15 May 2019

Liberia: An Old Challenge for the New President of the World Bank

analysis

Jim Collins, author of "Good to Great," posits that effective strategies are backed by catalytic mechanisms, turning goals to results. The appointment of a new President of the World Bank (WB) provides the institution - and us - with an opportunity for fresh thinking. During the recent Spring Meeting of the World Bank/IMF, senior management expressed sincere intent toward reducing poverty in Sub Saharan Africa (SSA), including a "moonshot" to digitize Africa. While admirable, I believe we can reduce poverty in SSA meaningfully and sustainably if the WB reinforces its poverty-reduction strategies with four catalytic mechanisms - to convert good intentions into concrete impacts:

#1. Work with the IMF to facilitate the establishment of a sound currency. Inflation erodes capital and undermines the accumulation of savings to fund the long-term requisite investments Africa needs to break the grinding cycle of poverty. The circumstance is exacerbated by Central Banks (CB) which print money to pay for expenses that exceed revenue. This improves the popularity of the government in the short-term, however it sows the seeds of inflation which leads to currency devaluation, high interest rates, and chronic unemployment. In my view deficit financing by CB is the root cause of poverty in SSA. Unless the CB is prohibited from printing money to fund the government far too many will continue to live in poverty.

Recognizing the dangers inherent in CB funding, the Late Lee Kuan Yew, former Prime Minister of Singapore, instituted at independence a rule preventing the CB from printing money to fund the government. He said, "Keng Swee and I decided in 1965, soon after independence, that Singapore should not have a central bank that could issue currency and create money. We were determined not to allow our currency to lose its value. So we retained our currency board which issued Singapore dollars only when backed by its equivalent in foreign exchange." This policy yielded free convertibility of the currency, low inflation, a stable exchange rate, and long-term investments. At independence, one Singaporean dollar equaled one Malaysian Ringgit; one now equals 3.06 Malaysian Ringgit.

The World Bank and the IMF must coordinate technical assistance to implement an independent currency board system in SSA, and link issuance of currencies to the availability of foreign reserves. These actions would result in minimizing foreign currency and inflation risks, and lower barriers to the inflow of long-term capital to these countries.

#2. Prioritize the implementation of Public Financial Management Systems (PFMS). Africa suffers from corruption primarily because of an ineffective PFMS and lack of transparency. A proper financial management system will enable the public to track the collection of public money, utilization in high priority areas, and obtainment of value for money. Serious efforts to fight corruption must be dovetailed with credible mechanism to incentivize officials to strengthen public financial management related institutions, systems, and processes.

"In most developing countries and particularly in Africa, institutions are weak or non-existent which allows corruption to thrive," per Ngozi Okonjo-Iweala, Nigeria's former Finance Minister. "Fighting corruption must be about having the courage and staying power to build those necessary institutions, processes, and systems that take a long time to implement."

The good news is that major donors including the World Bank, IMF, and European Union have endorsed a common evidence-based methodology for PFMS, the Public Expenditure and Financial Accountability (PEFA) framework. However, compliance with the framework is voluntary. This must change if we are serious about fighting corruption. But how? To maximize effectiveness of PFMS related financing, the WB should work in concert with the IMF and the European Union to develop for each country in SSA a five-year Joint Work Program (JWP) endorsed by their respective boards, supported by benchmarking performance in annual reports as a platform for peer pressure to improve outcomes.

#3. Implement consequences for corruption. Citizens of poor countries should not bear the cost burden of sub-standard and irresponsible project implementations by WB staff or/and collusion by senior government officials. Their short tenures in office combined with a permissive landscape that fosters corruption incentivize officials to accumulate public funds as quickly as possible. This can be changed. The WB should leverage its significant authority to change the laws combating corruption and require: I) officials to declare assets upon taking office; II) shift the burden of proof onto officials who possess more assets than warranted by income; III) make these changes conditional for disbursing new loans approved three years hence.

To ensure the compliance teeth, the WB should establish a "whistleblower program" for reporting corruption in its funded projects, financed through a recoverable loan. This should be coupled with an independent regional body empowered to investigate major allegations of corruption, and report findings to the government and the WB's Board. When corruption results from inadequate supervision by the WB, it should be required to write off the related portion of the loan to create consequences for its negligence. Where it results from government official collusion to circumvent procedures, the WB should seek to obtain through the courts funds stolen from officials.

#4. Enable and enforce transparency. Institutions comprised of human beings will always be biased toward presenting their results in the least negative light. To improve candor, The WB should organize an independent survey of Civil Service Society, to measure their satisfaction with the results of WB interventions. They then should provide recommendations for improvements to be discussed by the Board.

In addition, the annual report should prominently feature:

Summary of main conclusions from the survey and the response of management

Corruption resulting from internal management failures and lessons learned

As the late Supreme Court Justice Brandies said: "... sunlight is the greatest disinfectant."

The dawn of a new leader at the WB should bring with it bright new days. Corruption-driven poverty is an ugly stain on our collective humanity, and we must eradicate it now. Mr. Malpass, it's your turn. Please don't let us down.

The Author:

Aboubakr Kaira Barry is the Managing Director of Results Associates, Potomac, Maryland, USA.

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