',' ..

/ REPU5LIC of
TAIWAN
SeClion
Congress adoPled Ihe Taiwan Relatlons ACI
ol'er objeclions of Ihe Caner adminisiration
and Ihe Beijing regime, procJaiming il U.S,
poi ie:' la "preserve and promOle eXlensive,
clase and rriendl)' eommercial. cuhural and
olher relalions" wilh Taiwan, and deelaring
"any error! 10 delermlne Ihe fUlUre or Tal-
wan by Olher Ihan
peaceful means, inelud-
ing by boyeolls or em-
bargoes. a threal to the
peace and securily of
the Westem Paciflc area
and of grave concem 10
lhe United Slates."
Successlve \],5. ad-
minislTations have con-
tinued tO malntain lhe
pOStUTe that Taiwan as
a politieal entity does
nO! exisl. Foreign poli-
e:'makers in lhe Uniled
Slales and elsewhere,
in assessing lheir
The Fu Dramaic .... ns Academy performing he opera
Kuej\'ins."
China policies, would
do \\'elllo eonsider thal
Taiwan is prosperous,
eager la parllclpale in
international activilies
lion Organi1.alion responds la Beijing's in-
lereSIS, bUI hardly lO Ihose of Ihe imerna-
lional communil)'.
Anomalies like Ihis are relies or Ihe
Cold War, as is U.S. poliev lOward
Taiwan.ln 1978. In arder 10 enlis( maill-
land China as a coumerweighl 10 Ihe Soviel
Cnion, Ihe Uniled Slales agreed la Bdjing's
condilions hal il sever polillcallies wilh
TJiwan. Concerned ror Ihe island's rUlure.
.......
ando nOI nsignificant-
Iy, Ihe flrst democralie sociely in fOUT lhou-
sand years or Chinese hislory. It would make
u rormldable ally or lhe United 5lales and a
welcome addition to lhe world corrununlly.
Han'ey Feldma.! is l'iu Presidm/
A.wss, Lid., a W<lSltillg/M, D.e.. 'M.wl/
in!! flrm: prL'I'iulIsly, I\'as ambassador Ihe
UI/il,'d ;\',lIioJ/S .!JJd a Chilla and Taiwan specialisl
i/J /11.' SI.U.
The \Vorld Bank:
Is 501ears Enough?
He11} OWeIl
A CHILD OF WAR, A OF PROSPERITY
OF GREAT SER\'ICE initsfirsrso:'ears,the\VorldBankGrouF\
render even greater benehtS in irs next 50 years unlike mo,t
tutions, it can adjust ro ,he \'ast changes that have occur,ed s; oce
founding. These' changes require the \Vorid Bank Growp to m.
substantial policy and posture shifts. To examine such ohirt, \\'is
one must first look at the record.
In countrv afrer eountr\', ,he \Vorld Bank has made a
To take but example, 'i:s aid has beel1 a major factor ir.
India agrieulrura1ly self-sufficienr. \Vhen th;J.t \'ast realm beC2
independent after \Vorld \Var 11, it had endured a tragic \\'an:
famine, which was rene\\'ed e\'idence of the fragiliry and illadeqc.:
of its agricultural system. Since then, large-scale financial and te
nieal assistanee by thc \Vorld Bank has gready strengthened 1 nc
agrieulture by inereasing food production, expanding resen'es,
improving distribution, Ir has transformed the lives of hundred
millions of peopIe on the Indian subcontinent. And by relie\'ing
H E R Y O\\' E!' has scr\'ed as Ambassldor'at- Large in charge of U. S.
Economic Summit preparatio/lS, He is now a Senior Con5ultJnt ro
Saloman Brothers, and Ca-Chairman of he U.S. Brerton \Voods
Committee, and a of the inrernarional Bretton \VOOd5 Com-
mission, which recently published a repon on rhe furure o( the Bretton
Woods instirutions, The views in this anide are his own.
HOlry Oa'm
pres.sure o" India"s food p,urchases on \\"orld supply, the \Vorld Bank
has lmp:o\'ed rhe global lood situarion and, as a result, inrernational
economlc prospects.
This sequence of e\'enrs illustrates a broader point. The world
economy \\";nt a.frer \ Vorld \Var II, rarher than receding as it
dld after \\orld \hr I, In pan because the Bretton vVoods instiru-
rions-the \ Vorld Ban).;,l and the International Monetary Fund-met
he need for inrernational banks of last reson. The absence of such
in rhe 1930S prolonged and deepened the Crear Depres-
SlOn. Alter \Vorld \rVar n, most of the world lacked investment cap-
Ital. Go:'ernmenrs, excepr for the United States, could not provide
rhat capnal; they \Vere too poor. Private financial markers were small
and The :Vorld Bank nlJed sorne of the gap. \Vith guaran-
tees from ltS foundmg gO\'ernmenrs, the Bank was able to raise sub-
stanrial fund:, which it put to good use in restoring a devastated
\\'orld. Then lt took on the greater and longer-term task of spurring
development. The Bank's operations grew in scale and
d!\'ersny, and the benents of its \Vork spread around the globe.
