Does prudence in banking really have to mean purposelessness?

What is more prudent for the bank regulators, to work exclusively at avoiding the default of banks and the occurrence of a bank crisis, or to ascertain that the banking system serves a purpose for the society?

These days when it has been demonstrated that the bank regulators are failing in their self imposed limited scope of functions; and indeed through the creation of the current structure of minimum capital requirements for the banks and the appointment of the credit rating agencies as risk commissars have themselves contributed to create new systemic risks, is it not time for us to take a big step back and, before digging us deeper in our regulatory hole, ask ourselves what is the purpose of our banks?

Aren’t you as fed up as me having a purposeless banking sector? If we absolutely have to live with risk avoidance based regulatory system, can’t we at least start measuring units of default risk in terms of decent jobs created, youngsters educated or environmental threats avoided?

Risk is the oxygen of development and so please let us not kill risk taking!

Dani Rodrik’s misguided activism on the use of international arbitration

Dani Rodrik in an article he circulated through his blog and titles “Thinking about governance” dated March 24, 2008 has the following to say about international arbitration.

“Suppose your growth economist identifies a poorly functioning legal system and the attendant uncertainty as one of the binding constraints on growth. One solution of the “governance-in-the-small” type is to “outsource” part of the country legal system to the outside world. The government can accomplish this, for example, by signing on to bilateral investment treaties (BITs) with major trading partners. These typically have arbitration clauses that enable foreign investors to seek redress under foreign jurisdictions in a variety of circumstances. One can presume that such clauses increase the comfort factor for foreign investors and that they may therefore help overcome the identified growth constraint. But is this strategy also good for governance-as-an-end? Probably not. Aside from creating an unhealthy distinction between domestic and foreign investors—the latter have the extra protection but the former don’t—such outsourcing of legal powers does nothing to strengthen domestic legal institutions. Insofar as it removes an important source of pressure for legal reform, the outsourcing may even delay the establishment of a healthy judiciary.”

I am sorry. I always listen carefully to what Dani Rodrik has to say and I usually agree but on this issue he sounds too much like your innocent and friendly neighborhood activist, or a consultant to governments, and his conclusions are, using his terminology, far from being first or second best.

Rodrik’s argument that the use of international arbitration does create “an unhealthy distinction between domestic and foreign investors”, ignores that most often those differences exist anyhow; and also that “the outsourcing may even delay the establishment of a healthy judiciary”, when it could just as easily help it along, by shoving it into the face of local investors how unfairly they are often treated by their own governments.

Of course the existence of local justice is of utmost importance, but so is the existence of a strong international systems that can help to settle disputes, since no matter how you look at it, in the long run it is always the weaker who will benefit the most from having access to well functioning international justice…since the strong is strong even without such systems.

Please, let us not confuse the tremendous, shocking and hurting disappointments that many development countries might have had with the international grievance mechanisms, with the fact that many or most of the contractual obligations brought up to arbitration were drawn up without properly considering the implications of having to submit to these mechanisms.

Instead of throwing away the international grievance mechanism with the bathtub water, help the countries to learn from their experiences and so they will duly consider the real implications next time they sign up a contracts with a foreign investors.

Much the contrary from what Rodrik holds, if our governments in many developing countries learn that they won’t get away that easy, they will also learn, little by little, that’s the pace of development, to negotiate better and more seriously… and from this it is very clear that the local investors are the one who stands most to benefit, long term.

Remittance fees: The tip of the tip of the tip of the iceberg

The remittances are to migration like the part of the cash dividends from corporations that you send to your grandmother and children are to the economy… just the tip of the tip of the iceberg!

Of course the cost of sending those remittances can only be the tip of the tip of the tip of the iceberg.

There has been an incredible fixation by many institutions with the fees charged by the banks for the service of making the remittances. Yes, of course it is good that these fees become more competitive but it is almost laughable to think about all the resources used up in analyzing this very minor issue in an immigrant’s reality.

Just the money spent on communicating by telephone with home, or buying yourself over the borders, or the costs derived from not having a driver license and living in cramp living quarters, surpasses by far the sum of all the fees paid to the banks. So please stop talking so much about the fees, and help the immigrants to make more money instead… with which they would happily pay even higher fees to the banks, if so asked. Talk about shortsightedness!

That is what I said over and over while I was an ED at the World Bank; and that is what I wrote in my book Voice and Noise; and that is what I kept on saying thereafter in all the many conferences on remittances that I have assisted to… to the extent that I now almost feel embarrassed for them.

Yet, years later, I still have to be asking: How many more millions in research, conferences and publications are the development institutions to waste on this really silly and minor aspect of the migration issue?

Please help the migrants make more money instead!

A good lender or just another kneecap breaker?

There are a lot of recent writings that tells you that financing the downtrodden is good business. No news there! Scrooge and the mafia have known that for a long time. If you can get an average rate of interest high enough so that the good debtors cover the bad …you’re in business.

Take a group A of 100 lenders that you each give $1000 and for which if all paid back their loans you needed to charge an interest of 14 percent to cover your costs. Then, if you charge a rate of 15 per cent, you gross $15.000 and your profit is $1.000.

But if a group B has 10 per cent of your debtors run away with the money and pay you nothing, then you would need to charge 17.8% to net the same $1.000. For group C, with 30 per cent not paying back, the equivalent interest rate needs to be 25.7 percent.

As a lender you get the same result for all groups but let me assure you that paying 15 percent or 25.7 percent is far from being the same for those borrowers who do service their commitments.

Most, if not all of the current analysis of the activities of micro-credit institutions, do not consider the above and so they do automatically conclude that lending to the groups A, B and C has the same development impact, notwithstanding that group C leaves 30 per cent more of its members suffering from not being able to service their debts and the capable having to pay 15.7 percent more in interest rates than when compared to group A.

It is high time that we refine our evaluation systems so as to include in the analysis of the micro-credit finance institutions their respective repayment distribution curves. Otherwise, we will not be able to separate the good lenders from the kneecap breakers. Otherwise we will are not showing any solidarity with the downtrodden but just forcing internal solidarity upon them to make a buck.

I invite you to read for instance the document that you could find in CGAP’s web site Measuring Microcredit Delinquency: Ratios Can Be Harmful to Your Health or any other documents, to see if the perspective of the final clients, the borrowers, has been given due considerations.

I cannot say whether CGAP has actually considered this issue but, if so, it is certainly not a high priority issue; something which could have to do with having too many “bankers” in CGAP so as to be able to consider “development” sufficiently. In micro credits, just like in any other activity, the legitimacy of the profits is a direct function of how they are achieved.

