F&D What are your general impressions of the recently concluded Annual Meetings—your first as President of the Bank?
Conable The Annual Meetings are of course a tremendous concentration of intellect and energy devoted to development. When our Governors get together, it provides us with the political momentum for the following year. That doesn’t mean that we don’t take initiatives between Annual Meetings. It permits the review of our work and the rededication of our efforts when those who are actually responsible for the Bank and the Fund come together and exchange ideas about how the institutions are doing, and how the whole process fits together, as seen from their perspective as political leaders. It is a tremendously germinal activity.
I had very few preconceptions about what the Annual Meetings were going to be like, not having been through them before. I was sufficiently occupied in the process so that I did not have a lot of time for contemplation during the Meetings, but I knew by the end that what I had been through was very important to my tenure as President. The whole process was very encouraging and educational.
F&D Traditionally the Bank’s main activity has been project financing. There is now considerable emphasis on policy-based or adjustment lending. Is the Bank equipped to manage successfully this type of lending?
Conable With their pool of talent, their diversity, and their motivation, I don’t doubt that the staff of the Bank are quite capable of accommodating to new challenges. Adjustment lending is a relatively new challenge, although it is not as new as the Baker initiative, launched at the Annual Meetings in Seoul a year ago to help the heavily indebted countries adjust. The Bank for many years has been concerned about the macroeconomic environment in which development occurs. It was already involved with the enormous international debt problem confronting developing countries, and accommodating its policies to that debt. The Baker initiative was important in sharpening the focus of development lending for adjustment and debt management and in drawing attention to the changes that were necessary. As a result of the publicity this initiative gave to the debt problem, we have seen a consensus emerge in the developing and the developed world that economic growth must be the final answer to the problems created by debt in the heavily indebted middle-income countries.
I, obviously, must worry about the ability of this institution to meet the challenges posed not just by large debts but also by other adjustment problems. The problem of development in an atmosphere of heavy indebtedness is, then, a different kind of challenge. But it does not change the basic role of the Bank—we still will have to lend for development, adjusting to major shifts in global and national economic conditions. You can have the best macroeconomic policies in the world, but if the building blocks that support development—sound economic and social infrastructure, for example—are absent, growth will not occur.
Lending for adjustment is going to test us. As the new leader of the Bank, I am concerned about whether we have adapted sufficiently to meet this new challenge imaginatively and efficiently. That is one of the reasons I have announced a review of the Bank’s organization, which I hope will either certify the current structure of the Bank or recommend adjustments that would be appropriate to the new challenge of adjustment lending. Because of the attention that has been focused on this, many people assume the character of the Bank will change in some basic way. I don’t believe it will. Although we will be making fast disbursing adjustment loans of one sort or another, our basic program will still be rooted in project lending. The same skills that are involved in project lending stand us in very good stead in putting together the adjustment programs.
F&D Promoting policy change inevitably involves lending with some form of conditionality, that is quantifiable, monitorable, performance criteria. How will the Bank avoid some of the difficulties that have beset the Fund in this area?
Conable First of all, Bank conditionality is likely to be somewhat different from the conditionality that has been necessary in Fund lending. The Fund is often asked to operate in an atmosphere of crisis, resulting from serious payments imbalances that necessitate rapid, relatively short-term adjustments to stabilize economies in deep trouble. Because the Fund operates in a comparatively short time-frame, and because it operates in an area that is more limited in scope than the Bank’s operations, frequently all the Fund can do is to recommend policies that would produce a substantial and fairly rapid improvement in the macroeconomic situation. This often means a change in the country’s fiscal balance, involving higher taxes or a substantial reduction of public expenditure. Such policies become controversial and may create the kind of political environment in which the resulting austerity is blamed on the Fund.
Conditionality in the Bank is different in several ways: it operates over a longer time-frame and relates to the more comfortable issues of economic growth rather than financial stabilization. I think it is fairly accurate to say that, in a real sense, conditionality has to originate in the borrowing country if it is to be successful over a longer period of time. The longer time-frames of Bank programs require us to reach agreement with borrowing countries on the desirability of maintaining the course that’s being advocated for an extended period. This is quite different from a crisis situation in which a country may be forced to accept heroic measures.
