the Albert Pick Award University of Chicago, May 22, 1979 13. E. F. Schumacher, Small is Beautiful (New York: Harper Row, Publishers Inc., 1973 p. 169. 15 The most obvious and seemingly the easiest change that can be made (in terms of expenditure-and reorganization) in America's foreign aid program is to limit all transfers to those bilateral in nature. In this manner, aid advocates assert, the expenditure of U.S. tax dollars on economic assistance can be directed towards t he neediest nations and political confrontations can be avoided A contradiction exists, however, because bilateral aid transfers must adhere to the foreign policy objectives of the U.S thereby complicating in many instances the fulfillment of their intend e d development purposes The merits of foreign assistance programs as directed by the Agency for International Development have been challenged for not reaching the truly impoverished transfers can not be expected to combat poverty in recipient countries un l ess the indigenous resources in these countries can be cultivated by the local population who have been trained domestically for such specific tasks. For the U.S. to undertake such efforts requires a detailed and time-consuming re-evaluation of its develo pment programs, patterning much more attention to a Peace Corps-type of direct, intensified involvement in the ldcs.

The political implications of such an increased direct involvement in host countries-leads one to look outside the range of government to p rivate sources for development support Government-to-government aid On a multilateral yet non-governmental, level there have been many proposals suggested,of how to engage private investment capital flows in developing countries. These range from increas i ng private direct foreign investment, where the percentage of foreigq equity participation could renew claims of colonialism, to the establishment of Technology Development Zones. Prior to the construction of a new channel for private development capital f lows, the needs and goals of Third World development must be logically (as opposed to emotionally) redefined. Three principles must be adhered to in order to facilitate achievement of these goals First is the sound philosophy that in economic development t here can be a process of stretching-never a process of jumping i.e industrial growth in the area of mass consumption items is futLlel&f it precedes an organized system of banking and a market place most basic resources 'is economically insupportable 1nves t ment.in a nation not commited to developing its Secondly, there must be a nexus between the capital investment and physical growth by and of private enterprises in the ldcs and the availability of indigenous resource supplies: land, labor and knowledge. C a pital flows need to be geared towards the absorptive capacities of the host nations I 14. P. T. Bauer, Dissent On Development (Cambridge, Mass Harvard University Press, 1972 p. 109 1 r e 16 rZ 1- A i ye 3 Third, the recent world trend toward renewed trade protection ism must be halted by efforts to utilize the assets of the market as a catalyst to worldwide economic growth.

Applying the above three llrules,ll it is logical that the United States takes the lead in acquiring private capital trans fers for th e U.S. has been the prime sauce of private investment in the Third World. Between 1960 and 1976, the U.S. provided a little over 50 percent of total capital flows to the ldcs ability to dispel the specter of exploitation hosted by many ldcs. The concept o f Technology Development Zones (TDZs) is a step toward combatting this obstacle by offering the ldcs lease revenues in return for complete business and persfgal tax exemptions and 100 percent repatriable profits to investors. Governments hosting these zone s could spend the revenues on indigenous develup ment and technological needs material and energy resource.exploration will attract many inves tors, the TDZsI offer of repatriable profits may be counterproduc tive in some coutries. Many Third World leaders still consider this a form of usurpation of their nation's resources The channel for private capital inflows to the Third World needs to be expanded, for such capital is more responsive and flexible to existing market cpnditions than government aid trans f ers. One possible means of engaging both the capital and entre preneurial training capabilities of global commercial ventures in of the IFC, or a like government-owned investment institution maintaining the same operating principles but changing the natur e of membership from public (government) to private (corporate).

In offering private bond options for specific development projects the local governments will face major obstacles. Host governments must guarantee adherence to their directives while attracting appropriate industrial expansion at an acceptable social cos t.

