World Bank involvement in economic reform: "a warning flag"?

• Author: Chafe, Zoe
• Position: ENVIRONMENTAL INTELLIGENCE

The World Bank, one of the world's leading development lending agencies, has long faced criticism about its role in international development and poverty-reduction efforts. Now, a study by economists from the Universities of Pennsylvania, Western Ontario, and California at Berkeley suggests that pressure from the World Bank or the International Monetary Fund (IMF) may actually decrease a country's success with market reforms and infrastructure projects.

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The researchers analyzed telecommunications and electricity markets in 71 countries between 1971 and 1999 and found that multilateral lenders do play a strong, but not always positive, role in pushing domestic economic reforms. Imposed reforms often lack political support within recipient countries, sometimes leading to local protests and leaving investors treading on thin ice. "If you see the IMF and World Bank influencing reforms in a country, recognize that there are risks associated with that," says Witold Henisz, lead author of the study. "It's not a sign of approval. It's a warning flag, and one you have to recognize and deal with."

The economists agree that deregulation and liberalization of formerly staterun industries can, in some cases, improve economic performance. But they say these...