)\;E\\" CHALLE:"GES
O \. E. R Tl:-'l E.. two denciencies in this \Vork became evident. Since the
n:oney was largely raised in printe markets ar market rates of
Interest, ns loans \Vere necessariJ)' extended to borrowers at those same
rates .. Such rates could not be paid by certain poor countries, parricu-
In South Asia and Africa. 'fhe International Development Asso-
claDon was created as a remed)' in 1958. Its Ioans were subsidized bv
donor governmentgrants to the IDA, and thus be made at
market rates. The IDA's success is reflected in the fact that the number
of Countries requiring such "soft" loans has steadily declined, due in
part to the development assistance received from the IDA.
1 Th, t<rm \Vorld B.nk h .. long been used to "fer ro rhe lnrernorion.l Bank lor
Rc:constructlon lnd, Jnd its subsidiJ.ry instirution. the IntcrnltionaJ
Dcv,lopmcnr AssoCl.tlon. Th''li insrirurions, rogerher wirh the International Fin.nee
and rh, Multilateral ln\"esrment Guaranree Agency, are known as rhe
\\orld B.nk Group.
F O R E 1 G r--; :\ FF Al R S . lo/u':'., a .'vo.J
The World Bank: Is 50 }can El1clIghP
.:'-10reo\"er, the \Vorld Bank was founded at a time when gO\'ern,
ments were the main economic aerors in the world. The raer that the
Bank was prohibited by its anicles from making loans that were not
either directed to or guaranteed by go\"ernments initiaUy posed no
problem. As private secrors grew in developing countries, howe\'er, ir
became clear that the \Vorld Bank Group's
effectiveness would be limited fit could not find The \ \ 'orld Ban k
ways ro help that sector. This led to
the founding of the International Finance Cor- \\'as a key pan of
poration, which is prohibited from lending to
anything other than private entities, and which
can also invest in these entities. More importanr,
rhe 'green re\'olution'
rhar eascd famine in
it serves as a catalyst in mobilizing the debt and de\'eloping counrries.
equity resources of private entities in the indus-
trial world to join the lFe in aiding de\'eloping counuies. The ::'\lulti-
lateral Guarantee Agency was created for the same rea,
son, and ir is now operating on a large scale.
There were other important changes in the \Vorld Bank Group 2S
it grew and learned from experience. A couple are \\"onh special men-
ton. The World Bank has played a growing role in stimubting and
coordinating research and development of new technologies that ha\'e
proven to be especialJy relevant to de\'eloping counuies, panicularl:'
in agrculrure. The \Vorld Bank's agricultural research coordinating
group has contributed much ro the "green revolution," which con-
tributed so much to economic growth in the developing \\'orld.
Inereasingly, the Bank also coordinares the actions of other donor
agencies and governments. lt periodicalJy convenes and chairs coun-
try comminees of these donors. Such meetings have helped to convert
unrelated national and multilateral aid programs for such ke:' coun-
tries as India into reasonably integrated inrernational efforts.
Further coordination wil! be needed of bilateral aid programs,
projects of regional multilateral development banks (:-'lOBS), and
World Bank effons-particularly in Easrern and Central Europe,
Russia, and other former Soviet sta tes. At present, close contact
'between MDBS and bilateral aid programs directed ro Eastern Europe
appears to work. In some cases, however, avoidance of duplication is
F o R E 1 G N A F FA 1 R S . S,p",mh(rIOctoa 199-1
not enough; integration of specinc programs is necessary. For exam-
rle , assembling the huge tunds neededto J1nance rhe building of new
'O\I'er plants in order to replace or upgrade dangerously outmoded
:lllclear power plants in Eastern and Central Europe and the former
SO\'iet mtes requires the combined efforts of the V/orld Bank, the
; FC, he European Bank lor Reconstrucrion and Development
(EBRD), and the European Im'estment Bank.
For this, some new, tighter ad hoc means ofintegration should be
,ought. The question of coordination of aid also arises in regard to the
:egional de\'elopment banks, So far the coordination bet\veen the
\ Vorld Bank and the Inter-A,merican, Asian, and African develop-
ment banks has been informal. The \Vorld Bank Group needs to take
a larger lead role in ensuring that this coordination is effective.
