Questions

[page-number of print ed.: 14 ]

Questions

Werner Schuster MP, Bonn (On bank representatives who are used to reside in good hotels when they travel)

James Wolfensohn: Well, I can tell you what I'm doing. First of all, I'm seeking to retrain my colleagues. I'm making 400, the top 400 people in the Bank and IFC undergo a management course, which I have designed, in groups of 60 with 15 outsiders brought in from people we're working with, from clients, from NGOs, and it's a program that's done by the European and American business schools. And they are really being shaken about their self-image, about whether or not they have looked at the Bank as it really is. And this is being very effective. But I'm insisting that everybody, managing directors and others, after they have spent 6 weeks on the course then spend the seventh week living in a village or in a slum or in a project, not in a hotel, but in the field. And I might tell you that one of them called me Chairman Mao, because just as Chairman Mao Zedong asked everybody to jump in the river, I am asking everybody to go to live in a village and to experience for themselves what poverty is.

I've had 28 people already who have completed that final week. And the response has been remarkable. I've had people trying to tell me about it in a meeting, break down and cry. I've had the most magnificent reports. Because what I'm trying to do is to change a culture. I'm trying to have people understand that poverty is not a theoretical concept, it is real. I think we are the only organization that has ever done anything like that. And I don't claim that it converts everybody overnight, but I can tell you it is making a big difference.

The second thing I'm doing is decentralizing. One year ago we had only two field offices with decision making power. One was in Gaza, and the other was in Bosnia. We now have 18. And by the end of next year, we'll have 25 out of 40 field offices covering 90 countries. In those field offices we are recruiting a great many local staff, who initially were seen as second class citizens. Today we're introducing a program, where they have the same opportunities for training, where they're evaluated the same way, where they have pensions and similar benefits to

[page-number of print ed.: 15 ]

[Notice: The photo (page 15) in the print edition can not be presented in the online version.]

the staff in Washington. And my desire is to have, and it will happen by June of next year, no difference in the treatment of foreign staff, national staff and domestic staff. This is making the Bank truly an international bank.

The third thing is that we are changing the way we regard civil society and we are listening. 18 months ago we had two people only in our field offices whose task it was to deal with civil society. Today we have 52. We've added 50 people in 50 offices that deal with civil society. I think that is some real progress. Now, could you in this room, or could I have the same knowledge of poverty as people who live in poverty? Probably not. But what I can say is, that the approach of the institution is now very different. And I believe it is having an enormous effect on the way we are received and on our effectiveness. And this program will be complete in another 12 months, and 400 people will have been put through that program.

Peter Sötje, German Foundation for International Development, Berlin: (On corruption and on knowledge)

James Wolfensohn: These are two very interesting questions. First of all on corruption: Until 15 months ago no Bank President had ever publicly talked about corruption. It was called the "c-word". No one spoke its name. And the reason was that as an institution we were not permitted to engage in politics of any kind. And corruption and politics were perceived to be very similar. I don't know why.

[page-number of print ed.: 16 ]

What I did 15 months ago, was to redefine the word "corruption" in my annual meeting speech, and Michel Camdessus did the same thing. And we said, corruption is an economic and social issue. Why did we redefine it that way? We redefined it, because it is very clear that the biggest inhibiting factor, the biggest thing that stops investment and destroys economies, is corruption. It diverts funds, it is essentially an exclusive function, because corruption goes to those who get it, and not to those who don't get it.

And it's also a very important social factor. It is the single biggest factor on the minds of voters and people in poor countries. Most people in poor countries are prepared to be poor so long as no-one is getting rich at their expense. They're prepared to share poverty and work their way out of it. But what they cannot stand, is seeing somebody get rich because of corruption.

Now, it was easy to make that statement, it took a little courage, but I could make it. And then the question was: What will be the impact of this? The impact has been at three levels. The first is that the debate at government level is now at such a point that this year, 12 months later, at the annual meeting, the central subject of discussion by the ministers at the Development Committee was corruption. And this was not just countries that thought they weren't corrupt, but all countries. So everybody made speeches about corruption. That's the first very important thing.