We urgently need a carbon-solutions-neutral advisor

Like the obese compulsive eater reaching for his sugar substitute it is amazing to see the growing divergence between how serious our global environmental problems are reported to be and the type of solutions that are put on the table.

As long as you think that you could throw some ethanol, some solar panels, some windmills, some “clean” coal slogans or some recycling of unsold-food-into-energy on those problem… well then it cannot really be that bad.

As long as hurting the environment is considered just venial sins that you can take care of by buying some carbon indulgences… well then it cannot really be that bad.

As long as you could argue to developing countries that they have the right to expect developed countries to foot the bill for confronting their environmental urgencies instead of being forthright telling them not to count much on that and to get cracking… well then it cannot really be that bad.

One of our problem is not so much realizing how serious the environmental problems really are but of how to keep all the green-magical-solution potions peddlers from meddling... which means something like the environment being too serious to be left in the hand of environmentalists.

At this junction what the world needs most is a carbon-solution-neutral agency sufficiently capable and credible to spell out the truths… like for instance that the US has to impose European levels of taxes on gasoline consumption if they are going to get anywhere… and that given the scarcity of resources there are thousand of solutions that are more economically effective than hybrid-cars.

The World Bank does seem as the natural place to host such an agency but this of course could require some shake, rattle and roll, as can be exemplified by the fact that in the Energy Efficiency Portfolio Review and Practitioner's Handbook published by the Global Environment Facility (GEF) and of which the World Bank is one of the implementing agents, there is not a single phrase that defines what on earth, on the earth, energy efficiency really means.

Also in all documentation related to the development of an Investment Framework for Clean Energy and Development I challenge anyone to find a definition of what is meant with clean energy… most probably because that could lead to a more precise definition of what is “dirty energy” which would be quite uncomfortable for some.

Friends, a truly carbon-solutions-neutral advisor would probably not allowed biofuels to even show up for the casting.

My Voice and Noise on the financial sector during the spring meetings of the World Bank and the IMF, April 2008

Risk is the oxygen of development!

It is absurd to believe that the US and other countries would have reached development without bank failures. When the Basel Committee imposes on the banks minimum capital requirements based solely on default risks, this signifies putting a tax on risk-taking, something which in itself carries serious risks. The real risk is not banks defaulting; the real risk is banks not helping the society in its growth and development. Not having a hangover (bank-crisis) might just be the result of not going to the party!

We need to stop focusing solely on the hangovers and begin measuring the results of the whole cycle, party and hangover, boom and bust! The South Korean boom that went bust in 1997-1998 seems to have been much more productive for South Korea than what the current boom-bust cycle seems to have been for the United States.

All over the world there is more than sufficient evidence that taxing risks has only stimulated the financing of anything that can be construed as risk free, like public sector and securitized consumer financing; and penalized the finance of more risky ventures like decent job creation. Is it time for capital requirements based on units of default risk per decent job created?

When is the World Bank as a development bank to speak up on this issue on which they have been silent in the name of “harmonization” with the IMF?

When are we to stop digging in the hole we’re in?

The detonator of our current financial turmoil were the badly awarded mortgages to the subprime sector and that morphed into prime rated securities with the help of the credit rating agencies appointed as risk surveyors for the world by the bank regulators.

If we survive this one and since it is “human to err” we know that if we keep empowering the credit rating agencies to direct the financial flows in the world, it is certain that at some time in the future we will follow them over even more dangerous precipices.

Note: I have just read the Financial Stability Forum brotherhood’s report on Enhancing Market and Institutional Resilience and while including some very common sense recommendations with respect to better liquidity management and “reliable operational infrastructure”; and some spirited words about more supervision and oversight (the blind leading the blind); with respect to the concerns expressed above, bottom line is that they recommend we should deepen the taxes on risks and make certain that the credit rating agencies behave better and get to be more knowledgeable… so that we are more willing to follow them where we, sooner or later, do not and should not want to go.

Do micro-credit institutions make too much use of “predatory ratings”?

Any group of debtors that is charged a higher interest rate because it is considered a higher credit risk is composed by those spending their money servicing a debt that they will finally default on, and those who should have in fact deserved a lower interest rate. Are there any real winners among them?

Who is out there talking about that the extensive use of ratings signifies something like a regressive tax for the poor? Who is out there informing the poorly rated about how very dearly they are paying for their loans? Who is out there analyzing the murdering impact that credit ratings have in chipping away at the minimum levels of solidarity that any society needs to keeps itself a society?

If there is a minimum of things that needs to be done in the world of micro credits that is to focus more on transparent system of incentives that: 1. Stimulates and rewards good group behavior and returns to the compliant borrowers some of the “extraordinary” margins earned. 2. Spreads out the costs of those who cannot make it over a much wider group of debtors.

And, by the way, this applies just the same to the financing of mortgages to the subprime sector.

Inclusive financial systems, though generally good, could also be dangerous for the poor

If you have to pay a higher interest rate than what the average borrower pays, you should be extra careful with what you borrow for, as this could otherwise set you back even more.

For instance, if you want to buy a house that has a market value of $100.000 and have the $12.000 for a down-payment, you need a credit for the balance of $88.000. Let’s suppose that you could for that purpose access a 15 years fixed rate mortgage but, because you are considered a subprime risk, your lender requires a very high interest rate of 11 percent, which would require you to pay 1.000 dollars per month.

Had you qualified as a good risk and therefore could have access to for instance a rate of only 6 percent, then your $1.000 monthly sacrifice for the next 15 years would, in present value terms, be worth $118.500. From this we can deduct that if you bought your house under current conditions, at 11 percent, and did not wait until you could access to a 6 percent rate, then you will in fact have paid $130.500 for the house ($12.000+$118.500).

This is a sad truth often forgotten. Of course broad-based and inclusive financial systems can significantly aid financial development, reduce poverty, and expand economic opportunity in developing countries… but sometimes their embrace can also be a bit too rough for many of the poor.

Every time anyone pays a rate higher than the risk-free rate in order to purchase goods or services he is in fact accepting paying a higher price for these and which is of course not the surest way to get out from poverty. If anyone needs to be made aware of this it is the poor in the world.

Many subprime mortgage borrowers in the US are currently suffering from too much inclusiveness and will be made poorer as a result. They harbor no doubts on that they would have been much better of had they been excluded, and there are important lessons to be learned from that.

The World Bank, CGAP and other who share the mission of fighting poverty, after so many years of focusing almost exclusively on the access to finance and the stability of the financial system, need to pause, take a breather, and completely rebalance their approach to these issues.

As a bare minimum we need real proof that these programs have indeed reduced poverty in a sustainable way and not just opened up new opportunities for financiers. As a bare minimum “Financial education of the poor” needs to appear among the strategic priorities…currently it does not!