_ One reason the \Vorld Bank has been able to play the varied, use-
tul, :lnd inno\'ati\'e roles described above is that it is well sraffed. The
caliber of its top management and start is high. The attractions of
international sen'ice to humanirv and hiah salaries have helped in
. o
this regard. Its beneJ1rs are only panl)' offset by the internal man-
agement. so \'i\'idl;- described in the publicly anilable
repon 01 \Vllh \Vapenhans. a high-le\eJ \Vorld Bank official: too
man}' comminees, too much paperwork, too man)' clearances re-
quired in \Yashington, and too litrle inspection of ongoing projects
and other tollow-through in the field, Steps to remed)' those defects
3.fe being taken, but wiU take time.
Sorne critics argue that too much of the Bank's work has been
on projects. The. appropriate response to such a criti-
clsm 15 a questlOn: Ho\\' does one dam a great river, so that irrigarion
and power will be a\'ailable to poor farmers, without constructing a
large project? The Bank's projects should be judged not by their size
but by their effects, Does the project help or hurt in the war against
poverry? In many regions, the Bank's projects clearly have helped. Per
capita income ofboth rich and poor people hassubstantiallv increased
in the countries that have received the most Bank aid. answer is
les,s clear in s?me African countries, and there the Bank's strategy is
bemg reexammed. In other African countries, progress is being made,
and the Bank's loans seem fo have helped.
F o RE 1 G N A F FA J R S ' Voltl/I'" 7J No,s
The World BanJ:.: 1s 50 lcors Ent;/igh?
C H A :-.: G E S 1:-': C LI E :-.: T S ,>.:-.: D D O :-.: O R s
.\:-10!"G TH E \Vorld Bank's clients, a signihcant nU:TISer of e:nerg-
ing market economies, particularly in Latin :\merica ana Sou,he3st
Asia, have made sufficient progress that the)' can increasingl)' rel)' on
private markets ro finance their growth, .\105t ofthis hnancing comes
from the industrialized world; sorne ol ir comes from \\'ithin these
countries, where stock markets have expanded signif1cand;'. In those
countries, governments are no longer the main economic Jctors in
nonfinancial sectors; increasingly, manufacruring and sen'ice indus-
tries are being privatized.
The Czech Republic, Hungary, Poland, SloYakia, and Slo\'enia,
among rhe countries of the ex-communi;t \\'orld, ha\'e embraced nor
only poltical democracy but also market-oriented economic s:'stems.
The \Vorld Bank and the IFC have moved \'igorously to help the go\'-
ernments and priva te sectors of those natiom, so hat economic
improvement can follolV and reinforce political change .. \ltnough
those countries' economic problems ha\'e not been soh'ed (wirness the
recent victories by ex-communist parties in Hungary and Poland),
substantial progress has been made. ?vluch more progress wilJ be
needed if those revolutions are to be preserwd.
The changed economic siruation in Eastern and Central [urope is
verv different trom that in Russia and other former So\'iet ,tates.
After some seven decades of communism, Russia and other former
Soviet sta tes have lagged behind the rest ol the \Vorld much longer
rhan has Eastern Europe. As a result, the economic outlook in Rus-
sia is more uncertain: the difficulties and the needs greater, the per
capita capacity to absorb im;estment is less, and the local capital mar-
kets are les s de\eloped. So it wi11 be more difficult for the \Vorld Bank
Group to hasten economic progre ss in Russia and ,he other former
Soviet states th,m ir has been in the Visegrd counuies,
China is a \Vorld Bank client in which there has been trul;' revo-
lutionary economic change. Chinese skilJs and entrepreneurial talent
are now being given a ooser rein within the imits set by a gO\'ern-
ment that is largely bent on preserving public ownership of sorne key
mean s of production. China's political uncertainty may cast a shadow
F O R E 1 G N A F FA J R S ' S"""",ha/Oaoha 199.1
-, .. !. -, ;--
oler roe long-rerm economic outlook. In rhe me:lntime, the great
economic progre ss being made in China is the biggesr challenge con-
fronting the \Vorld Bank Group, and ir is one rhar rhe Bank's gO\.-
ernment-centered tradirions are ,,"ell suired to meet.
Grear change is also nidenr in 50uth Africa. The \Vorld Bank is
at the hearr ofboth public and pri\ate international effortS ro help this
renewed countr:'. for success are reasonably good, gi\en rhe
conside!"able ralent and infrastrucrure available there, so long as mod-
erare fiscal, economic, and political policies
are maintained and so long as rhe \Vorld Bank
can sta)" the course. Privare investment from
abroad will not take irs place until rhe poliri-
cal outlook is more cerrain.
lhe \ \ cxld B:lllk
e rou p's Jll ission llo\\
illclucks P3.lesrine and
Llsrcm Europe.
