Adios, World Bank!

Throughout Latin America, countries are paying off their World Bank loans early, cutting off ties with the Bank, and creating their own financing instruments to replace the world's oldest multilateral lending agency.

Unfortunately, the latest corruption scandal involving questionable promotions and outrageous salary increases for Wolfowitz’s girlfriend, Shaha Riza, is just the tip of the iceberg when it comes to doubts about the World Bank’s credibility, legitimacy and capacity to fulfill its stated mission of eradicating world poverty.

Since its creation over 60 years ago, the World Bank has provided trillions of dollars in loans to poor countries. In addition to providing financial resources, the World Bank—along with the International Monetary Fund (IMF)—took the lead in making policy prescriptions to poor governments, which it ensures are adopted by making them “conditions” for lending.

Throughout the developing world, debt seriously hinders countries’ abilities to provide for the basic needs of their citizens, and imposed “conditionality” interferes with governments’ rights to make sovereign decisions.

At the same time, persistent poverty in Latin America and other countries has barely budged.
In April, Venezuela announced that it was paying off all its outstanding debt with the World Bank—totaling $3.3 billion and dating from before President Hugo Chavez took office in (1999)—five years ahead of schedule. Venezuelan Minister of Finance Rodrigo Cabezas said that because of this, “Venezuela is free ... and thank God, neither today’s Venezuelans nor children yet to be born will owe one single cent to those organizations.”

Likewise, Argentina, Brazil and Ecuador have paid off their debts to the World Bank’s sister institution—the IMF—and others have expressed a desire to do the same. Symbolically, Venezuela’s recent decision could help strengthen the efforts of other developing countries seeking reform at the World Bank by demonstrating to the institution that choosing not to be part of it is a real option.

Regardless of what happens to Wolfowitz or his girlfriend, the World Bank will continue in its downward spiraling crisis of legitimacy, at least in Latin America. As countries are able to mobilize the necessary resources to free themselves from financial obligations with the institution, they are likely to make this a priority. So too, will they continue to collaborate in finding new ways to solve the region’s poverty and other plights without turning to the World Bank—but rather by devising innovative arrangements such as bartering (i.e. oil for doctors, as in the case of Venezuela and Cuba), and by catalyzing existing resources through the Bank of the South and other regional institutions.

[Excerpt of an article by Nadia Martinez, co-director of the Sustainable Energy and Economy Network]