This has not only to do about guaranteeing that the interest rates are reasonable but also with the fact that even taking on debt at reasonable rates might be extremely unreasonable.

Personally I feel there are too many bankers and too few debtors (perhaps none) included in the above programs, and that is a guaranteed way to introduce bias.

If knowledge suffices then wisdom is worthless

If knowledge suffices then wisdom is worthless and sure enough our bank regulators placed more value on knowledge than on wisdom; which is the only way how you can explain such foolish behavior as empowering the credit rating agencies with so much power over the financial flows of the world.

See where this has gotten us. All the very sub-prime awarded mortgages to borrowers that classified as subprime would have not been able to go anywhere had they not been blessed as prime collaterals for other securities.

One reason that stops the world from realizing the foolishness of it all is that the credit rating agencies are private, and we have all been pavloved into establishing a connection between private and free efficient markets. The truth though is that the private credit rating professionals are only outsourced bureaucrats working for some pompous Ministry of Financial Risk Elimination.

Do the financial risks add up to a constant number?

I am no physicist and one my biggest frustrations is how little I really get to understand of what the greatest thinker that has coincided with my life span, Albert Einstein, explains. Therefore I might be completely off the wall when I refer to having heard something like that the mass of the university, though it can take many shapes, is by the end of the day always a constant number.

Nonetheless these line of thoughts have lately crossed my more financially oriented mind when exposed to facts that seems to suggest that no matter what we do with the risks, no matter how we hedge them, no matter where we hide them, at the end of the day their amount could remain a constant. If this proves correct then it must have great implications for how we design or perhaps even abandon our efforts to design our regulatory systems. At least it would not be so easy for our current bank regulators to go into their total immersion of risk adverseness, expecting to be applauded, if we knew that all they were doing was pushing the risks around.

We must allow our banks to be banks again

Our commercial banks besides being able to repay our deposits are supposed to help generate the economic growth that creates decent jobs and to distribute the opportunities in the society to those most able…otherwise a mattress would suffice.

Bank regulators, through the Basel Accord, 1988, and all the ensuing regulations, created a methodology for calculating the minimum capital requirements of the banks that was exclusively based on the perceived risk of default in their lending operations. And they followed it up by appointing the credit rating agencies as their commissars or official risk perceivers.

The above immediately created a world of opportunities and perhaps even needs for regulatory arbitrage and which has now degenerated in the current state of general and absolute incomprehension about what is going on.

The promised risk elimination has just turned out to be the hiding and the dangerous accumulation of risks. In my country whenever there is a tremor everyone applauds as they help to keep the big earthquakes away, but Basel is only managing to keep the tremors away.

To further evidence the current confused state of affairs in developing countries we see how the banks finance more and more the public sector and securitized consumers instead of entrepreneurs; and in develop countries we frequently find more courses that analyze how credit rating agencies might change their opinions about a firm than courses about how to analyze the finances of a firm.

Now if we are ever going to have a chance of getting out of this mother of all the financial imbroglios there cannot be much doubt that we urgently need to start doing some back tracking on our current bank regulations… and allow our banks to be banks again.

There are risks in shying away from risks

Friends and development experts, would you please comment on the following

When the Bank Committee of Basel decided on the minimum capital requirements methodology they loaded up new expenses on the credits already more expensive because they were perceived to be of higher risks and this resulted in the introduction of a regulatory bias against risk taking in the commercial banking sector.

It is indeed sad when a developed nation decides making risk-adverseness the primary goal of their banking system and shies away from risks and places itself voluntarily on a downward slope, but it is a real tragedy when developing countries copycats them and also fall into the trap of calling it quits.

More from this perspective on http://www.subprimeregulations.blogspot.com/

There is a dangerous regulatory arbitrated run towards safety

Credits which are perceived as having a lower risk than others have a natural market advantage that translates into lower interest rates. But the bank regulations that have been developed by the Basel Committee on Banking Supervision, by applying minimum capital requirements based on the risks perceived by the credit rating agencies, have added through their regulatory arbitration an additional and artificial benefit that biases the market in favor of "low-risk" credits.

The above is producing a run towards either a more objectively "safe portfolio" or providing further stimulus for "risk-hiding". Since the largest needs for development do not ordinary make a living in the land of the low risks it is clear that development finance is the largest victim from this run and we could even say that the development power of the commercial banks in developing countries has as a result been severely diminished.

But also developed countries will pay for this, not only as already evidenced by the subprime-mortgage mess, but also since no society can survive as viable maximizing risk avoidance. As I see it our future generations will pay dearly for this baby-boomers invented run to safety.

Do we then need two World Banks?

Krishna Guha and Eoin Callan in the Financial Times of September 13 and in reference to a report on the role played by the World Banks internal anti-corruption unit the Department of Institutional Integrity (INT) were told by Paul Volcker, the main responsible for that report, that “his inquiry had ‘reconfirmed’ there was ‘ambivalence’ in the bank as to whether they really want an effective anti-corruption program or not”.

Wrong! Having been an Executive Director at the bank (2002-2004) I sincerely believe that an overwhelming majority of the bank staff clearly comes out in favor of more and better anti-corruption efforts but that these do not come into fruition only because part of the management, rightly or not, believe that these could hinder the bank from operating efficiently… at least as they wish for it to operate for whatever reason efficiently.

If we discuss “ambivalence” then perhaps we should also discuss what Volcker’s report does not touch upon and that is perhaps the single most outstandingly ugly blemish on the World Bank’s reputation. To see what I refer to please search out INT on the external website of the World Bank and then click on the list of Debarred Firms and Individuals. On that list you will find, duly named and shamed, the names of many individuals that one way or another after a due process have been considered involved in corruption, but that list does not include one single name of those officers of the World Bank that presumably must also have been involved in these acts of corruption one way or another. Susanne Folsom the Director of INT, on a Q&A session on that same site mentions, “We’re often asked why we don’t publicly name Bank staff who are terminated for fraud and corruption as well. The Bank’s rules don’t allow such disclosures….” What credibility can you get naming others while not being willing to name your own?

It might very well be that the “ambivalence” on anti-corruption in the World Bank is insurmountable but if so perhaps what we need is to have two world banks since the world definitely needs one that comes out completely and unabridged against corruption. And mind you I am far from being a zealot on this issue, since life has taught me well that zealousness frequently carries within its own even more dangerous breed of corruption.

Please...while you are busy leaving Iraq


Subprime banking regulations

As an Executive Director I got invited to make some comments at a "Risk Management Workshop for Regulators: Assessing, Managing and Supervising Financial Risk" arranged by the World Bank in Washington during the week 27 April – 2 May 2003. This is what I told them about the credit rating agencies.