The \Vorld Bank Group is also assembling
an international group of donor countries and
agencies to help the new Palestinian enriry
rhar Ilill emerge on the \Vesr Bank. The object is ro exploir rhe sub-
stanrial skills and assers in rhis region ro complemenr and reinforce
he recenr unexpected polirical progress there \Virh necessary eco-
nomic adnnces. The obstacles are enormous, bur rhe promise of its
Jccess ro he rich Israeli market1s also considerable.
T\\'o conclusions Ao\\" from rhese changes in client counrries.
.\Jthough prinre sectors and capital markets in developing counrries
are grolling, an effective \ Vorld Bank Group is still useful. The Bank
is needed ro help the public sector (panicularly in health, educarion,
and inlrastrucrure), even in rapidly growing countries, and rhe Fe is
needed ro help the expanding 'private sector. If )'OU add the new
requirements in Central and Eastern Europe, Russia, other former
SOIjet srates, China, South Africa, and Palesrine to the ongoing need
to help eradiclte pOlen)" in areas such as 50mh Asia (which is mak-
ing progress) Jnd A.frica (which is nor), a srrong case for
a continuing and effective \ Vorld Bank Group emerges.
The second conclusion is that although the narure of rhe \ Vorld
Bank Group services needed wi11 vary from country to country, rhe
changes transforming man)' of these countries have this in common:
they will greatly enhance the"roles of privare sectors and reduce the
FO R E 1 G:-.J A F FA 1 R S . l.'ol""''';j .\"0.5
Sel\" {rom Ihe InlernalionaIHonC'lar,\ Fund Order no\
Building Sound Finance in
Emerging !llarket Economies
Erll//'II b.\G(>rilrrf Ctiprio. Da\irf FolJ./'rl ...LanrfJu. anr! Timolhl U '-arw
T
he 12 in booh e.\plure i,:,ue:: in building d nndnciJI ,:: .
,uililhle ror el"onumles In lran,iliun. Thc\ ("Oll'r rour m.;ln IOriC" :.'1<,
nr 1I1(1 ,no rtehls: Ihe (jel ell;pnH'nl nr a ,nuno Jnc1 "!T".:('!
p;"ml"lll ""I('m: lIl!' c"I;lhli,hnlt'1l1 nr ,In .1ppr"pri;lIr nn;nri;1
lhe ul endll In lhr ol"lrloprnl"nl nr Ih(' r(,JIl'cunum\.
In F:nglish. :J37, pp. PilPer) 199-1. ISR\ 1357753806 lSS27.)O. 11 B:'ITI
[rfilc!! b\ Robt'rt C. EITro8
\
V
CJluml'" conlalns lhe colleclen lie\I, or anrlll'i!a.ll'\lt"rl"
Il Ih\' ,("minar on crnlr1 !:clln;1 el'U:>':.'
\1lln" nr holh inlernalional ancl ronrprn are
L------'- anall7.e.lopirs rrom or inlernJlion,ll munr::,:,. :.
II) ;,:prrl:; tlr lhe nrhl cri* Jnd Ihe role (Ir inlernJllonal nnJnri;J in-lllul,,,n.'
; h;nkln!.! dl'\('lopml'lll': In :11<' Inill'll :'1<11\',. Ihe lnllr Ihe I:nmmlnlll dnli
t'1,w\ll1l'rl'. d('\l'ltlpm"IlI': !llhl' anrl lO nWnl'\
.\I;lil111r il1 Engli:;h. 1:;:>",1111;, 1 # n.1 \1"\1
'\ The PaJment SYSlem: Design,
and Supenision
\
fllilf'rf b\ BrtJ("(' J. SlImm('rs
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iiI" Ihe ('lIl1nlrll',.; Ilr 1111' r"rml'l" 1
\\II"hl( i 1I Engll,:li. :! 1 pp. (P;IJIt'r) 1 1:-; 11 \ 1':;:;" :;':IHti.)
10 ord('r. plras(' IIl"lIr al" CHI/:
Inlrrtlilllonal FUIH1
Puollcilllon Sen
Bo\ \1:-n17o() l!ltl1 Sln'l'!. \.\\.
Telepl1one: (202)
Telera\: (202) n23 no I
Clllll' I \ D
11l1(',.ir;11I 1/,I'{("r(,';/lrf .
11.' I __ .4, ...... , ,
World Economic
Survey 1994

"II'h,le lhe prospecls lor Ihe k'orld economy
clcarl." lurned for Ihe berlu in earl)' J 994,
Ihere can be [jI/le room for complacenc.\'."
Ihe 1994 Sur\ey,
.....
The fa,ing counlries worldwide is 10
Sieer Iheir c:onomies onlo a sustainable growth
v.hik mo\ing inflalion. unemploymenl and
"ilhin a::,eptabJe limils.