The second thing is that I've been able to get across that corruption is not just a problem of poor countries. It takes two to corrupt. It takes corrupters and people that are corrupted. And there we discovered, as you will have seen and as you know, that in some unnamed countries corruption is tax deductible. And so it is a business expense. So it's quite difficult to tell countries that are being corrupted that this is a bad thing, when the governments of many countries are paying the tax part of that corruption.

And that led to the statements of the G 7 and the current statements of the OECD, and I hope, action by the OECD on making corruption a criminal offence and stopping its tax deductibility. That's been a second very important development.

I should say also that you can now talk about corruption in polite society. You can talk about

[page-number of print ed.: 17 ]

corruption anywhere and no-one will knock you down. It's a subject that now you can address wherever you go. I do it everywhere. In the countries that you would least expect me to do it, and in fact in Hong Kong and China this year I made that a major part of my speech.

A third thing is that now we're finding countries coming to us - seven of them so far - asking us to help them in a program that will diminish corruption. That means a justice system that works. I now have four judges working for me in the Bank. We have a team of legal experts to draw up judicial systems, to draw up laws. In Germany you accept

[Notice: The photo (page 17) in the print edition can not be presented in the online version.]

that you have property rights, because you have laws that protect you, and you have a place to register them and if you invest, you have a contract, you expect that it will be honoured. That is not true in 5/6 of the world. And in many parts of the world, if there is a justice system, and you have a case, it may take you 20 years to finish the case, 20 years, and then you can't realise on the judgement. So we have to deal with justice systems, we have to deal with regulation. If you have too much regulation, it gives an opportunity every time you have a regulator to have corruption. If you have to have 20 approvals for something, 20 possibilities for corruption. So cleaning up regulation is essential.

The fourth thing is that you have to have transparency, you have to have openness so that people can find corruption. And in many countries that's quite difficult. But in the seven countries that we are working in, we are doing precisely that.

[page-number of print ed.: 18 ]

The fifth thing you have to do is to reform the civil service. You cannot expect customs agents, who are being paid a wage on which they cannot support their families and so who have been living on something being put in their pocket, to give up corruption, because if they don't get paid they can't eat. So you have to get better training and better spirit in the civil service, so that people can be adequately paid and then do their jobs. And that's true in customs, it's true in government officials, it's true in police, it's true in any aspect of civil service reform. So those are the sorts of things we are working on.

But the thing I've learned above all is that: First, you cannot deal with corruption if the leadership of the country is corrupt. If the leader says everybody else should be honest, but I'm not going to be honest, you have very little chance of solving the corruption problem. Because it just doesn't ring true, when he says or she says "let's get rid of corruption" while all the time they're putting money in their pockets.

And the second thing is that we at the Bank cannot do it alone. It has to come from inside the country. It is the people of the country that can deal with corruption, not some external force. But what we're finding is that by discussing this subject, more and more people are finding themselves encouraged to talk about it inside their countries. I get visits from ministers, I get letters from people saying "keep it up", because it's having an effect. So, I don't think corruption is solved immediately.

As a matter of fact, one Latin American minister said to me, he said, "Jim, you should understand that corruption and inflation have been around for centuries. What you want is for them to be in single digits - less than 10%". So I think our objective has to be to try and diminish it. I think the fight is on. I think that the tide is turning. And I think we're making real progress, but I do not expect miracles overnight. But it is absolutely essential that the OECD takes action on this. If the OECD does not put its own house in order and deal with this treaty quickly, it will be the worst possible signal to developing countries.

The second question: knowledge. Knowledge can make all the difference to development. You asked what the Bank is doing. We are putting a lot of

[page-number of print ed.: 19 ]

[Notice: The photo (page 19) in the print edition can not be presented in the online version.]

money into education, more than $ 2.5 billion a year. And I've got nearly a billion dollars set aside this year for girls education. But the real challenge of the new technology is that today we can deliver knowledge. And the Bank in two years will have in every country, in which we have an office, and it's already done in 1/3 of the countries, satellite communications, so that we can have voice, data and video transmission of the information that we will have in the Bank. So ministers or individuals can come into us online for information on pre-school education, on irrigation, on health, on any subject in which we are experts. They will be able to come to our office and have a video conference. In every country we will have a 30 persons classroom for distance education. We've already started a virtual university in English speaking Africa, in five countries, in which we are teaching courses from a university in the United States and one in Ireland. At the end of this year we will hit five Francophone countries with French courses. We have made available to teachers now in high schools and primary school over 30 subjects, grade 0 to 12 in three languages, English, French and Spanish. In many countries where you cannot buy batteries, we are now dealing with wind up radios, radios that for 45 dollars you can put in a village, and with a little handle you wind it up, for two minutes you wind, and for one hour you can listen to short wave and long wave and medium wave radio. So technology has fantastic potential. And I think we are on top of it.

