I have several friends who work in "development" sector either on a professional or a volunteer basis. Some of the very good people I know work at the World Bank or want to work for the Bank in the future, or work on World Bank funded projects. On the other hand, some of my friends refuse to work with any group or organization that is directly receiving money from the bank. Being a wishy-washy policy person I find myself in between these two groups. Friends on my left find it mildly inconvenient that I refuse to protest against "imperial policy making" of the World Bank or the IMF. My friends related to IMF/Bank find it difficult to understand why I would associate myself with friends on my left even though I do not fully agree with the critics. The answer is obviously that this is a highly nuanced topic and there is no easy way to pick a side.
Yet, one thing that always stands out. The opposition to instituitions such as IMF/World Bank or even the WTO comes from the grass roots. The fact that the opposition comes from people closest to the reality on the ground and not some policy wonks (such as those on this blog let's say) that I think that there is some credibility to the opposition to IMF/World Bank.
Now, perhaps for the first time, someone has tried to analyze this aspect of the story carefully. Earlier last year, Knowledge@Wharton highlighted two papers in a piece called Are Failed Infrastructure Projects Linked to the Presence of the IMF or World Bank?.
Working on two separate papers, Henisz and his colleagues turned up striking evidence that suggests the "mob-on-the-street story" -- and the idea that the IMF and World Bank were at least partly to blame for it -- isn't all that far-fetched. According to their research, the IMF and World Bank can and do play a significant role in implementing market reform and infrastructure projects in developing countries -- but often in a negative way. Further, the team found that when the IMF and World Bank are involved in these projects, disputes between investors and the government, government renegotiations of contracts, and even rollback of privatization efforts can follow. The two papers are called "The Worldwide Diffusion of Market-Oriented Infrastructure Reform, 1977-1999" and "Deinstitutionalization and Institutional Replacement: State-Centered and Neo-liberal Models in the Global Electricity Supply Industry."
Before anybody jumps to conclusions, it is a good idea to read what the authors actually have to say, and in what context. They found that there is no doubt that the IMF and World Bank impact domestic policy decisions through their money lending. Why is this important, specially when it comes to infrastructure projects?
The reason, Henisz says, is rooted in their lending policies. Loans from those groups inevitably come along with certain conditions -- and a good degree of pressure -- that can stir unrest among populations resenting what they may perceive to be foreign control over their country. "I think for a long time people have focused on the potential benefits of the reforms," Henisz says. "People thought, 'Well, you just deregulate the market and that's the answer.' But the market part is only focused on efficiency, and people can be resentful that foreign [institutions] are forcing you to make a change. That can cause a dynamic that can have a real impact."
...The old story about the IMF and World Bank -- that "you find firemen at fires" -- is not sufficient to explain the lenders' track record of showing up in troubled nations, the research suggests. "I don't think people previously had talked about that backlash, and the idea that [IMF or World Bank involvement] is not a sign of approval, but a warning flag," Henisz says. "It's not just that these lenders are going to troubled countries and that these countries are more likely to have additional trouble down the road. We're finding that the association with the IMF and the World Bank increases the risk for investors."
...The problem of domestic backlash, he notes, continues to be underestimated. "When we were in Latin America and Thailand and Indonesia, we were there when this was becoming a big issue, and now it's even larger," he says. "We were intrigued and we wanted to be at the center of what's going on. But for a number of Western investors, they haven't grasped the nature of it. You have to do things in Bolivia that you wouldn't do in Texas to sell power."
So why are these researchers so interested in the topic? Prof. Henisz says:
I'm fascinated by this. I want to be at the center of this backlash, learn what's happening on the ground, and figure out what a manager can do to secure investments and, through sophisticated management of political risk and opportunities, increase returns for the shareholders.
Isn't that great?
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