“I simply cannot understand how a world that preaches the value of the invisible hand of millions of market agents can then go out and delegate so much regulatory power to a limited number of human and very fallible credit-rating agencies. This sure must be setting us up for the mother of all systemic errors.”
I never got invited to speak to them again.

You could read more on this subject in my blogs:

http://www.subprimeregulations.blogspot.com/ and

http://teawithft.blogspot.com/ looking up under the labels of credit rating agencies and subprime banking regulations.

And why does not the US use the World Bank for their infrastructure needs.

Felix Rohatyn and Warren Rudman in “Federal action is needed to rebuild America” Financial Times August 23, come out in support of a proposal for a new bank to address “the critical needs of infrastructure”. This, at least in Rohatyn’s case, being from the private sector sounds a bit surprising. But, if they are right, why would the US need a new bank for that? … when there is International Bank for Reconstruction and Development, IBRD, better known as the World Bank.

Not only would the US by using the World Bank set a great example and help to scale that institution for some really big globalized action that might be needed but also, at least for a start, the World Bank would probably be quite covenant lite… sorry I mean conditionality lenient with the US.

Odious debt should not be granted relief while odious conditions remain.

I am a citizen from a country that I consider corrupt and that needs to change a lot before any new debt could do it any good.

In this respect I urge you not to give debt relief to corrupt governments as that will only allow those addicted to debt to be able to hit the bars again, in the same shameful ways as before.

If the concept of odious debt is applicable in the sense that some debts should not have to be repaid if contracted in an illegitimate way, castigating the creditor, then the same concept should clearly also apply to the granting of any debt relief, punishing the debtor.

The World or Mother Earth lacks representation

Wolfgang Münchau in “This gentlemen’s agreement fails Europe too”, Financial Times July 9, makes a good case for why Europe by splitting up the European representation in international institutions such as the International Monetary Fund (he argues that it is to preserve many plum jobs) ends up in fact with having no real representation at all.

I understand and agree with his point of view especially since it goes hand in hand with my opinion that since all the votes, and all the Executive Directors, and the Presidents, and so many of its staff are assigned on pure local considerations, it is the “international world”, the global order, or mother-earth itself, whatever you want to call it, that ends up being the most under represented party in these global institutions.

If we are going to be able to manage the global challenges it is urgent we look for means to break away from our parochial local chains. What about splitting at least 50% of the chairs at the Board among varied constituencies such as migrant workers, multinationals, media, educators, environmentalists, NGO’s, accountants, farmers, manufacturers, service providers, and so on?

The only constituency that has currently a representation in IMF, in fact a 100% representation, is the constituency of central bankers and this need to be changed. Europe, if you must insist on naming the next managing director in the IMF then at least do the world the favour of appointing some finance knowledgeable person that has never worked for any central bank. That would provide us with much more needed diversity than just appointing another central banker based on the local consideration that he is from Asia, Africa or Latin America.

And this is really no joke, as incest is about the most dangerous limiting factor when it comes to impede clear thinking and effective actions.

Let them bike (1)

Friends, listening to your exhaustive list of concerns [about how the World Bank could best assist countries in their development] I was reminded of the moments when I had to teach my daughters how to ride their bikes: I heard their mother’s anxious calls in the background; I felt my own nervousness; nonetheless, I just knew I had to let them go.

One could find and read thousands of manuals about how to put a bike together safely; about all the safety implements a kid should wear, such as helmet and wrist-guards; about all the precautions he or she needs to take, not going downhill or out on the main road; but nowhere can you find even a single manual that clearly and exactly instructs you how to learn to ride a bike. Left leg up, right leg down! Or was it right leg up first?

We need to understand that development is a bit like learning how to ride a bike and, at the end of the day it is something that must be done on one’s own. In fact, no matter how much we could help in the preparations, we will not stand a chance to achieve lasting results if we are not willing or do not know how to let them go.

It is not easy to let go, I probably even closed my eyes for fractions of seconds after letting my girls roll away on their bikes, but I let them go and they know how to ride a bike now.

So, my colleagues, in these discussions, not as caring parents but as caring development partners, let us try to act accordingly, letting them go, always remembering that, at the end of the day, countries need to do it on their own. What else could ownership mean?

Of course, anyone might fall trying, but that is exactly the risk we need to be able to take if they are going to achieve real sustainable development results and, if they fall, there is probably nothing more to do than to help them rebuild their confidence so that they can just have another go at it.

Moreover, if you try to hold the bike while they ride it, the bike might not really behave like a bike, and so they might never get the hang of it. What we really should be concerned about is that they have what is most needed at the time of trying: sufficient confidence in themselves. In fact, what unwillingly might be the first victim of all our other secondary concerns is precisely that, their confidence.

So, my colleagues, let them go, again and again and again, learning to ride their bike, and as they believe a bike should be ridden.

I know it is not as easy as it sounds and in fact I would only give someone the freedom to try it on their own whenever he or she convinces me he or she is truly ready for it, in a sufficiently confident way.

(1) Extract from Voice and Noise and that reflects what I said to my colleagues at the World Bank Executive Board while discussing in 2004 the issue whether developing countries should be allowed to use more their own country systems.

The anti-corruption experts are but another sublime form of corruption.

I am opposed with passion to corruption, how could I not be, I come from Venezuela, and I fully support with all my heart the valiant work of all those anti-corruption warriors out there in the world. But, having said let me also unequivocally state that anyone who sells himself as an anti-corruption expert is in my opinion just engaged in another though perhaps more sublime version of corruption.

Corruption is about life and human weaknesses and should therefore always be fought by people and not by experts.

A B- donor?

Once again I heard in a development forum complains about the volatility of the commitments of donors. Would not rating the donor’s credibility be a good pro bono cause for the Credit Rating Agencies? Perhaps the tax deductibility allowed to funds collected by those donors could also be a function of those ratings.

Two brief comments on naming a new World Bank President

1. I would love for the world at large to be able to put forward their proposals for a new president at the World Bank but, having been an Executive Directors and having seen how so few of these EDs are truly allowed to speak out their own voice, I would also like to see that once they have received the list of candidates, they are isolated from any further interference from their capitals, and forced to reach a consensus between themselves as Executive Directors individually responsible for the Bank and the World.

2. If we are going to waste time just to haggle on who is going to be the next President of the World Bank, I would much rather have just about anyone named so that the Bank could go back and focus at the real issues. While an Executive Director of the World Bank (2002-2004), I calculated the cost of each of the EDs jointly debating an issue to cost around 80.000 US dollars per hour. Therefore I raised my voice quite noisily when the Board had to spend many hours discussing a salary increase of US$ 40.000 for our then president, Jim Wolfensohn, just so that he would earn as much as his counterpart at the IMF. Frankly, I do not know what I would have done with a Wolfowitz incident and now the follow up; I might have just gone berserk

The World Bank needs a president credible to the world (and to the USA).