[page-number of print ed.: 20 ]

Werner Lüdemann, "The Art of Living Foundation" (On dialogue with NGOs)

James Wolfensohn: Well, I think we are handling that, but I'll read the note, and if we're not, I will do what I can to deal with it. My understanding is that we have really lengthy communications, but sometimes with NGOs, we don't hear and sometimes NGOs don't hear. So the issue is trying to change not just the mechanism, but also the willingness each to listen to the other. And that is often a very big problem, as I've discovered. If it's a problem in the case of health care units, I'll read it in your letter, and I will try and deal with it.

Mrs. Andrea Schmidl "Resultate" (On budget reduction for health and education programs)

James Wolfensohn: Well, I'll tell you the answer. It may not satisfy you, but it's very simple. I came to look at the programs that we were engaged in, in health care and education. And I said, until we have demonstration that these are effective programs, I'm not going to spend more money. And I could have reached four billion dollars last year in health and education, but I made my people in the Bank go back to every program that we have done. Some of them going back to 1985. I said, you come back to me and justify the effectiveness of this program. And to be honest with you, disbursements last year were up. Not approvals. But disbursements.

But we also canceled and changed many of these programs, because I was concerned to have programs that could be expanded nationally and extended, and not have programs that were limited in scope and that frankly were neither adopted by the countries nor frankly were adopted by us. And I believe that the numbers this year will exceed the $ 4 billion. I think we will hit our targets. But what I want to be most sure of, is that the money is being spent effectively. I don't want to get a gain in the raise of spending money unless it's effective. And I have taken a lot of criticism for the decision I made to go slow last year and get the base right.

I tell you one other thing I've done. We had people in education and health that I don't think had had a good training. The Bank, as you know, was very significantly staffed with economists. And it's the easiest thing to move from an economist position to what we call the soft sector, the social sectors. So

[page-number of print ed.: 21 ]

if you were an economist, you obviously knew about education, because you've had an education yourself, and you obviously knew about health, because you were healthy. This is clearly nonsense. And so now, what we have is sectors in the organization, where if you are giving advice on education, you'll better be an educator, and if you're giving advice on health, you'll better be trained in public health. And that is a complete change for the institution. I said, very simply, I would prefer to have good programs with experts than be throwing money into programs, where you're not sure that they're doing effective work. So that's what we're doing.

The other thing that we've done is to cut through bureaucratic red tape: The average length of time of an education minister around the developing world is eleven months. It generally takes 15 months for us to process the project. So you're just about to get to the point of approving a project and the education minister is gone. We've now got the board to agree on what I call a "just in time loan". It's a loan for $ 5 million that we can do in 60 days without board approval. That allows us to pilot programs. This is an immensely helpful thing, because it means we can get started on projects and try them out before we commit $ 50 million or $ 100 million. That's one thing we've done.

The second thing we've done, is that I persuaded a number of education ministers to think not just in terms of immediate projects, but in ten year terms. Everyone has been focusing on primary school education, particularly for girls. But if you do not have primary, secondary and tertiary education, and if you do not plan it over a ten year period, you'll get the kids to school, but they won't have good curricula, they won't have good teachers.

In north-east Brazil, for example, we've got 40 million people living under a dollar a day. And we took the better part of last year working with the Brazilian government in designing a plan that would be an integrated program for ten years. From this year, we'll be giving the Brazilians close to $ 750 million a year for education. We gave them very little last year, because we were preparing these longer term programs.

So if you want to play the numbers game, I think I'll meet my target over five years. But the more

[page-number of print ed.: 22 ]

important thing you should think of, is what is the effectiveness of the programs in health and education. And I would prefer to spend less, but do it right than I would to spend a lot and do it wrong. And that's what we're trying to do.

