Source Pravda.Ru

The World Bank Confesses Its Sins

The World Bank acknowledged that its activity in Russia was useless for the last decade

The World Bank acknowledged in its latest report that its policy in Russia has been incorrect since 1992. It was particularly said the policy of the World Bank in Russia did not assist in the development of market relations in the economy. This actually helped to prepare the financial crisis of 1998 and aggravated its consequences for the country.

Well, as it turns out, Russia’s problems are not only of its own making. Dishonest, hypocritical foreign counselors are to blame. All the horrible things that have appeared in Russia over the ten years of reform were developed in a “correct” Russian way, so to speak. It does not take the Russian people much to rejoice, really.

Russian media outlets pointed out that Russia still treats the World Bank as a global money bag. “Give us some money, and we will decide how to spend it.” The Nezavisimaya Gazeta newspaper wrote that the World Bank would like to be not only to be creditor for Russia, but a political analyst as well. In other words, the bank would like to evaluate the economic risks from the point of view of the current policy. Does Russia need that? Moreover, the World Bank will now make crediting decisions only if the bank is sure that the political conditions are good for the success of the crediting programs.

The new directions of the relations between Russia and the World Bank came up after a profound analysis of the bank’s previous activity in the country. The report mentions that all its efforts were pointless in Russia during the period of 1992-1998. The World Bank’s activity never helped to set up the market economy. Needless to mention, Russia can only welcome this criticism. However, the Russian authorities do not hurry to be critical, in contrast to foreign bankers. They should, though.

The World Bank honestly acknowledged that it was completely dissatisfied with the results of its activity. Its influence on the development of Russia in 1992-1998 was rather humble, to put it mildly. The report says that the World Bank’s credit programs were implemented only partially under the conditions of insufficient political will. To all appearances, the Russians had the desire to borrow money, but then they would send the money to offshore zones or invested it in French real estate.

In this connection, the World Bank is not ready to claim the entire responsibility for the failure of the majority of Russian reforms. Well, this is correct, as the Russians would turn their noses up otherwise.

The World Bank justifies its incompetence by claiming that the moment when the bank started working in Russia (in 1992) turned out to be a serious challenge for it. The bank’s specialists did not know anything about Russia at that time. They did not know what to do with Russia’s changing economy. In addition, the administration of the bank now tries to lay the blame on the political leaders of the West. The World Bank had to launch its activity in Russia on account of shareholders’ pressure (i.e. the developed countries, which put their money on Boris Yeltsin). The World Bank could not say that it was actually crediting the change of a political system. All it had to do was to declare its assistance for the creation of market economy institutions and so on. Yet, the money was spent on completely different purposes.

Nevertheless, the World Bank was devoted to its goals. It offered a series of loans for the structural transformation of the economy. It became known later that those loans were basically useless. Probably, Moscow did not know how to approach the structural transformation of the economy. The government was not certain that there any such need.

In addition, the World Bank showed its worth during the attempts to reform the Russian coal industry. The coal industry currently is in the same condition it was before. Market reforms started only after Moscow oligarchs got their hands on it.

The World Bank assures that the international community made it take hasty measures towards a lot of lending projects, including investments or budget support. The Bank’s decisions were not thought-out well, and it was not possible to predict their implementation. Risky operations became flops. A bright example of these flops is the multi-billion loan for reforming the banking system. The World Bank claimed that it did not have the influence to overcome political and economic barriers in Russia in the 1990s.

Certain improvements of cooperation with Russia appeared in 1998. This was the period when the thoughtless funding was replaced with analytical and counseling aspects. The counseling activity of the World Bank played a very small role before the crisis of 1998. However, this activity obtained a lot of priority for the economic policy after the year 1998. As a matter of fact, the World Bank now works according to the principle “little money, more counseling.” Yet, it seems that Russia does not really expect anything at all from this international organization.

After a decade of its activity in Russia, the World Bank has learned that one should pay major attention to all political aspects of reforms. This is the issue that determines the Bank's strategy towards Russia for the period of 2003-2005. In other words, the World Bank realized that if there is no political will or a strong government, any crediting program will only hamper reforms.

Furthermore, the World Bank will now give loans only after the state government starts adequate reforms. Thus, the Bank will first see what the Kremlin can do. If the Bank believes that the strengthening of vertical power brings harm to economy, it will not give any loans. Yet, the latest activities of the Russian government show that the Kremlin does not care much about the World Bank’s or any one else’s approval. At the present moment, the burden of state loans is shifting over to internal loans.

Nevertheless, experts continue to think the West uses the World Bank and its new approach to Russia for pulling the Russian government up. The situation has changed a lot. It is now believed that Russia does not need loans from the West anymore. Yet, Russian officials still consider the World Bank as an investor. The Board of Directors of the Bank approved several loans for the year 2002. They include a loan for the development of budgetary federalism and the reform of the regional finance system for 120 million dollars; a loan for the development of the Federal Treasury for 231 million dollars, and a loan for the modernization of tax bodies for 100 million dollars. The bank is to assign $150 million for the struggle with TB and AIDS in Russia.

However, those sums pale in comparison with what the Russian government borrowed until 1998. The Kremlin will consider a hundred times whether or not this money is worth listening to economic and political recommendations from foreigners. By the way, the World Bank approved 55 loans of a total sum of 12.6 billion dollars by end of the year 2001. Seven billion, eight hundred million dollars of that sum were spent and 2.4 billion were cancelled.

Kira Poznakhirko PRAVDA.Ru

Translated by Dmitry Sudakov

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