My friend and as an Executive Director of the World Bank former colleague Otaviano Canuto is quoted in FT May 22 saying with respect to the appointment of the next president to substitute for Wolfowitz that the selection should be “based on the merits of a plurality of candidates regardless of nationality” and who could argue with that, though of course the problem of defining what are these “merits” remains.

The first and foremost merit that I believe a World Bank president must have besides the basics is to be able to generate enough credibility outside the small world of the World Bank. This is so since no matter how this multilateral twists and bends, the chances for most of the poor of this world to come out of their misery in a sustainable form lies in being able to connect with the real world. Also the World Bank itself is dependent on this connection if it is to strengthen its role as a global public-goods producer.

And so, unfortunately, we might be back to square one where the best we can hope for now, is for the United States to nominate a person that fully and truly represents the United States, and counts with the favourable opinion of Europe. By the way I would never view such a candidate as a foe but, if I did, I much more prefer to work with an impressive foe than with a diddling friend.

Let us not despair though; the time will come when the world will be ripe for Otaviano Canuto’s proposal, and much faster than what we can imagine.

Let us keep the eyes on the ball!

If we want good government results that have a chance of doing what is humanly good for humanity, in a shrinking world, that could only happen through more credible and better governed multinational institutions. But in this case, while rolling up or shirtsleeves to get going at it, we must also learn about how to prioritize our efforts.

Instead of beating the good guy on the head, just because he is more amenable to being beaten on the head, and start with a World Bank and that no matter Wolfowitz and some others, in relative terms, still stands out as a shining example of relative good governance in the world, we should all concentrate more on where good governance is much more lacking and much more needed, namely the United Nations.

May I humbly suggest we keep our eyes on the ball!

Per Kurowski
Chairman
The Voice and Noise Foundation for International Development and Global Strategic Action

And now it is for the World Bank to convince the world that it was more than about politics

Now when after so much procrastination, by all, Wolfowitz has finally resigned it is now the World Bank’s turn to convince the world that all this was indeed an institutional fight over what is right or wrong, and not some political bickering against an unpopular president.

Having had the privilege to act as an Executive Director of the World Bank (2002-2004), I am truly convinced of the high human quality of all its people but, given that out there, for instance in the world of blogs, there exist so many 100% professional haters who don’t care a iota for the World Bank as long as they get their sweet revenge on Bush or Wolfowitz, now the World Bank’s directors, staff and managers must act decisively on the fundamental governance issues, so as to distance themselves as much as possible from these loonies.

One of the first tasks has to be to review the whole concept of external assignments or secondments, since it beats me how it could have reached that point where someone could even have thought of this as a useful instrument for removing to a distant place a conflict of interest of the President, at the expense of the World Bank. Can you even think of a listed corporation trying to argue with the IRS about the deductibility of salaries paid in such a way?

As with this it should be clear that there was a serious problem even before Wolfowitz intervened pushing promotions and salary increases, something that the Executive Board also valiantly recognized, it is obvious that the institutional integrity teams, and all other, have some solid homework to do before they can re-launch the good governance and anti corruption initiative the world needs so much, and that unfortunately seems to have hit an iceberg, while still in port. I am certain that they will succeed.

The World Bank deserves more than a banal political row

The Ethics Committee proposed a solution to Mr. Wolfowitz’ “conflict of interest” that could have the poverty fighting World Bank paying out US$1.950.000 over the ten years of what could be his presidency (US$ 130.000 plus 50% benefits per year), while receiving absolutely no services at all. No matter how delicately you phrase it as a secondment, this sure must be a crazy and an unethical proposal. How come they did not just help her (or Wolfowitz) find another job for which the Bank did not have to pay? Should that have been so difficult?

Mr. Wolfowitz, who as President should know that something is not right just because an Ethics Committee proposes it; then went on influencing so as to raise the potential cost of this proposal for the Bank to US$2.700.000. For this Wolfowitz should resign; and most seem quite clear about that.

It is hard though for me to understand why there has been so little discussion about the Ethics Committee’s initial proposal. Although I was an Executive Director at the World Bank, 2002-2004, I came there from the private sector, and so I might not possess sufficient intimate knowledge of all the nuances of diplomatic affairs… (which could perhaps just be lucky me).

I sincerely believe that the overwhelmingly good staff, management, board members and presidents, present or past of the World Bank, as well as a world that needs a respected multilateral institution where global challenges can be discussed, they all deserve that this affair is handled correctly, on the basis of what is right or wrong, and not just as a banal political row, of a for or against Wolfowitz.

We need to make more of a world bank out of the World Bank

Sir of course the "World Bank has greater problems than Wolfowitz", as E.A.S. Sarma says, May 8, but if he as a Former Secretary of Economic Affairs of India really believes that "setting up an Independent People's Tribunal to place the policies and programmes of the World Bank under the scanner, is part of finding the path for their own development", then may I suggest he has himself a bigger problem, as so do those who like my country Venezuela believe they are better off outside the World Bank.

Lets face it, the World Bank, after 64 years of activities has an outstanding accumulated portfolio of $103bn which compared for instance just to the $62bn in remittances made only last year to their homelands by the Latin-American migrant workers is a drop in the ocean, much more so when the financial flows to the richest country of the world are such staggering amounts that we are better off not even mentioning them.

As I see it, the faster we split up the bank in two completely separate areas, one for the development issues of the poor, laggard or left behind countries, and one for the global world development issues, the better chances we have of making a big dent in the poverty and a truer world bank out of the World Bank. At the Word Bank's Executive Board instead of reshuffling the seats among countries, we need to assure the representation of international actors such as multinational corporations, migrant workers and international labour unions.

By the way, if I had the luck and honour to be left in that division of the World Bank in charge of helping the laggards catch up, I know exactly what I would do. I would put all my efforts to strengthen the confidence of the poor people in their own capacity, so that they dare to ride a bicycle on their own, instead of trying to make their misery more liveable, holding their bikes, or offering them scapegoats and excuses for their falls, such as the World Bank.

The World Bank, though in a hole, needs to dig deeper.

As a former Executive Director of the World Bank it is with much sadness that I have followed the Wolfowitz affair. It is clear that he should not have played a role in deciding the terms on which his girlfriend was seconded to the US state department and that he should now leave the Bank.