There is always a risk involved in conditionality. That is why a program, such as the one we have just announced with Mexico, involves a number of different tranches of individual loans and a number of different follow-up loans. If we are to get, under the Baker initiative, substantial voluntary lending by the commercial banks, the banks want to be sure that the type of conditionality we are requiring will operate long enough for the economic reforms adopted by the Mexicans to take effect. We would not have been able to put together a viable adjustment program there without the initial reform decision of the leaders of the Mexican government at the highest level. In other words, we could have provided advice, we could have helped design the package, but they had to have the desire to implement the program in the first place. That’s one of the realities about conditionality that very few people seem to understand. It is not something that can be imposed from outside for a long period of time. Therefore, conditionality that goes beyond the moment of crisis has to be totally acceptable within the country which is seeking to recapture growth through reform.
F&D Should the Bank continue to lend fairly large portions of its resources to middle-income countries that could borrow from capital markets?
Conable The Bank has an obligation to all its member countries. Frequently our lending to the middle-income countries is part of the process of attracting capital from many different sources, through the leadership we can provide in coordinating efforts to ameliorate a debt problem. In the heavily indebted middle-income countries, we must do more than lend amounts significant enough to justify the conditionality we recommend. We also must encourage additional flows through the cooperation of export credit agencies, official lenders, and commercial banks, as well as private direct investment from multinational enterprises. All of these elements will come together because we are part of the package; because we have negotiated a program that can give these other institutions some confidence in the economic viability of a country.
Obviously we can’t afford to put all our eggs in one basket. We have an obligation to lend to all our member countries. To do that, we need a large capital base. We need a diverse staff that can deal with a range of problems in many regions. We need to continue to have a portfolio that represents the pluralism of a very large and complicated international institution.
F&D Is the debt problem manageable, given sluggish economic growth and rising protectionism?
Conable Nobody can promise that we will be able to handle the debt problem. All we can do is try to design a program which is most likely to be successful in dealing with the problem. There are those who suggest that maybe the way to handle it is through some degree of general debt forgiveness. My concern with this approach is that it might very well create an environment in which additional lending from the many sources I described earlier will not be forthcoming. If there is serious potential for debt forgiveness, it might be hard to attract additional capital, for instance, from the commercial banks. And, they, with their large resources, must be heavily involved in development financing. It is not going to be possible for the multilateral lending agencies themselves, based on the support that is reasonably to be expected from their member countries, to provide the resources necessary to fill the gap in the capital needs of the developing world. In the final analysis, given the resource flows, economic growth is the answer to the debt problem because it reduces the relative burden of debt and gives countries a chance to earn their way out of debt. It does work, as we’ve seen in a number of developing countries.
I believe, too, that economic growth is not only the best, but ultimately the only, answer for the reduction of poverty. In some systems of government, redistribution of the existing wealth has been tried, without concern about growth. Usually the net result is the redistribution of poverty and not of wealth. That is why I favor economic growth.
F&D Trade is one of the ways countries can spur growth. The Bank has, for the first time, been associated with the GATT negotiations. How will the Bank support the GATT efforts to liberalize trade?
Conable We have asked our friends in the developing world to advise us about ways we can help them participate vigorously and effectively in the GATT round. In earlier GATT negotiations the developing world was either relatively unrepresented—the negotiations were, in effect, primarily among the major industrial countries—or its representatives concentrated on securing trade preferences rather than expanding general trade opportunities by eliminating protection.
We are holding seminars, in November in Bangkok for example, to advise the developing nations of different regions on ways to make their participation more effective at the GATT negotiations. Although we have not yet worked it out, it is possible we will be able to be more specific in our assistance by making staff as well as information available in Geneva during the GATT negotiations. This depends on the desire of those countries to use this support, and also on the Bank’s ability to defray the cost of such support.
We believe that the World Bank has a major stake in a liberal trading system. While suggesting to developing countries that they adopt liberal trade packages as part of their economic reforms in order to encourage growth, we also must point out to the developed world that they cannot close their markets to developing country products. Without an expansion of exports and earnings, we cannot expect the kind of economic growth in the developing countries that will permit them to buy goods from the developed world, or allow them to service their external debts. Our research and publications on trade and development issues, for example the World Development Report 1986, reflect these views and also feed into this process favoring open trade.
