July 26, 2004
Dean Baker and Mark Weisbrot
The Guardian, July 26, 2004
The World Bank and the International Monetary Fund were 60 last week. After 25 years in which most developing countries have suffered weak growth, poverty and financial crises, many wonder whether these institutions have a useful role to play.
There are numerous instances in which the advice from these institutions may have caused more harm than good. However, it is not possible to determine the extent to which the Bank and the Fund can be held responsible for bad outcomes, such as the south-east Asian financial crisis of 1997, the Russian economic collapse from 1991 to 1998 and the Argentine financial crisis of 2001. Did these countries end up in trouble because they followed the advice of the IMF and World Bank? Or were their troubles the result of ignoring this advice? It seems to depend on who is telling the story.
In Washington anyone in a position of responsibility is an expert at escaping the blame for their actions. Sometimes they don’t deserve the blame, and sometimes they do. It is possible to draw the lines so that these institutions, and their staff of economists, can be held accountable. The Center for Economic and Policy Research has developed concrete guidelines that would make it possible to evaluate more clearly the success or failure of the policies proposed by the Bank and the Fund.
The first part of this process requires clearly and explicitly stated projections of the expected benefits of policy proposals. For example, a budget policy should list targets for GDP growth, the unemployment rate and other variables, assuming the policy is followed, and contrast this projection with a projection assuming the country follows its prior course.
Such projections can allow governments and the public to know what gains are expected from a specific policy change, thereby providing a basis for assessing whether the expected benefits justify any near-term costs.
This initial projection should be followed by frequent updates, which revise the projections as necessary.
The updates should indicate the extent to which any changes are due to either the failure of governments to follow the recommended policy, or due to conditions that had not been anticipated. This way, if the problem is attributable to the poor performance of a government, the Bank or Fund will be on record saying so at the time, rather than assigning blame retroactively.
Both the initial projections and the updates should be signed by the economists who design and oversee the policy, as well as their supervisors. This is important for two reasons. First, that economists who design bad policies (or good policies) be held accountable. Economists often argue that it is important to be able to fire workers who do their jobs poorly, to provide incentives for good performance. Presumably, the same applies to economists.
Second, the countries which are considering advice from the Bank and the Fund have the right to know the track record of the economists. Governments would be right to reject the advice of an economist whose career was marked by failures.
Establishing clearer accountability from the Bank and the Fund and their staffs is a relatively straightforward process. Since the well-being, and even lives, of people in developing countries hinge on the success of the policy recommendations of these institutions, it is reasonable to ask that they be held accountable for their performance. At age 60, they are old enough to be responsible.
Dean Baker and Mark Weisbrot are Co-Directors of the Center for Economic and Policy Research.