The World Bank Confesses Its Sins

The World Bank acknowledged that its activity in Russia was useless for about a decade

The World Bank acknowledged in its report that its policy in Russia has been incorrect since 1992. It was particularly said the policy of the World Bank in Russia did not assist in the development of market relations in the economy. This actually helped to prepare the financial crisis of the year 1998 and aggravated its consequences for the country.

Well, as it turns out, we are not guilty of our own trouble. Dishonest hypocritical foreign counselors are. All those things that have appeared in Russia over ten years of reform were developed in a “correct” Russian way, so to speak. It does not take Russian people much to rejoice, really.

Russian media outlets pointed out that Russia still treats the World Bank as a global money bag. It’s like – give us some money and we will decide how to spend it. The Nezavisimaya Gazeta newspaper wrote that the World Bank would like to be not only a creditor for Russia, but a political analyst as well. In other words, the Bank would like to evaluate economic risks from the point of view of the current policy. Does Russia need that? Moreover, the World Bank will now make crediting decisions only if the Bank is sure that political conditions are good for the success of crediting programs.

The new directions of the relations between Russia and the World Bank came up after the profound analysis of the previous activity in the country.  The report of the bank mentions that all its efforts were pointless in Russia during the period of 1992-1998. The  World Bank’s activity never helped to set up the market economy. Needless to mention, that Russia can only welcome this criticism. Yet, the Russian authorities do not hurry to do that on their part, in contrast to foreign bankers. They should, though.

The World Bank honestly acknowledged that it was completely  dissatisfied with the results of its activity. Its influence on the development of Russia in 1992-1998 was rather humble, to put it mildly. The report says that the World Bank’s credit programs were implemented only partially under the conditions of insufficient political will. To all appearances, the Russians had a desire to lend money, but then they would send the money to offshore zones, or invested it in the French real estate.

In this connection, the World Bank is not ready to claim the entire responsibility for the virtual failure of the majority of Russian reforms. Well, it is a correct thing for the Bank to do. The Russians would turn their noses up otherwise.

The World  Bank justifies its  incompetence by claiming that the moment, when the Bank started working in Russia (in 1992) turned out to be a serious challenge for it. The Bank’s specialists did not know anything about Russia at that time. They did not know what to do with Russia’s changing economy. In addition to that, the administration of the Bank now tries to lay the blame on the political leaders of the West. The World Bank had to launch its activity in Russia on account of shareholders’ pressure (i.e. the developed countries, which staked on Boris Yeltsin). The World Bank could not say that it was actually crediting the change of the political regime. All it had to do was to declare the assistance for the creation of market economy institutions and so on. Yet, the money was spent on completely different purposes.

Nevertheless, the World Bank was devoted to its goals. It offered a series of loans for the structural transformation of the economy. It became known later that those loans were basically useless. Probably, Moscow did not know, how to approach the structural transformation of the economy. The government was not certain that there was such a need in that.

By the way, the World Bank showed its worth during the attempts to reform the Russian coal industry. The coal industry currently stays where it was. Market reforms started there after Moscow oligarchs reached it.

The World Bank assures that the international community made it take hasty measures towards a lot of lending projects, including investments or budget support. The Bank’s decisions were not thought-out well, it was not possible to predict their implementation. Risky operations became flops. A bright example of those flops is the multi-billion loan for the reform of the bank system. The World Bank claimed that it did not have the influence, which could overcome political and economic barriers in Russia in the 1990s.

Certain improvements of cooperation with Russia appeared in 1998. This was the period, when the thoughtless funding was replaced with analytical and counseling aspects. The counseling  activity of the World Bank played a very small role before the crisis of 1998. However, this activity obtained a lot of priority for the economic policy after the year 1998. As a matter of fact, the World Bank now works according to the principle “little money, more counseling.” Yet, it deems that Russia does not really expect anything from this international organization.

After a decade of its activity in Russia, the World Bank has learnt that one should pay major attention to all political aspects of reforms. This is the issue, which determines the Bank's strategy towards Russia for the period of 2003-2005. In other words, the World Bank realized that if there is no political will or a strong government, any crediting program will only hamper reforms.

Furthermore, the World Bank will now give loans only after the state government starts adequate reforms. Thus, the Bank will first see, what the Kremlin can do. If the Bank believes that the strengthening of the power vertical brings harm to economy, it will not give any loans. Yet, the latest activities of the Russian government show that the Kremlin does not care about the World Bank’s or any one else’s approval. At present moment, the burden of state loans is shifting over to internal loans.

Nevertheless, experts keep on thinking, if the West uses the World Bank and its new approach to Russia for pulling the Russian government up. The situation has changed a lot. It is now believed that Russia does not raise loans in the West anymore. Yet, Russian officials still consider the World Bank as an investor. The Board of Directors of the Bank approved several loans for the year 2002. They include: the loan for the development of budgetary federalism and the reform of the regional finance system – 120 million dollars; the loan for the development of the Federal Treasury – 231 million dollars; the loan for the modernization of tax bodies  - 100 million dollars. The Bank is to assign $150 million for the struggle with TB and AIDS in Russia.

However, those sums pale in comparison with what the Russian government borrowed  until 1998. The Kremlin will think a hundred times, if this money is worth listening to economic and political recommendations from foreigners. By the way, the World Bank approved 55 loans in the total sum of 12.6 billion dollars as of the end of the year 2001. Seven billion eight hundred million dollars of that sum were spent and 2.4 billion were cancelled.

Kira Poznakhirko

Translated by Dmitry Sudakov

Author`s name Olga Savka