While bilateral aid programs may be helpful in instructing ldc governments to set priorities in development needs, there must be some compromise made by host nations need adequate initial incentives to invest in small scale projects throughout the Third World in order to augment the development of markets now only be surmised Of critical importance to any new multilateral scheme is its While the opportunity for new 1 Large corporate interests The potential growth and profits of such markets can 15. The, s pecific application of the term Technology Development Zone referred to here has been initiated with support from the Sabre Foundation in Santa Barbara, California. The Foundation has assembled a group of scientists and officials from developing countries to investigate a site for the first zone c 6 17 e LI 3 1 t z 2 *i CONCLUSION the IFIs totaled $3.6 billion, of which $2,151.2 billion was specifically allocated to the World Bank Group. Although the typical congressional cuts were made in this appropriati o n, once again the Congress failed to guarantee that U.S. dollars would not be used to indirectly support governments whose friendship is questionable and economic policies are unsound The Senate-House Conference on the FY 1980 appropriations bill resulted in one exception. After intense debate over the likelihood of future loans to Vietnam Bank President McNamara set a precedent letter to Chairman Long, McNamara questioned the development policy of Vietnam and stated I cannot recommend a loan to Vietnam to the Board in FY 1980 and therefore the Bank Group will not be providing a loan to Vietnam in E'Y 1980.i1 As *e political consequences of these institutions' actions become more intertwined with their economic goals, the U.S. participation in the World Ban k .Group draws more criticism from within the country The FY 1980 Administration request for U.S. contributiins to In a During this period of growing austere domestic economic policies, the U.S. must rethink its commitment to foreign assist ance and develop m ent efforts. Without becoming hostage to Third World demands for help, the U.S. must maintain and even.increase its link in these nations for their potential resource supplies and markets become more precious each day the United States may be better off d i recting its humanitarian aid efforts bilaterally, and pulling out of multilateral institu- tions where political principles have to be sacrificed encouragement of private investment on a global scale, to replace the 10 to 15 percent of total capital flows to the ldcs currently supplied by the--MDBs, will require organization and initiative on the part of the ldc host governments as well as some risks for private ventures. Objections from the governments of industrial ized nations which provide private capi t al investments will undoubtedly be heard as the ldc markets develop. However, the private capital markets should be given an opportunity to prove their effectiveness and economic efficiency as a viable alterna tive tq existing public development efforts W h ile de-politicization of development efforts is not probable The Susan P. Woodard Policy Analyst International Bank for Reconstruction and Development