Having said that, I also find it important to question the appropriateness of the primary idea, put forward it seems by the Ethics Committee, since it does not seem to be correct either that the World Bank should be seconding anyone anywhere, even on reasonable and non interfered terms, as a tool to solve this type of conflict of interests, so as to allow someone to have his cake and eat it too.

In contrast while an Executive Director, we had to spend millions of dollars of the Board’s time just in order to debate a “measly” forty thousand dollar a year increase for the then World Bank president James Wolfensohn, just so that he would be able to earn as much as his counterpart in the IMF.

Now, after so much procrastination, by all parties, the only real solution for the World Bank, with or without Wolfowitz, lies in appointing a committee of true outsiders to dig deep and review all the World Bank’s current work related policies. The World Bank, when compared to other similar institutions, is very clean but of course, after 64 years of accumulating problem solving compromises, it should be time for a good scrubbing.

The world needs the World Bank to come out of all this smelling like roses, and the staff also deserve it.

Should Imus be banned from talking, or his listeners from listening?

The words we use are important to the extent they impact. When I see and listen to one of these commentator programs I do not care much for what words they use but much more whether they are trying to reinforce the good within us or if they are just out looking to exploit the bad that we all also carry inside. In this respect, having the impression that Imus geared himself to belonging to the latter group, I can’t really say that I object too much he is now suffering some of his own medicine.

Now, saying that reminds us that it is not only the speaking of the words that counts but also how we listen to them. The real difficult and perhaps unsolvable problem for a society might then be that instead of barring some radio or TV hosts, which in their disrespectful, vulgar and highly censurable ramblings might nevertheless be providing a needed input to some or something, it might perhaps be better served by barring from listening those in the audience that might not be able to adequately digest what is being said, and that end up supporting it providing bodies to the rating numbers.

Now, before someone bars me for suggesting some supremacy inspired censorship let me make absolutely clear that the only real censorship I really defend is self-censorship, and we should all be more aware of the much good that can come from it, not the least lower ratings for unworthy programs.

But, this is indeed a very difficult issue and all those that believe the contrary… well they are the only ones that we can with certainty say should be barred.

A wondrous world!

“The persistence of global imbalances brings with it an important financial stability issue—the problem of sustaining the financial flows needed to support the imbalances.”

From the Global Financial Stability Report by the International Monetary Fund, April 2007, page 15

What an opportunity we seem to have missed!

Daniel Smith in “Politicians cannot control Nigeria’s corruption crusade”, FT April 12, writes about Nigeria saying “its politics remains a stark scramble for power in which elites compete for domination of the state apparatus to reap the benefits of control over enormous oil revenues”, and so in fact little does the crusade againts corruption matter anyhow, especially while oil prices remain high. As is, the Nigerians now elect a government to whom hand over the oil revenues that in reality belongs to themselves, only to have to spend the next couple of years licking boots in order to get some of that same oil money back, while the elected government officials, arrogantly, not in need of other tax income, couldn’t care less about them.

It is only when you get to understand this that you really get a feeling for what a wonderful opportunity the world seems to have lost in Iraq. Can you imagine what having helped to channel the oil revenues directly to the Iraqi citizens in a transparent way could have done? That could really have been called democracy building, and the setting of a great example for the citizens of Nigeria, Venezuela and all the other oil cursed nations to follow.

The current analysis of the remittances takes the eyes away from much bigger issues

The press announces that “Migrants send home $62bn to Latin America and Caribbean” and the commentaries that generally follow evidence how much, by focusing the attention on the remittances as such and which could in fact be compared to the cash dividends of the corporate world, the development banks might be missing so much of the real story.

If these remittances represent 15% of what the migrants earn then the real underlying economic activity is worth more than $420bn, and a country such as El Salvador has just as much GNP produced by its emigrants abroad than the GDP produced in el Salvador; and who is to argue that someone from El Salvador is less El Salvadoran just because he works abroad.

This calculation does also evidence that way too much detailed and expensive attention has been given to the analysis of what channels are used for the remittances, and the costs of these transfers. Frankly, in my book, this amounts almost to a lack of respect for the migrants since indeed these transfers do certainly represent the least of their thousands of problems and hardships.

Let us hope the development agencies will soon start looking at the real issues, such as how to increase the earning potential of these millions of sacrificed migrants; such as helping in the development of temporary migrant worker programs that satisfy the interests and meet the concerns of all parties; and to study whether they migrants could be better off reinvesting their savings in their own and their children’s educations instead of perhaps only ending up providing temporary support to their ineffective national governments who most probably were the main cause of why they had to emigrate in the first place; and to the rate of that heart-drain by which they might start to forget their homeland and how to slow it down.

Now, while analyzing all these issues, let us please never forget that all these remittances are of a very private nature; no different from any money a son could send his mother in a developed country; and so we need all to be extremely respectful of that.

Let us not waste this opportunity to make a very significant reform at the World Bank

On the web of World Bank (WB) we can read an interview with Suzanne Rich Folsom, the Director of the World Bank's Department of Institutional Integrity (INT), on the theme of fraud and corruption. When questioned “What sanctions are imposed on those misusing WB’s funds?, she answers “when we find that a supplier has engaged in corruption in a project, we take actions to debar them – which means to make sure they can’t get any more contracts for a while. We also publicly debar – we list their names on our website. ‘Naming and shaming’ is a huge deterrent.” This sounds of course reasonable, especially considering that INT is not a court that could send anyone to jail.

Unfortunately, immediately thereafter, Folsom also has to say the following: “We’re often asked why we don’t publicly name WB staffs that are terminated for fraud and corruption as well. The WB’s rules don’t allow such disclosures…”, and this, no matter how you look at it, is of course something completely unacceptable and represents a truly ugly wart on the public face of what in so many respects is the best managed of all our international organizations.

Perhaps these days, when the World Bank’s President’s and a former staff names are publicly mentioned everywhere as having done something not correct, this could be the best opportunity ever for getting rid of whatever crazy disclosure rule stops the World Bank from living as it preaches,

World Bank and IMF Collaboration, the February 2007 Report

When I read the “Rome Declaration on Harmonization” February 2003, were the word harmonization was mentioned 19 times in 8 pages, I loudly protested since I felt that it sounded a lot like killing of the debates around many difficult development issues, agreeing on strategies in some smoke-free rooms in Washington, instead of bringing out all the inherent conflicts of risks and having them openly discussed in all the different capitals of the world, and hopefully among its citizens too. I cried out loud. “If ownership is to mean anything you must at least allow them to own the debate.”

Thankfully after many discussions (not with me though) the World Bank and the IMF have now in February come out with their “Report of the External Review Committee on Bank-Fund Collaboration” and thankfully harmonization is almost gone and the emphasis is almost completely on collaboration, which of course is a totally different issue.