To sum it up, there is no way to get economic growth without expanding trade.
F&D Direct foreign investment and portfolio lending is also favored as a solution to ease the debt problem of LDCs. MIGA will help in this direction. Might this not provoke economic nationalism in developing countries?
Conable Most countries in the developing world understand the uses of sovereignty and are quite able to protect themselves. I wish there was not so much expression of sovereignty in the developing world in the relationship with private foreign enterprises. Sometimes countries work against their own best interests by requiring local control of investments from abroad. It is through direct capital investment by private corporations that much of the transfer of technology and skills goes on in the world. Anything that facilitates this transfer is in the interest of a country, whether it is a developing or a developed country. There is every reason to believe that sovereign nations can protect their economic interests without creating preconditions that prevent the generation of economic enterprise within their borders. Many of the developing countries are unduly sensitive about the possibility that they may have to exercise their sovereignty more forcefully in the future. In effect, they may be shutting out technological advances that would otherwise be available to them.
F&D How do you see the adequacy of the Bank’s resources?
Conable The need is great and we can always use additional resources. But I don’t see great reason for concern at this point. At $11.5 billion the eighth replenishment of IDA would be an increase over the seventh replenishment. The probability is, once the bilateral negotiations now going on between Japan and the United States are concluded, that we will be at least at the $12 billion level. During the Annual Meetings we heard several commitments, not specified and doubtless modest, which would provide additional resources for IDA. Exceeding the $12 billion level would be cause for satisfaction in the developing world.
As to the possibility of a General Capital Increase for the IBRD, I believe we will have one when we need it. Although the United States is currently, as a strategic matter, urging some delay in the voting of a general capital increase, its representatives continue to say that when a GCI is needed they will support it. Apparently, most of the rest of the world believes it is needed now. But the US representatives say that the need must be demonstrated through the certainty that our sustainable lending level will be exceeded before they would try to push it through a fiscally conservative US Congress. They feel that in the US Congress a GCI may be imperiled by a coincident increase in appropriated capital for IDA. The question is one of timing and strategy, not one of goal and commitment. We secured a confirmation at the Annual Meetings that a temporary piercing of the sustainable lending level, which is now generally identified as between $14.5 and $15 billion a year, would not be a constraint on lending. We can temporarily go above that level, provided the major shareholders are willing to say that when needed they will support a capital increase. In the meantime we are going ahead with trying to resolve all the modalities of the allocation of capital, before we focus on the time and the amount of a general capital increase.
I think both the IDA and the GCI issues are under control. They will involve, ultimately, an increase in resources available for lending. The lending programs of the Bank should continue to climb—although they have temporarily slowed a bit—because the need will be great, and the dependence on multilateral lending will continue to be significant. While I am not in favor of setting fixed lending goals that would require us to lend a certain amount regardless of demonstrated reasonable need, I expect we will see a virtual straight line increase in lending over the foreseeable future.
F&D How do you expect to influence the US Congress on increasing multilateral development aid?
Conable I’d be inept if I didn’t try to draw on my associations with the US Congress. But that’s a small part of my responsibility as President of the World Bank. The institution must be appropriately explained to people who understandably are more concerned about domestic issues. We must accept the responsibility of explaining our program in understandable terms. I will do what I can to ensure that the institution has adequate resources. American leadership, in that regard, is very important; but the leadership of all our member countries is also critical, so I will be talking with institutions of other governments in addition to the Congress of the United States.
F&D Has the Bank become so large an institution as to threaten its effectiveness?
Conable The Bank needs to be fairly large because it has to include a wide range of skills to provide the types of technical assistance and to organize the complex packages of lending that are expected of us. I intend to test the organization of the Bank through a review which has only just begun. It would be surprising if dramatic changes resulted from this review. The Bank is a historical institution that is functioning, I believe, very well.