This \ car' I edilion of the World Economic
Surl el iore:Jsls a 2 q economic
In . Ihe flrsl significant
In four : carl, Thal is. howe\'er, s!i1J weaker
Ihe a" erafe of Ihe 1970s and 1980s, The
e;;o:1om: oi Ihe Uniled Slales of America
lemain, a F::ll source oi oplimism ""hile lhal of
ilnd lome of Ihe olher countrles of Ihe
lormer SOl'Iel L'nion gro\\'s more dim. with
(lUIPUI "pecled lO falJ Jeain in 1994, The
Surle) illso Slales Ihal already high
unemplo: ment rale is expecled lO increase even
more anJ SolUlions 10 lhis problem mUSl remain
high 011 lhe policy agenda of govemmenLS.
For an indeplh discussion on lhe economic
Illuillion in de\eloped. de\'eloping :md counlries
in U'ansilion: current dCl'elopmenls and policies:
inlernolional Irade: global employmenl: and
e,onomic Jnd social conlequences of
f'<'pulJlion Jlnilmics be sure !O order Ihe World
E"llnomi, loda:.
[,9-11/ el 921091::84 555,00
World Investment
Repart 1994:
Transnational
Corporations,
Employment and the
Workplace
Unemployment. a subjecl high on the agenda
of go\'ernments world-wide, is the spedal
focus of this year's Repor\. It analyses the
wide-range of effecLS of the aetivities of
lransnational corporations (TNCs) on
employment and shows TNCs as major
employers creating over 70 million jobs world-
wie and al so conlribuling 10 employment
indireclly through a variely of linkages. lt
discusses Ihe implieations for the quantity,
qualily and localion of the jobs generaled by
lhe increasing transnationaliz.ation of fjrms and
the emergence of more complex eorporale
stralegies.
The Repon also discusses lhe conlinuing ,
growth of foreign direet investment O
developed and deveJoping countries which
oceurred in Ihe midst of a conlinued decline in
world-wide investment flows. 1t reviews
policy changes and lhe enabling environment
10 promole foreign direct investment.
E.94.Il.A,14 92-1104435-9 $45.00
Send orders tO:
"
United Nalions Publicalions, Sales Seetion, Room DC2-0853.
Dept. 163A. New York, N.Y, 10017
Tel. (800) 2539646. (212) 963-8302. Fax. (212) 963-3489.
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3
The IErld Bu nk: Is JO l 2.; /.< E
roles of gmernments. T!1e rehri\'e size ol he Ol \ \'or:2
Bank, which can only deal with go\'ernment3, JnG rhe ;rc, \\r:ich
only deal with priva te entities, may thu5 e\'enruJ.lJ:' be !'\'er<eo in
most rapidl:-' growing countries. These include, .15 nored. cen.'::'
Latin _.\merican 2nd Souheast counries :1:10 SO'Jth ("fe.l.
India is also on its wa\.
The dramatic gro"'th of the pri\'ate sectors in donor co'Jn:;ies \\'35
the force that radicallv transformed the internaional economic Or2c:r
over the last 50 years, In the industrial counmes. pri\'are marke,<
can now mobilize \'ast sums of mone\, and mo\'e them b.lck anG ronh
over great distances in a maner of seconds. :. 10re and more ol the neeo,
of the most advanced de\'eloping countries \\'ill be met b: pri\'3te i n\'e5t-
ment banks, commercial banks, im'estment truStS, per.sion tl.Jncs,
insurance companies, and other large sources of pri\'ate capital in rne
industrial world. The amount of pri\'ate clpitJ.l no\\' mo\ing
industrial ro de\'eloping nations, although bs han hat \\'hicn circu-
lates within and among de\'eloped countries. d\\':lfis rh.lt mo\'ing iro!l1
the \Vorld Bank Group and other multilateral de\'elopmen bJnks
In eft'ect, the financial po\\'er that was once wielded b:' gO\'e;n-
ments has both grown and been dispersed. Pan of tbt po"'er has
gone ro such supranational instirutions as the European L;nion; P:1;
has gone to subnational regional instirutions; and.l large pan hJS gone
to private businesses and, ro a lesser e;.;ent. :lOnprot org.lnlZHio!:<,
The \Vorld Bank Group must therefore shape its turure in a \\'orlC
where the nations that are its shareholders are no longer all-poweriul.
Ir must respond ro the claims and \'iews nO( or.ly oi the n3.tion.u gO\'-
ernments that created rhe Brenon \Voods instirutions, but also o;'
other governmental and nongovernmental organizations ("cos) in
both donor and recipient nations.