Mr. Luis Martinez, ,,ALASEI - Agencia Latinoamericana de Servicios Especiales de Información" (On the Bank's activities in favor of indigenous populations)

James Wolfensohn: I have all my life had a tremendous interest in indigenous people. Some of it is associated with guilt because I was Australian, and what Australians did to the Aborigines, was not good. Secondly, you know, I have been up and down the Amazon, I've lived with the Amamani Indians. But the more significant thing is, as a human matter it became very clear to me that the people with no voice in development were indigenous people. I say no voice, because broadly they have no voice, not just because of external people like the World Bank, but because they don't have rights in their own countries. The problem of Gypsies, the problem of minority groups in native America, minorities everywhere are treated very badly. The problem starts at home, that is the first thing I've learned.

And so, what you have to do is to try and bring it to the attention of the governments of the countries, in which you're dealing. And let me tell you, that is not always easy in terms of indigenous people. But we are making it a requirement now in our projects, which is becoming perhaps the most difficult requirement for us, that a project will stop if you do not have fair treatment for the indigenous community.

There is one project, which we are doing now, called the Jamuna bridge project in Bangladesh, where there are indigenous river people, they live on islands in the river, which get washed over at certain times. There are some hundreds of the families. That whole project was put in doubt until we could deal with that issue. In the Pangue project in Latin America, this was a project, in which we were roundly criticized. And I would say some of the criticism was correct in terms of the way in which we had dealt badly with that problem.

And I think now there is a big awareness in the Bank of the problem, but my biggest problem is to

[page-number of print ed.: 23 ]

get the governments of the countries, in which we are operating, that they really feel that they have a responsibility to indigenous people.

Now, one last thing that I'm doing, which is something that very few people know about, is that I'm starting a program which I called "culture lending". "Culture lending" is lending to those countries that are poor and even some that are richer where we say that as part of the lending program, we are prepared to add an extra amount, may be one percent of the total that we lend, let's say a country where we are lending $ 500 million, we give them five million or ten million more, available only to preserve the cultural history of the country. It cannot be used for something else. It is something which is only available for culture. So that in a country like Mali in Africa, which has a very rich history and no money, they can now borrow money from us for the purpose of preserving their culture. And that includes and is deeply rooted in tribal culture and indigenous culture. For example, we are now doing a project now called the Mayan project in five countries in Central America to preserve Mayan culture. The Mayan people was an extraordinary people, and very little is being done to preserve their culture. And my objective is to try and get people back to their roots, so that any development can be built on the basic culture of the country rather than be imposed by us or by German agencies or Italian agencies. That is the way I'm trying to get governments to co-operate in terms of treasuring the activities of their indigenous people and of their history. But the ultimate decision is not ours, it's the decision of the governments of the countries, and many of them have not yet woken up to this issue, and unfortunately it's true in some parts of Europe and in Central Asia as well.

Mrs. Adelheid Tröscher MP, Bonn (On globalized economy and on ways of including governmental and nongovernmental development organizations in World Bank projects)

James Wolfensohn: Well, the issue of the world financial markets really burst upon the scene first in the oil crisis, then in the Mexican tequila crisis, and most recently in the problems of Thailand and Indonesia. And if anyone was ever in doubt that the world economies are connected, that doubt was removed in those three issues. So the first

[page-number of print ed.: 24 ]

[Notice: The photo (page 24) in the print edition can not be presented in the online version.]

thing is that you have this fundamental fabric of financial linkage that is perfectly clear. Now the question is: Is there a way that any world order can be created without the consent of everybody in the world? And you as a politician could perhaps answer that better than I can. It's hard enough to get consent within a country.

The more difficult question is: How can we have stability in a financial system? In the old days, if a country got into trouble, the problem largely stayed in that country. A country would get sick and it didn't hurt anybody else or very little. But today if Thailand gets sick, Brazil suffers or India suffers or Russia suffers.

And so, what we are trying to do in the international community is two things. First of all to be ready if a crisis comes. And that means putting a lot of money together. But then you have to say: Why wait till the crisis? Why not try and do something before the crisis? Why not try and get countries to run themselves in a sensible economic fashion, so that they don't get into this trouble.

