World Bank and Liberia

WORLD BANK AND DEVELOPMENT IN LIBERIA

WORLD BANK AND DEVELOPMENT IN LIBERIA ABSTRACT The idea of Aid commenced with a former Unites States president called Harry Truman. He believed the rich countries could help the disadvantaged countries (the poor countries).His idea was a form pure of altruism. Before embarking on the real contentious issues and other issues, the author of this article in his own discretion, has deemed it proper to first write an overview of the History of World bank and its purpose so as to clearly understand what World Bank is all about. It is one of the Bretton woods institutions .The World Bank and the International Monetary Fund were found by delegates from forty four countries at a conference in New Hampshire at Bretton Woods hence explaining the name 'Bretton Woods Institutions. These two institutions were formed after the Second World War with the sole purpose of supporting and rebuilding the International economic and financial order. At first the World Bank gave out its loans to Western Europe in the late 1940s in order to let them recover from the after math of the Second World War. After wards, the Bank focused with mostly the periphery (developing) states. However, the two institutions are not formally related but they often coordinate in economic activities.

INTRODUCTION

The International Bank for Reconstruction and Development (World Bank) is responsible for the promotion of economic and social growth mostly in developing countries .The assistance in development is done through loans given to governments of developing countries and also technical assistance is normally issued to the same governments. Unfortunately, only countries that are part of the International Monetary Fund are the ones who are eligible for membership in the World Bank. Unlike the International Monetary Fund which offers grants, the World Bank disburses loans that must be paid back. The Bank gets its source of money from the international capital market. The Bank is mostly involved in projects in which can directly benefit the victims of extreme poverty in the periphery states. This promotion of the poorest is mainly done through lending for urban development, agriculture and rural development and small scale enterprises. The poor are made productive due to the help from the Bank which enables them (the poor) in accessing health care, family planning assistance, nutrition, and education, housing and safe water. The Bank makes sure that it does not compete with other sources of finance by disbursing loans to developing countries. The projects which the needed capital is not available from private sector are the projects which the Bank deals with. The aim of the World Bank is to strengthen the economies of the

developing countries so that they can stop relying on Bank resources and directly access International Capital markets. The Bank offers various loan facilities to the governments of periphery states such as Investment loans, Co-financing, Adjustment loans, trust funds and technical assistance. Investment loans are those which their projects are sponsored by the host country government. Adjustment loans as the name suggests are meant to support reforms for economic growth and the viability of the borrower's balance of payments. Technical assistance on the other hand, is a program which provides the resources needed to build up institutions that deal with development success.(Delphos, 1999)

Almost all African countries have received huge amounts of aid from the World Bank. The prime objective of the World Bank is to stimulate policy reform and development of the countries that receive the loans. The results are varied; some scholars agree that it has promoted development but other scholars agree it is the major cause of underdevelopment. The author of this article will utilize Liberia as case study to support the sides of both scholars who are pro -World Bank and vice versa. It is important first to clearly comprehend the true definition of development before we go further in articulating issues of the subject matter. Development simply means the advancement from one state to another. In other words, development is all about growth. For instance, the amendment of a constitution or reformation of political institutions is examples of political development or political growth. Therefore, development always encompasses improvement. So the subject matter of the whole article is 'does World Bank foster development in Liberia or does it fosters underdevelopment?To clearly substantiate the subject matter of this article there must be a comparison of Liberia's situation before aid from World Bank and after aid from World Bank. During the phases of the cold war the ideological differences between the east and west had an impact on growth. The donors during this time majorly controlled the nature and contents of the aid. The paradigms of development evolved which had an effect on the nature of aid. The western inspired doctrine on development was categorized into three phases: the first phase, the second phase and the third or last phase. The first phase consisted of parts of 1950s, 1960s and some parts of 1970s.Since the developed countries were considered to have developed due to skills, export earnings and enough capital development was perceived as a do-as-we-did process. Aid at that time was supposed to provide: technical assistance, support on balance of payments and investible funds. The second phase which was between the periods of the 1970s to 1980s there was still the equation of development with economic growth. In this phase there was the questioning of the impact on aid on growth. In addition there was the doubting of the merits of aid. In the last phase which was in 1990s -after the end of the cold war-it led to the emergence of a neoliberal market democracy. So donors changed their agenda which was based on the issues of good governance and respect of human rights. This agenda was a do-as-we say agenda (Browne, 2006).

The World Bank use of conditionality is to influence policy reforms that will enhance development growth. The effectiveness of aid is only noticeable by evaluation of performance of projects; this was the traditional way of the World Bank. On the contrary, there are some findings by some World Bank researchers who found out that there was no effect of aid on policy. Well this finding raises questions, is it that World Bank wants to control the economic policies of developing countries such as Liberia? If this is so, then World Bank is enhancing neocolonialism in the developing countries such as Liberia.