Now in this Report of 58 ages the word “harmonization” appears only twice, and in the same paragraph, as follows:

5. Collaboration on fiscal issues: • There needs to be improved integration and harmonization of work on fiscal issues. As noted in the joint 2003 staff review of Bank–Fund Collaboration on Public Expenditure Issues, the key to an effective partnership on public finance management is not found in a formal division of roles, but in the harmonization of recommendations.

I have no qualms at all with that, although when they in the next paragraph state, In terms of ‘fiscal space’, there should be no suggestion that there is a trade-off between short-term stability and long-term growth. These are complementary, not competing, objectives, e.o.q, I would have included the caveat that this is true as long as you avoided too much short-term stability, since staying in bed, does not correlate much either with development.

Should not Higher Education be more of a joint venture?

Hearing so many young professionals in the USA describing their problems with debts they incurred while studying, I guess that soon some of them could be suing their Alma Maters for misrepresentation or plain failure in delivering the services offered.

Perhaps the incentive structure of the education system needs to be revised so that at least some of the higher education providers offer to collect a part of their fees through a profit participation scheme, like for instance by receiving a small percentage of the student’s future earned gross income that is above the level that the student could have been estimated to earn without further education, during his first 20 years of work.

How are then the universities going to pay for their professors now? Easy, that is what the financial markets are for. These participations in the future of our youngsters could be securitized and sold in the markets, perhaps even as a good investment for a professor’s retirement fund… of course, that is if the professor delivers on his promises.

For a university to show a willingness to invest in their own students, because they are sure of what they are giving them, might be a better marketing tool than outright grants and “we invest our money in your future” is my slogan. Also, for students, the question of what university offers to invests the most present dollars against the smallest percentage of the expected future earnings... should rank among the first when selecting an Alma Mater into which to invest their own future.

The Iraq Study Group Report’s as close at it gets silver bullet

The Iraq Study Group Report’s perhaps most important yet least discussed recommendation is “redistributing a portion of oil revenues directly to the population on a per capita basis” as it has “the potential to give all Iraqi citizens a stake in the nation’s chief natural resource” which could only foster a national identity and help stimulate the search for normality. Besides, given that the price of gas in Iraq is so low that you can fill your tank with less than two dollars, which of course is the source of much corruption, the sharing in the additional revenues that a price increase of gas would generate provides the political support for such difficult but necessary action.

We were told not to expect any silver bullet from the Report but in my opinion this revenue sharing program is a close to one as it gets. Implementing such a program in a transparent way, with the help of the World Bank, could also have far-reaching consequences for fighting all the other oil curses around the world.

What does recommendation number 28 really mean?

The Iraq Study Group Report suggests in recommendation number 2 to “Support the unity and territorial integrity of Iraq” which makes it somewhat difficult to understand the real meaning of number 28 when it says “Oil revenues should accrue to the central government and be shared on the basis of population”, since how do you share if there is only one central government? Now, if what they actually propose is that the oil income should be shared by the population directly on a per capita basis, this would indeed be a much welcomed proposition, given that we all know how impossible it is to construe a real democracy when oil revenues go directly to central government coffers and with it makes a mockery of any balance of power in the society. In the chaotic Iraq trusting the Iraqi people with their oil revenues is wiser than trusting any central government with it.

The only thing left to do in Iraq

The just published Iraq Study Group Report says “There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation’s chief natural resource”.

Since we all know that when oil revenues go directly to government coffers this makes it more difficult for society to reach a fair balance of powers among all its participants, these proposals also carried within them the best chances for construing an effective and lasting democracy.

Unfortunately some will seems to be lacking since the report also includes some really poor objections as “Oil revenues have been incorporated into state budget projections for the next several years. There is no institution in Iraq at present that could properly implement such a distribution system. It would take substantial time to establish, and would have to be based on a well-developed state census and income tax system, which Iraq currently lacks.”

In fact, compared with most of all the other challenges that faces Iraq today, to develop a fair and transparent per capita oil revenue sharing system, should be relatively easy and I believe that the World Bank has the required capabilities to successfully complete such mission.

And besides, after helping to free the Iraqi people from those who oppressed it, is not helping them to gain access to their own resources the only thing left to do?

A victory for Hugo Chavez?

Last Sunday’s presidential elections in Venezuela have been hailed as a victory for Hugo Chavez. Far from it!

In the previous election in 2000 all the votes of the opposition against Chavez added up to 2.5 million while in this election, certified by the Chavez influenced, the home based opposition against this self proclaimed world leader almost doubled as it came in with more than 4.3 million votes, and that does not include of course all those who did not manage to pass all the electoral obstacles.

Another fact that perhaps also should be reminded to the international Chavez adoring community, is that not one single of these 4.3 million voters is represented in Venezuela’s 167-loyal-to-Chavez-and-zero-against congress.

Iraq needs mercenaries for peace

As Venezuelans know so well, it is impossible to build a real democracy upon abundant oil. Democracy is about creating a level playing field, and, therefore, if you want a real chance at democracy in an oil-rich land like Iraq, you need first to distribute their oil revenues equally among all their citizens. For Iraq, distributing their oil revenues upfront, in cash, would carry a special significance since not only would it help to solve the problem of their oil being located only in some parts of the country, but it would also foster an additional bond of national identity among all the Iraqis, be they Sunnis, Shiites, or Kurds. The possibility for each citizen to receive perhaps a couple of thousand dollars a year would promote interest in reaching normality. The World Bank could be the perfect candidate to help implement a very transparent sharing of the oil revenues for Iraq.

In a world where so frequently mercenaries are used for wars, why don’t we help Iraq contract their own citizens, using their own money, to be mercenaries for peace?

An ättestupa for the baby boomers?

If countries were open-ended investment trusts, then if the average lifespan was eighty years, a newborn baby should have eighty shares, a fifty-six-year-old consultant (like me) should have only twenty-four shares, and anyone over eighty should count his blessings and be happy with the one he’s got left. From this perspective, our current democracy is a complete farce. I say this after having read the truly hair-raising World Development Report 2007 from the World Bank titled Development and the Next Generation. It so clearly evidences our failings as a society and the fact that most of those coming after us are giving up on participation and hope, with damned good reasons.

The report covers ages 12 to 24, but in From Schooling Access to Learning Outcomes – An Unfinished Agenda presented by the Independent Evaluation Group of the World Bank (IEG) we also read that many even younger students in poor countries (maybe in some rich countries too) can go through a complete primary education without actually learning how to read, which evidences systemic corruption on a massive scale and that completely shames initiatives such as Education for All. Having schools deliver on the absolutely bare minimum expectations could be a truly worthy and concrete goal in the current anticorruption drive of Mr. Paul Wolfowitz, the President of the World Bank. Normally it takes decades to be able to evaluate the programs of the World Bank, but, in this case, it could actually be done by the end of next semester.