And there, frankly, you run into deep political problems. The problems in Thailand have been known for 12 months. Exports have been diminishing, foreign borrowings went up to $ 40 billion. There was a boom in the real estate market. But because the rich have such influence no action was taken, not withstanding the fact that all the information was there.

And the dilemma is: How can major international institutions affect a country that is getting into trouble and affect the political framework in that country? We are trying to do two things. First of all with greater information we're getting more advanced warning. But the second thing that we have to do in these countries is to create a system of economic management and supervision of the financial system, which many of the countries do not have.

And so one of the major responsibilities of the Bank now is to go into these countries and try and build the infrastructure of law, of supervisors, individuals that know how to supervise, people in banks that know how to report, people in finance companies that know how to report, people who administrate capital markets, securities commissions. What is needed in many of these countries

[page-number of print ed.: 25 ]

is a trained supervisory force. And that for us is the way that we're now trying to do this.

And I might add, in many of the developing countries and transition countries, it goes deeper even than that. We're running seminars for journalists to train them, so that they can comment on what is going on. Because in the former East Bloc countries people are commenting on market systems that they don't know anything about. In many of these countries new parliamentarians that get elected are faced with issues that they simply do not understand in terms of financial and economic management. So we're running seminars for parliamentarians. We're training supervisors. We're training government civil servants. We're trying to build capacity. Eventually, these things come down to a question of knowledge and people.

In real trade terms, the world trades 28 billion dollars a day. But the trading in currency can get to a trillion dollars a day, a thousand billion dollars a day. So you have these massive movements of funds around the world. And they focus on any weakness in an economy. If an economy is going well, it's okay. But if it goes over the edge and is not supportable, then you have real trouble. I think, what you'll see happening in years to come, is some look at the functioning of the market system, not to limit it, but to maybe put some checks and balances on it.

Student from Nigeria, University of Dortmund/Germany (On the "veterinary pills" against river blindness, on corrupt leaders, and on weapon purchases)

James Wolfensohn: Well, these are three very good questions. The first thing is that in relation to the pills, the pills happened to be discovered by veterinary scientists, but they were obviously checked for human consumption. But what I'm saying is that it was an accident that we discovered this pill. You would not have had the Western drug companies seeking to develop an antidote to river blindness, because it was a relatively small market. It was a piece of good luck that they were able to adapt the research when they found what the microbe was for river blindness that they had an antidote ready for it. And that is how Merck was able to quickly come up with an antidote to river blindness. But it was tested, it passed the pro-

[page-number of print ed.: 26 ]

cedures of the Food and Drug Administration in the United States. It went through the same rigorous testing. And if you are offended by my use of veterinary research, it was only to make the point that you would not have had that research done for humans, because it's too small a business, it affected 30 million people, who couldn't pay for the pills. And that's one of the problems of drug research in terms of these diseases.

The second thing is that on corrupt leaders in Africa, I think I said in my comments on corruption that you cannot solve the corruption issue with a corrupt leader. But in certain countries in Africa, which I also will not name, we've stopped lending, and we've stopped lending to the country because of corruption at the top. And I think, that the best thing we can do is to try and cut off lending. What we've had to do in some countries, where there is corruption at the top and where the social destruction is so great, is to come in with programs where we use trust funds for payment of the money, so that we actually pay out the funds and it doesn't go through a government organization. And that sort of set up allows you to get the money into the field and into the projects without it passing through the pockets of a leader. I think, we are now much more on top of that. I don't know if we always were. But that is the current process that we have, and I think most other institutions are doing the same.

On weapons, the British just announced that they're going to do no more financing of weapons exports from the United Kingdom. And it would be my hope that many other countries will follow suit. What we do not do, of course, is to finance weapon purchases. And in some countries where the level of defence spending gets ridiculous, we stop lending. But I am constrained in my ability to intervene directly in the defence area, because the board has told me very clearly that that is a political decision. So we have to approach it from the economic side, we say, your budget is unfairly balanced in terms of defence, you should put more money into education and health. And unless you put x % in education and health or in infrastructure, we do not regard it as a satisfactory budget. We never mention the word "defence", because we're not allowed to, but we do everything we can to try and

[page-number of print ed.: 27 ]

stop it. But I must say that if the countries that manufacture arms were less available in terms of financing arms sales, it would make things a lot better. That includes countries here in Europe. And it includes the United States.