.'\ D J U S T 1 :--.' G T O e H .-\ :\ G E
TH E \VORLD Bank Group faces t\\'o o\'erlapping challenges, The
immediare one is ro make the \Vorld B3.nk more responsi\'e ro he
needs of the private sector in client countries, eruarge the role 3.nd
resources ofthe lFe, and mobilize more private capital ro complement
F O R E 1 G:-I A F FA 1 R S S,p"'m!'cr.'O"o;.,'r /QV'
Hcmy O'U:cn
both \Vorld Bank and Fe operations-all the ""hile taking greater
of environmen:al considerations,yromotin.g greater
10 \ \orld Bank operanoos, and othef\\'lse reflectlng rhe VlewS and
interesrs of rhe nongo\'ernmenral organizations that now do much to
',hape rhe international economic scene. A rougher challenge, ro be
taced 10 the nexr cenrury, is ro decide how much ro reduce the role oi
Bank and the Fe in rhe face of growing private financial
instJCUtlOns and markets in both donor and recipient countries.
One wa:' :neering the Bank's first challenge would be through
amendmenr o JtS articles, which prohibit loans ro the private sectar
The \ \'orld Banh:
Illusr bccollle more
respollsi\'e ro rhe
prI\'Jtc sector.
unless they are guaranteed by governmenrs.
However, such a move might trigger pressure
to amend other articles and thereby endanger
the Bank's effectiveness. AJternative wavs exist
for the Bank to help the priYate secta'r. As a
precondition for lending to governmenrs, the
Bank couId require governmental actions-for
, example, tax reform and privatization-that
aSSlst rhe pri.\are sector. The Bank is alread)' mO\'ing forcefully in rhis
prorrmmg dlfecrion. And rhe Bank can single out for special attention
that \l'ill more directl: assist specific privare \entures. Ir can,
:or o:ample, help finan ce gO\'ernment-owned transportarion and util-
mes in regions where rhey are needed for new business and manufac-
ruring ventures. This "'ould be in addition to the Bank's support for
natlon"'lde healrh and education programs that help create an envi-
mnment conducive to progress i both the private and public sectars.
A.nother would be for the Bank to secure performance
guarantees, lnstead of repa)'ment guaranrees, [rom governments in
reClplent counrries, and rhus help the lFe to lend to private ventures
",hose prospects are improved by those guarantees. Finallv, the Bank
can gi\'e substantiJl aid ro intermediaries, like governm"ent-owned
del'elopment banks, which help the pri\,;te sector. This has been done
and has been usefu!. In sorne cases, however, it has drawn criticism on
the grounds thar such intermediaries compete with private banks and
thus retard growth. "
These examples illustrate a general poine. The Bank can help the
FO RE lG N AFFA! RS' (/umi73,vO'5_
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priva te sector, even withour amendmenr ot' its arricles, it' the:-e is
change in its traditionaJ culrure, which has tenced to focus on gOHrn-
ment projects. This, of course, requires a com'iction on ,he pan of he
Bank's management and sraff rhar helping the prinre sector is ,heir
highest priorit) in emerging marker counrries, ,-\ho, ir requires rhe
Bank ro rel)' increasingly on securing cofinancing from pri\'Jte sources.
In Russia and other former SO\'iet states, ,he Bank's eiron, to dunge
the recipienrs' poLcies toward rhe pri\'a!e sector wiU be at le3.s! :!s
important as its to deliver more resources to go\ernmenrs.
The IFe, unlike the \Vorld Bank, can make both equir)' in\'esr-
ments and loans wirhin the pri\'ate sector and can put together deaJs
involving pri\'ate banks and other financial insrirutions to le\'erage its
limited capital. lts record in doing both is so impressive that pri\'ate
capital markets have allowed it tO raise mane)' on terms al least as
favorable as those secured by he seemingly more consen'atiYe \ \'orld
Bank. The lFe's resources are now adequate, but it, tasks are muli-
plying rapidly, particularl)' in the financing of po",er, telecommuni-
cations, and transportation projects. Those needs are great and gro\\'-
ing in developing and ex-communisr counrries. Experience sugges:s
rhat the:' can be mer mosr eff1cienrly under pri\'are o\\'nersf\ip
managemenr, If rhese growing infrasuucture neees are not mer, eco-
nomic growth wiU be retarded in these counnies.
Even if due precaurions are taken to 3.\'oid IFC comperi:ion "'lth
pri\'ate financial instirutions, vast sums \\'i11 be needed b:-' the Fe The
lFe can finance pan of his increase by its recent mO\"e to\\'ard J gear-
ing ratio that requires less reserves for irs operations, by reshurrung irs
priorities, and by securirizing (selling off) sorne o its high-qualiry
loans and investmenrs. Bur rhe lFe would probabl:' Jlso need Ole\\'
mone\' from the \Vorld Bank or donor cro\'Crnments if ir \\'ere ro
:::>
expand its acti\'ities beyond rhe planned 10 per-:ent rate ro, sJ.:, pero
cenr. The expansion ofinfrastrucrure fin,lncing wiU De ;l nujor .l.:W'
in deciding \\'herher this happens.