It is said that in Scandinavia, a long time ago, when the older people felt that they stood in the way of the young, they threw themselves off steep cliffs known as an ättestupa. These days it could seem like quite the opposite, if we consider how our democracies might have been captured by us baby boomers. We need to revise urgently how our society deals with the next generations, before they throw us down an ättestupa—for damned good reasons!

Where is the “Worst and Best List” in the development debate?

Alan Beatti of the Financial Times in The Great Unknown, July 7, debates lucidly the Development Debate and to that effect enlists the opinions of some of the most prominent Development Talkers. What again is left out from the debate, perhaps as it is another inconvenient truth, is the fact that just a little bit more of real accountability for the actions of the developers could go a long way to stimulate better thinking and better implementing.

The following is an extract of my Voice and Noise where I recount part of my experience as an Executive Director at the World Bank.

"The standard feature of any evaluation and monitoring system we know of, is the use of some sort of distribution function, be it the normal bell-shaped curve or any other type. It somehow indicates the extremes; for instance, the worst 5% of the organization’s performance and the best 5%.

Any board, if it wants to be effective, cannot spend a lot of its time in the grayish middle area of the function, but has to concentrate its attention on the extremes of the curve, weeding out poor performance and learning from bad experiences, so as to avoid being dragged down into mediocrity, while guaranteeing the promotion of the best and learning from its successes, so as to advance the organization’s goals.

These distribution curves are totally absent in the evaluation brought forward for the Board to consider . . . it behooves us to make certain that they are adequately introduced. On a daily basis, the needy people of our constituencies are harshly evaluated by life in very cruel terms, so we might as well ask ourselves whether we should not be a little stricter in our assessments, living up to the accountability we so much preach to others."

Lacking the worst and best lists, budgets are allocated more on a per capita or on a per program basis than on the basis of what is working and what not. What private organization could function or survive this way?

Lacking the worst and best lists, scarce resources are further diluted. The possibility of concentrating the use of resources on a few countries and on a few programs to get some issues completely right in a sustainable way is almost non-existent. What private organization could function or survive this way?

I am absolutely sure that Robert Calderisi, William Easterly, Joseph Stiglitz, Andrew Charlton, Jeffrey Sachs and even the raconteur Alan Beattie are all great professionals and are all doing a splendid role verbalizing development issues but, except for passing some exams and delivering some papers in time, has anyone of them really been in a position of “either you deliver or you get out?” I wonder, not because I have anything against them, on the contrary, I wonder because it is our duty to wonder whether that might be part of the Problem, most especially since because of the Problem people are dying and the world is getting to be a nastier place. Friends, can we really afford not to step up our requirements that World Bank, IMF, and UNDP really deliver?

The world needs more than a theme park of anticorruption efforts

My comments on Strengthening the World Bank Group's Work in Governance and Anticorruption

Dear Friends,

Recently Moisés Naím in an article, Bad Medicine, in Foreign Policy (March–April 2005), suggested that the world might have become too fixated on battling corruption. Of course, blaming corruption for all evil is stupid, and Naím’s article is a good aide-mémoire on that, but the alternative of turning a blind eye on corruption sounds so much worse! Therefore, we very much welcome the World Bank’s efforts to do more and better. The Naím article also cited Daniel Kaufmann as saying, “The last 10 years have been deeply disappointing . . . Much was done, but not much was accomplished. What we are doing is not working,” but this has to be interpreted as a clamor for better strategies and not as a capitulation.

Given our current global problems, a corrupt world—a world where everyone is looking for his or her short-term gratification—is just an unsustainable world, and so it is imperative that the many difficulties that come up while fighting corruption should only strengthen our will to fight it. That it has to be done intelligently is obvious. Also, while doing so, we need to heed Naím’s warning that “before we engage the enemy, we should take the equivalent of the Hippocratic oath, and promise first to do no harm,” That goes without saying.

I can in many ways demonstrate the importance I have given to the issue of fighting corruption, in any of its manifestations, not the least during the two years when I was an Executive Director of the Bank, and when, as an example, I requested that some major documents relevant to the issue should be discussed at a full Board meeting, with the presence in person of the Bank’s president. The fast-track procedure that had been envisaged in my mind belittled its importance.

In this respect, I am very grateful for this opportunity that allows me once again to voice my opinion publicly on the issue of fighting corruption and the World Bank’s role in this struggle. I will do my utmost to try to keep it as brief and concise as possible. Likewise, I shall use as a reference the discussion document presented as part of this consultation process.

1. First and foremost, corruption, in all its manifestations, has its origin in those frailties that affect all human beings. In this respect, any attempt to classify the world in terms of the corrupted and the not corrupted is in itself corruption. Accepting this fact, with humility, is an absolute prerequisite if we are going to reach the necessary enlightenment to move forward and upward as a civilization. In fact, what we now observe in many of the supposedly corruption-free developed countries may in fact just be some better-camouflaged and more resistant strains of the same virus. In this respect, we urge the World Bank to eliminate from all its documentation any holier-than-thou manifestations, explicit or implicit, since these serve no useful purpose. That the Bank should listen to its shareholders and look for guidance goes without saying. However, to qualify some shareholders as having “significant experience in assuring sound governance policy and practices,” (1) in this context, is not helpful since in its anticorruption efforts the Bank will do its best when it works to help all shareholders, and not some specially singled out. This, of course, has nothing to do with limiting the possibilities of the World Bank to speak out in very clear terms against any particular outrageous manifestations of corruption. Indeed, we believe it should, much more forthrightly than it has in the past.

2. The fight against corruption, like so many other aspects of life, lies on a continuum where it is impossible to ascertain validly and precisely just how much has been achieved. The Bank should refrain from trying to categorize achievements in these matters, and most especially its own, since the resulting flag-waving contains many elements that bear uncomfortably close resemblance to corruption. For instance, a phrase like “The World Bank has come a long way on governance and anticorruption in a brief period” (8) is a no-no, not only because the distance traveled in that short time might be almost insignificant relative to the distance we need to travel, but also because it is disrespectful of all the efforts that must have been made earlier. In many of our developed and developing countries, one of the most disgraceful manifestations of corruption occurs when governments and politicians use taxpayer money to advance their own image. Thus, the Bank needs to set an example and refrain itself as much as possible from doing just that.

3. Corruption has many faces. Unfortunately, we tend to single out just some of them by placing them in a display case that contains the typical products