I do not have any preconceptions about the optimal size for the Bank, but I do have a feeling that in some areas people are having to work much harder than in others. We hope that through this review we will be able to even out the workload in ways that will be fairer and more appropriate to the Bank’s mission. Let me repeat, though, that I think the Bank represents a major asset for development in the diversity and experience of its staff. Given its success, the burden of proof is on those who would want to change the structure dramatically. I intend to see that it continues to be an effective institution; that means, among other things, elimination of waste. But the Bank must continue to do the kind of job it has been doing. For that we need skillful and experienced people.
F&D Do you intend to travel much in the developing world?
Conable I have some severe gaps in my education about the world. I have not traveled a great deal in the past, and travel is important because we are not just dealing with statistics here. We’re dealing with people, and people live in a wide range of conditions. The projects that are the end-product of our lending and the environment require personal understanding that goes beyond statistical knowledge of our member countries. So, I will travel enough to educate Barber Conable in the sort of things he should know as the leader of this institution. I will not be gone for long periods. My current travel will take me to the capitals of some of our important donor countries in October, in early December to Latin America, to several countries in Africa in February, and in all probability to East Asia in the spring of 1987. Beyond that, I clearly must visit South Asia, perhaps later in the year.
F&D At the end of your presidency, how would you like people to characterize the “Conable era” at the Bank?
Conable I would much prefer to have them characterize the World Bank than to characterize the Conable era. The institution is much more important than any individual’s relationship to it. I would like to have them think of the Bank during my stay as having played a major part in the alleviation of poverty, and in the growth of stability and understanding, not just in the developing world but also in relations between the developing and the developed world.
Long-term development issues
During his speech to the Annual Meetings of the Fund and the Bank in Washington, DC, Mr. Conable spelled out some elements that he felt are basic to the Bank’s leadership for sustained development. Among these, he mentioned some long-term development issues, mainly in the social sector. Here are excerpts from the speech dealing with those long-term issues:
The Bank has historically developed as a lender for investment. I intend to see that we go on to do it even better.
We have seen in Asia and Africa, in Latin America and in parts of Europe, how the foundation for growth is laid in the concrete of dams, in the asphalt of roads, in power and communications lines and in the fertile soil of educated minds. We have seen as well how—on such foundations—the countries of the Pacific Rim have built the momentum for export growth, how the world’s two most populous nations, India and China, have scored their impressive progress.
Basic investments in development, thus, remain basic to sustained growth. That understanding will continue to direct our lending priorities even as we adjust them to mold new coordinated strategies of investment….
With development, most of the extra income earned by the poorest farmers goes to improve their families’ diet. So investments in farm equipment and techniques, land reform, fertilizer, seeds and crop research can be investments in the long-term growth of international commerce as well as in the immediate improvement of human lives.
The Bank will therefore continue to stress agricultural development, from research to production, as a fundamental of sustained development…. we will strengthen our work in all areas, rural and urban, to reflect new attention to the role of population, of the environment and of women in the lives and hopes of the world’s poor.
These are not peripheral issues to development work. They are not frills hastily added to our design for growth.
High population growth rates strain both natural and financial resources.
Environmental neglect destroys assets vital not just to the quality of life but to life itself.
Women do two thirds of the world’s work. They produce 60 to 80 percent of Africa’s and Asia’s food, 40 percent of Latin America’s. Yet they earn only one tenth of the world’s income and own less than 1 percent of the world’s property. They are among the poorest of the world’s poor.
We cannot provide leadership for sustained development without providing leadership, as well, to restrain overpopulation, to balance growth with environmental protection, and to match the contributions women make with contributions to their welfare. We must integrate these concerns into our overall development strategy or risk the ultimate failure of our finest work.
Fortunately, the Bank has already accumulated much of the experience necessary to weave population, environmental and women’s issues into a tighter fabric of development assistance. Now we must put our knowledge vigorously to work.
We should work on all three fronts at once. It is clear that population pressures are one source of heavy environmental damage, so we must provide training to give women the skills to take charge of their productive and reproductive lives. And it makes little sense to fund agricultural extension services and credit programs in Africa that do not reach the real farmers, the women who work the land.
Similarly, where men and women are closer to the earth than they are in many industrialized nations, we should need little reminder of Francis Bacon’s insight: “Nature, to be commanded, must be obeyed.” To keep development in harmony with natural forces and resources, we must apply that lesson on the largest scale—from the planning stage through the execution of every significant project.