There are severa! \\'Jys this program can be Exist,
ing FC programs could be enlarged, or the Fe could ]aunch a glob:J
infrastructure fund in which other multiJaterJl de\'elopment banb
and private financia! insti tu tions could invesr. Alterna tively, the 1 Fe
F o R E 1 G:-' A F F:\ l R S ' S,p,.n;,,'r. O.:<I,,'r ,,,,;.;

j;"d [he EBRD could creare and manage an infrastrucrure fund
LOor [astern and Central [urope and the former Soviet states. Such a
fLl:1d cOld help ro finance new power planrs to replace dangerous and
O\_::moded nuclear po\\'er plants in these regions. If a Eurapean infra-
SrrU(TJre iund were created, ir could be followed by rhe IFC'S creation
of infrasrrucrure funds in cooperarion wirh rhe Inrer-American and
.-\5ian de'-eJopmenr banks for projecrs in rheir respecrive regions_
In all such infrasrrucrure funds, private participarion and invest-
Olent should be sought. The objecrions of private invesrors ro rhe
\(hice fmm rhe
hcedc:ci-ifir is
,HLlched ro
long-term 10ans required for infrastructure
financing mighr be alJe'1ared by greater use of
the \Vorld Bank's guaranree authoriry, not so
much in pro\-iding guaranrees of repaymem as
in prm-iding guaranrees of performance.
EvenrualJy, external financing ofinfrastruc-
rure and almost alJ other profit-making enrer-
prises, in alJ but the pooresr counrries, can be
pro,-ided by privare financial markets. Even in the long term, however,
rhere \\'ill be a continuing need for sorne \Vorld Bank Group programs.
There wiU be governmenrs rhar prefer,dealing wirh the World Bank
and some counrries rhar only the \yorld Bank will be willing ro take on.
\\'hen peorle suggesr that rhe Bank should evenruaUy limit itself ro
J.d,-ising clienr counrries, \Ve should remember mat me Bank's advice will
be taken more if ir is accompanied by loans_ Ir will be a long
rime before rhe private markers can finanee the health and education
programs mat the \Vorld Bank now supportS in poor and rapidly grow-
ing developing countries. The IFe will remain the preferred means of
aiding rhe private sector in countries where poltical risks deter man)'pri-
'-ate lenders and imestors.
The IDA will remain a special case. Ir offers loans below market
rates and must therefore be subsidized by governments. Their desire
ro make these transfers is waning in the faee of budget stringeneies.
The need of sub-Saharan Africa and certain other regions for aid on
concessional rerms wiU conrinue. 1 t ma)' be necessary ro raise the leve!
uf transfer payments ro IDA, if poverty in sueh regions is ro be over-
come bv new investmenr.
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'O"-_-\RD EFFECTJ'-E COOPERAT:O\'
\VITH l-':CRE.-\Sl-':C on pri,-a:e LO
cial resources ro the de,-eloping ,,"orld, ,he quesrion Jrises 3S ro no\\"
the\' use their resources_ Do rhe,- help ro che re(ipier;, -:ou:llJes'
nee-ds, or do rhe:- merel:,- multiFl:- ,heir 0\\0 \\e31,h: In r-JL, ir i, h,;:--=
to do one witnout oina he oeher. Ii Jrl ,iel -=s :1
_.
rerurn, rhe goods and sEn-ices hat it produces musr mee J b:-;e
effective demand_ The market aene;-2..lh- rew:Hs '-entures EC(),C1I::::
.
ro their economic usefulness_ So a prinre :=:nJ.nci:1..l ir.s:::-Jio;- ::-,:
responds ro the market is usuaU)- doing not onh- \\-ell bur good_
The increasing shift to pri\-a te sources or- oe,-e lorme;: :;,l:le i::;
",iD thus not cause as grea a change in the prioriies ot" elC::er JCJ:'o;
or recei\'ing counrries 3.S might be supposed_ This is aU he more ,rue
because of the growing role of nonprohr and nongo,-ernmenul o:-p-
nizations in the pri,-:te secror. Increasingl:', the\- share tne e:l,ire':-
menr in ",hich borh multilateral de\"Clopmenr b3:1Ks JnJ -or-p;-o;-;
financial institutions must ",ork_ -':GOS are not ne\\"_ \ \'har is ne\\' is he
crrO\\,th in manv countries of a Jarae, reasonablv ",ell-oIl eoucatcci
o _ o-
middle cbss that leads and suppom tneir \\"ork. championing such
causes as famil:- planning, the em-ironmenr. Jnd he role o!-\\'omer: 1;:
economic developmenr, doing so IllL,re ofits :n_':
because of economic self-inreresr.