hr uI at IU.8 200 29l 219 1 1.581 hr uI at IU.8 tM1 m 200 .w Lournbarn 29l .10 219 oI 1 05 1.581 .I krba m mmwbars' Sum total Aceria 1.109 .II AmcnsIpr 4.701 1.62 6.4s 2.22 f696 .93 Menadt 100 .10 tM1 W .10 .oI 05 krbam m Lournbarn magaai MJI*ritu Mm Maldirr Mali Maurifania Mau Meam Momcro Allhnli Ad mmrr Bahrain Ban8ladua Barbador Bdlitlm Benin Wiia bans Bnr i l e Burundi CUMmoa Canada CIlmrl Afncm Empire mad Qik CRina. Rewblii of a Camomr conlo. Ploolr'r RIDub!ii of the Casta Rm CVPIUS Denmark oominicm Algubli Ecvrdor m. AM Republic OW El s Eauat+d Guinu mbw we Vd I In .a6 163 .06 1.242 .a 111 .a4 7.268 2.51 u 1 413 1.492 361 7.518 w 46a 293 3.983 841 roo 450 11.372 266 150 350 1.490 1.754 1,425 266 350 357 528 425 618 314 364 361 2.044 13.012 370 303 17,862 1.1% 267 371 2.774 1.671 370 1.m 256 .w 423 .I3 150 .ll 438 .14 2.530 .I8 1210 37 396 .I2 1.929 2.4s 2.05 7 341 .11 I3 .I3 .46 .I1 232 6 In 171 .06 100 .a laa .I 2.zaa .79 960.33 146 .s 7.679 2.65 1.1101 .62 91 .a3 100 .m 210 m 43 .a1 3.733 1.29 m .a ll .14 .09 123 36 12 .14 3.52 a .I1 l1 .16 2.40 .44 .a8 I1 .ll .16 .as .13 19 u .I1 .lo .I1 I1 a 4.03 .ll -09 5 . 52 34 .3l .a Jz 14 49 .I3 u .10 IS 3s 11 37 29 It .42 2A J9 It 426 .14 J4 20 A8 1 Nmai Nd~rrkndr Nut alud Naram Niger Nicau Nonw Oman Pakistan Panama Row Nr Guinea Panway pm Philiooinu Por(pcJ QatucS Romania Rwanda fro Tome and Princige Saudi Anbir sen Si Lane singam Salonwa Idand Somalia saum Ifria swill Sri LanW Sudan kriname Swaziland swan Swn Arab RIOubliet'l Tanzania milaad TOP Trinidad ad Toeam Td 1 05 2m .a7 11.12t 3.84 16 .01 100 .a 1.152 .a 2.410 .U 60 .a 2.519 47 w -11 216 .07 171 .I 60 .02 135 I s 1.715 .59 466 .14 UI J3 no .IO 9%fo 1.965 .61 7.500 2.59 1.175 .41 16 .01 100 43 107 .M 175 .06 368 .I3 1.421 .49 la .os 64 .a2 114 .08 271 .io 2.m .a7 11514 .49 421 .I3 1.871 .58 roo .I 264 .I 5.149 1.59 612 .19 400 .12 570 .lI 267 .a8 1.324 .46 171 .a6 1.62l .55 150 .a 14 da 4,899 1.69 362 .I2 1 a5 320 .ll I7 .01 189 .07 3.463 1.19 3.171 1.16 821 29 60011 162 .a6 6a .a 1.676 117 UT .I5 35oP 154 Ds 53s .la 373 .13 1m6 .44 331 11 128 .a4 26,Ooo 8.97 411 .I4 1,972 bl 543 .I9 8S.a 1.m I w% Y 17 .a 439 .I4 3 .713 1.1s 3.621 1.12 1.077 33 850.26 WI fmlwd Fnna Gaeoa Tim 111 .04 1.794 .62 12.192 4.41 120 .04 53 .a 412 13 318 .I

3.926 1.21 671 21 600 .lb 1.m .53 100 la 71 24 623 .I9 is6 .a 583 .u 378 12 26.250 8.12 661 a .a I7 .m? 33s .10 69 a Germany. Fadad Rem& d cbrm Grm a Gursemdr 17,612 6.08 856 30 94533 17 .01 123 .04 GuiicP Guinu-Eii Cyan e L1 nondwu 2#r .at 27 .01 171 .a6 150 .05 84 .a m .a8 11.333 3.91 11 3.888 1.34 4 .55 1 1 E 24 1266 .u 1.108 .38 1 365 .13 446 .I5 187 .I 214 07 4 I4 8.525 2.91 a 13.539 4.67 11 1.2s .4 1 Turluy Uganda Unad Arab Emiiats. Unihd Kingdom Udd Shtu Uwr w Urn vcruludr VM Nm WWnn sunar Yemen Anb Rlgrblk Y plooHo*a. Iho.d rumla bin lalrnd Indu lndwrir inn I Man at Iwr Irocl Jamaim Jaoan Jocdu Ilrmollcna, Oammtic. mmva Mofw R8nWid Kurrril bo Pde't Drnaeritk RWi Lrbmsn L 248 .a9 960 i.in .4i Zambia 640 2! TaI8bJw~l 979 289.902 1W.W TocrkJum 1 1978 266.591 694 24 944 International Finance Corporation Voting Power and Subscriptions of Member Countries/Appendix A AS of /uwo ism Vorrnq P ow Total SU~DIIOO Votia# Pomr Total SU