\Vorld Bank policies Jre nor ro ch_inge ;S Llpi21: .15 SO;l;C
:--:GOS want. The oprimum babnce bet\\"een 2.nd
antipoverrv croals is nor alwa\'s clear. This, along \\"irh rhe slo\\- p:Jee
, o '
at which a large organizarion like rhe \Vorld B.mk Group can changc
its policies, e\'En when the merit of change is clear, has led sorne
American :-.:cos ro oppose continued approFri.Jtions tor the \\'orld
Bank Group_ This :mirude poses a threar not ro the Bank but ro
the IDA, sinee there are serious objectiom to its conrinued
fundina because of tiaht budaers in the donor countries_ \"co oppo-
o o;:,
sition, added ro rhese objections, (ould push the IDA o'-er the edge,
which would help doom -at least 100 million people in .-\.icJ ro con-
tinued economic stagnarion_
NCO criticism of the \Vorld Bank is but one example ol:J more gen
F O R E 1 G:-": A F FA I R S ' S,t1mdw, O ..:";,,, IQQ.J [lO- J
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eral phenomenon. The \\Torld Bank Group does not have much of a
cons:ituencv, ar Jeast in the United States, where its work is lirtle
kno\\"n or understood. The result is that there are often pressures for
m.ning less emcient ad hoc aid programs to do what the \\1orld Bank
Group is already well-equipped to do.
One \\'ay for the \Vorld Bank Group to se cure rhe public suppon it
needs would be for it to be more open and disclose information about
its \'ie\\'s and deeds. This is no\\' being done. The Bank must also seek
to create new and closer relations with !'iCOS in both donor and receiv-
ing counuies. ;-\ot onl)' do views deser:e attention, NGOS can
sometimes \\'ork with rhe Bank in shaping and executing needed pro-
grams, as he)' are no\\' doing in some developing countries.
O\'er rhe :'ears, the \Vorld Bank Group has been criticized from
the rignt for preferring public-sector projects over private-sector
devclopmenr. Of late, more pronounced criticism from the Ieft has
contended that the Bank pa:'s too little heed ro the "Iittle man." The
record sno\\'s otherwise on both countS, but a good record is not
enough. Suppon for the Bretton \Voods institutions may not last the
next 50 years, nor should ir, unless the \Vorld Bank Group's ends and
means are radicall)' revised ro keep pace with a changing world. The
time ro stan changing is-
F O R E 1 G N A F FA 1 R S . Volum,' ,-j No,S
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Gern1anv's
Chained EC0110111Y
THE SOC;:\L CO:-:TR.-\CT FR.-\YS
THE FA:-:CIFL'L novel reads, 4, :ce:: Thc
first wor!d's fair in the su?ermodern conwntion cenrer o" he ,outh
Chinese metroFolis has jusc apened." Al rhe center of ,he
perpetuaJ economic such asJapan and the UnireJ St3res h.1\C
ser up their stands. Germany, howe\-er, is nothing :han 3 un;,
unimponant pla;'er relegated ro a far comer. There, its :0
,he world's fair "\\'Jit :lround \\"ith en;bJfrassmenr for 3 cal] Irom
Korean prime mini5ter, , . [he] had import:1r.: comml::l;cn:s, :--',j[ lll'
has agreed ro appear out 0;- old I o;'::!l ty, ,.
This panicularl;' Gerrr.Jn nightmare cf humi!ia:ion
comes from Can !he CcTl7;.ns Sril! Be S,,;,'tJ?, J 199-\ boo;';' b:' HerDer:
Henzler, chairman of:\'lcNnsey Germany, 3nd Lorh:u Spaerh.:1 :'or-
mer sta te go\'ernor and chief execurj\'e of the tirm Je:1opik.
scenario, of course. is exaggerated, Afrer ill, Germar.\ is curreth
bursting out of its recession; 1994 in the new];- enhrged Fdenl
Republic, as in he Unied States. \\"ill go on record .lS J :ear or'
growth, The Deutsche mJrk dominates the Europe:1:1 econor.1\
Time and again since he binh of the Federal Repu:--lic. Ger:l1.';;
leaders and economic :lnalysrs h:l\'e \\'ror.gl; predi(Ced Gn:llJ:1
:1. M I TI' S H E S, J member of he Ii S:r",,: jeurna/ d'!0r:J..! bOJrJ.
wries on economics, She is he Juthor o J bOl,k on Gcrrr,J:1
identir\, C(Tn:,;ny: Th( En:plT( Wilhin.