DIIOII No 1 Amount -1 No. Porca~t Amount Pmcmt oi Mamba Vorn Total ofDoilm) Total Mmber Vota Total ofDollanJ Total of (h Thouunda of of of of (h Ihouunda Afghanistan Agcntirla Australia Austria Bangladesh Belgium Bol i via Botsvana Brazil Bunua Camemon Canada Chile China, Republic of Colombia Costa Rica cypnu Denmark Dominican Repubiic Ecuador Egypt Arab Republic of U Salvador Ethiopia Finland France Gabon Germany Federal Republic of Cha Greacs Grenada Guatemaia Guinea- B iu Guyana Haiti Honduraa Iceland India Indonaria Iran Iraq Ireland Isr;lel Italy Jamaica Japan Jordan Kenya Korea. Repubiic of Kuwait Lebanon Lesotho Liberia Libya tuxemboug Madagascar IVOV COMt 381 3544 1485 tfil Lza6 7335 410 Pg 3.214 918 5lZ m790 LO28 4 .404 838 381 428 1.m 388 924 L854 281 283 LO34 8rn 305 lsJu 988 Ll27 281 nz 288 339 385 295 281 7.m 2890 822 3l7 582 300 2344 381 589 7374 283 778 L314 el9 300 288 333 305 449 381 14 La 98 W 50 2a .le 11 La 38 20 4.22 40 L72 2s 14 l7 39 w 38 72 .la 11 -40 137 12 blS 39 44 la 11 .la 13 1s K .la 3.03 Lo5 24 12 23 K 88 14 33 198 11 30 51 24 12 .la 13 K .le 14 in 3194 2215 1481 L038' 8985 29 2- BBB 282 10.540 776 4.154 388 111 l78 n3 138 074 LBO4 11 33 764 s;eu 55 15.475 f38 077 11 22 18 89 135 4s 11 7. 503 fQ 4 8 372 e7 332 50 2994 111 339 7.324 33 528 2084 309 50 18 83 55 199 111 im 05 L44 97 84 45 208 111 130 29 11 4.61 34 182 17 05 08 33 rn 29 m m m 34 u4 02 en 32 38 Q1 04 06 02 8 m 8 3 28 as M 18 Is 02 81 05 1s 3.m m 23 47 10 .m w 02 09 05 m MalPwi Malaysia M all Mauritania Mauritius Mexico Momem Nepal Nathcrfanda New Zealand Nicaragua Nigeria Norway Oman Pakistan Paaaqra Papua New Guinea Paraguay Peru Philippines Portugal Rwanda Saudi Arabia Senegal Sh Laone Singapoq somaiia south Africa Spain sri L;mlrp Suda n Swaziland Sweden Syrian Arab Republic Tanzania Thailand Togo Trinidad and Tobago Tunisia Turkey Uganda United Arab Emireta United Kingdom United States Upper Voita Uruguay Venezwla Viet Nam Western Samoa Yemen Arab Republii Yugorlavia zaire Zambia 447 -0 388 305 345 910 Lo= 358 3298 L173 294 619 z398 394 1678 252 410 288 444 LM9 L374 350 381 434 333 427 333 1358 L358 Lo89 381 434 L358 322 434 L480 333 828 389 728 434 338 38150 B0.w 305 40s 368 418 259 351 841 582 11 4s 14 12 a13 38 40 14 la 46 11 24 94 Is tos 10 le 10 l7 81 51 14 14 0 13 17 13 53 53 42 14 17 53 13 17 s7 13 24 ls 28 17 13 14.91 3w 12 18 -14 -16 10 14 33 23 197 .as too8 .44 118 .05 55 .02 9s w m .32 m .34 108 .05 bo40 L33 923 .40 44 bz 388 16 1148 .94 144 Mi 2428 L06 180 .07 194 .OB L399 .61 100 w 111 05 184 08 83 04 lY7 .08 83 .04 LlW .4a L108 18 835 .37 111 05 184 .08 LlW 4a 72 03 184 .08 Lao 33 83 .OB 376 16 133 08 478 21 184 .08 37.900 lRS8 79. 707 34.89 55 az 155 w 118 05 168 .07 io1 04 332 1s 2 8 18 -01 Ll24 49 86 m 9 8 591 m 941 37 69l 30 255.857 im.mt zzam 1aa.00t h than pcnnt May dlffer from thm sum of Iha individual pacencil- rbown baauw of mund&s International Development Association Statement of Voting Power and Subscrbtions Austnlia 52.652 1.50 Austria 21.822 .62 Belgium 42.397 1. 2 1 Denmark 34.353 .98 Canada 137,M5 3.90 Finland France Gemuny. Faded Republic of lealane Ireland Italy Japan Kud Luxembourg N&&II~s New &aland Norway south Africa S*m Umted Kingdom United StaW4 TolJ1 Part I1 Mekbwr AfghMu Algeri 1 Argeabnr 8mgladah Benini a Ulna Botr#nr Brazil Burmr Burundi crmlmon cam vlldq Central Afncrn Empire chad Chile China. Replblic of colornbi8 cormror COrtrRia con

00. PeoDlr'S RWblY of the 69.910 1.99 201.476 174 37,613 1.07 8.363 .24 10,413 30 30.464 .87 12,445 .35 93315 266 263,5 76 7.51 722.211 20.58 2120.316 63.27 7o.ia 200 10.01u 18.481 59.655 22.239 600 loPo 5.950 59.655 12922 9.407 516 6.685 2.093 17.1u 91311 17,132 6.685 7.844 7,ni 5,nr a s 1.70 a a a 17 1.70 37 27 22 19 06 A9 2.60 49 26 .19 22 m I 364.9% 1.96 140,568 .76 33 5 .m 1.82 90.830 .49 1,159,075 6.29- 2249.470 12.21 26,522 .14 2141 .m 358,441 1.95 1.935238 10.50 264,896 1.44 10.153 .06 598539' 3.25 22.935 .12 200.0(8 1.0 4l.SSQ 23 713,366 3-87 2284.485 lZ4a 5.605.515 30.47 17,663,135 95.1 s 1.413 5582 25,694 7,357 641 1 218 25.689 2,783 1 .ol9 139 103 684 666 4,734 41,996 4.945 110 684 276 Part II Illanb.rr(-ad Cyprus Dominian Republic hadar Egypt. Arab Republic of El Sal Quatorial Guinea EFiM Fill Gabon Gambii. The Ghana Greea Grenada Guatemala Guinea Guinw=Bissau Hub Hondunr India Indonah Iran lnq Id Iwr) cord Jordan hpuchar, oemdic Kenya Korea. Republic of h PWr'r Om. Rep Lebanon boih tiberia bh Mad Malawi Malm Maldives Mali Mauritanii Mauritius M Mom Nepal Nlcur(ur Goyya 9.407 2200 2l.m 6244 1.961 ami 2.130 2.093 6. 1 82 10Jll 14.288 7.m a.417 7.m 528 9.553 9.407 6,242 119375 38,128 15.455 9.407 4,384 7,ni 6242 7,826 11.96a 1o.m 8.562 7,747 9,407 702 9.W 7382 7.479 6,685 9s 17,113 8.688 6242 8,426 8,688 7,ni 14a gam 06 .25 .ffi .a .18 21 .41 21 24 22 .aa .27 27 .18 z40 1;w .44 27 .W .a .18 P Y 31 25 .24 :22 a 22 .a 27 .I1 .a .2l .19 28 .I .49 2s .I8 P 5 1.054 .24 623 .06 a65 61 6,918 18 436 426 1! 8 71 666 36s 3,182 3318 124 154 1.383 180 1.118 1.053 413 54.683 15,179 5$52 I ,053 2.434 12SZ jss 1365 2320 2.718 672 618 2 2 0 1.053 E q 1.191 683 191 11- 4.908 690 396 International Development Association Appendix E International Development Statement of'voting Power and Supplementary Resources and Subscriptions Association Niger Nigeria Oman Pakistan Panama Papua New Guinea P araguay Peru Philippines Rwanda Sao Tome and Principe Saudi Arabi a Senegal Sierra Leone Somalia 6.685 19 4. 057 12 6.244 18 35. 355 1.01 5. 657 16 9.698 28 6.242 18 8s 02 16. 583 41 9. 401 27 514 01 46.844 1.33 11.960 34 9. 401 27 7.246 21 Spain 29I746 8 5 Sri bnka 15.705 45 Sudan 10.081 29 Swaziland 8.193 23 Syrian Arab Republic 7.651 22 Tanzania 11.960 34 Thailand 15. 705 45 Togo 7.2 46 21 Trinidad and Tobago 770 :02 Tunisia 2.793 08 Turkey 23. 450 67 Uganda 11. 960 34 Upper Volta i 6.685 19 Viet Nam 8.8 8 9 25 Western Samoa 7. 517 21 Yemen Arab Republic 8. 494 24 Yemen. People's Dam Rep of 10.591 JO Yugoslavia 20. 711 59 Zaire 12.164 3 Zambia 1.078 03 TOMS 1.289.067 36.73 Grad Totals-Jw 30.1979 3509.381 100.00 Gnnd Tdrl~=June 30.1978 3.329.495 t 684 4. 442 02 434 (8) 14. 105 08 n (I) 1.192 01 410 CW 2.no 01 7. 067 04 1.w 01 3a.uli 2.00 2330 01 1. 041 01 1. 011 01 25. 949 4. 106 1.380 441 1. 300 2317 4. 194 1.041 1.772 2.013 1.938 2. 325 684 2.016 123 14 .02 01 01 .01 .02 A1 .01 .01 .04 .01 01 0 6 W 595 (0 1 .635 01 21. 572 12 4.061 02 3.450 02 t 762.409 4.1b Sl8.425,544 100.41 S16.898.063