Liberia is an African country that lies on the west coast of Africa having Sierra Leon e and Guinea as some of its neighbors. Liberia was never colonized ,instead it was used an area of settlement for freed slaves from America established in 1822 by the American Colonization society and later on was fully independent in the year 1847. Liberia was fully affected by the fourteen year civil war that ended in the year two thousand and three. The civil war affected the economy, political institutions, political structures and even the social fabric of Liberia. Liberia has made enormous changes such as it has had elections, improved public institutions, reestablished financial management system that is public and finally laid ground for a local government system. The World Bank has tried to pursue the achievement of millennium development goals in the country of Liberia. The millennium developments are goals that were formulated in the year two thousand in a United Nations summit. The eight goals are meant to be achieved by the year two thousand and fifteen. The goals are ;eradication of extreme poverty and hunger, achievement of universal primary education, promotion of gender equality and empowerment of women, reduction of child mortality, improvement of maternal health care, combating HIV/AIDS and malaria, sustainability of the environment and lastly to develop a global partnership for development. Concerning the first goal (eradication of extreme poverty), how has World Bank contributed in Liberia? Jean Pierre Cling tends to differ with the World Bank's objective of achievement of millennium development goals in developing countries such as Liberia. He critically argues the setbacks and difficulties of achievement of millennium development goals. Before poverty eradication in the areas like Liberia, it is crucial first to look at the growth prospects of Liberia's economy so that one can study the supposed evolution of income poverty in Liberia. For economic growth is the most powerful prerequisite for poverty reduction. The rate of world population increase is a major setback in achievement of the millennium development goals. For instance, by the year two thousand and fifteen the worlds population is expected to increase by about a billion people. Hence the rate of population growth will surpass the rate of poverty reduction making the poverty reduction not to be noticeable.(Cling, Razafindrakoto & Rouband,2003)

If at all, the goal of halving the worlds population who are victims of extreme pover ty is met by the year two thousand and fifteen, this might be due to the enormous reduction of poverty in China and India which are large democracies. In this sense it would create an illusion that the first millennium development goal(to eradicate extreme poverty) would have been achieved, and in the real sense it would be achieved in Asia only leaving most African countries retrogressing in poverty.

Liberia by the World Bank is not ut in essence it is also to ensure that economic growth aids the sections of the population that are under most hardship and also to define policies that deals with eradication of extreme poverty(microeconomic goal). The attainment of millennium development goals will also need other actions that will aggravate economic growth in Liberia and reduce the income inequality. As matter of fact, equitable growth may not be enough for achievement of the other goals concerning health and education in Liberia. The reduction of child mortality in Liberia will greatly depend on the stop of spread of HIV/AIDs, which will improve the health conditions and capacity of Liberias health systems for effectiv e deliverance of health services. Technological medical improvement in Liberia will revolutionize the health sector in the country of Liberia. The facilities and health equipments are not enough and are not up to date with the latest technological equipments. The ratio of doctors to patients in Liberia is wanting; it cannot be compared with the ratio of doctors to patients in Europe. Meeting the gender equality goal of the millennium development goal, will be a little challenging considering the traditional mindset in Liberia of a male Chauvinistic society. The peoples mind should be renewed through modern education or the government should enact education policies that will enable and encourage girls to go to school. In addition, the government of Liberia in conjunction with the African development Bank and World Bank should make sure the society of Liberia should be educated on the importance of the girl child going to school and its benefits to the family and society as a whole. A recent study done by the World Bank on the issue of poverty and economic growth confirmed the fact that macroeconomic policies such as openness to international trade and a stable monetary policy raises the income of poor people. The policies do not affect income distribution of developing countries such as Liberia. Although we have some progress in Liberia, in the year two thousand to two thousand and one the World Bank lacked a fully coherent paradigm for attacking poverty. The poverty issues are evolving into complex states are rendering the recommended strategies federating other than mobilizing. On the contrary, in the year one thousand one hundred and ninety nine World Banks report was very articulate and clear in its universal strategy of fighting poverty. The report had very convincing institutional and social analysis of the causes of poverty although it was void of political analysis of the causes. The World Bank also has superficial treatment on the relationship between economic growth and reduction of poverty. There are two major ways through which this relationship (of poverty and economic growth) can be precisely analyzed: first, by globally studying the interrelationship between the various types of poverty and the economic growth on a macroeconomic plane. Secondly, by concentrating on the functional and sectoral make-up of growth in conjunction with its impact on poverty.

The methodology or strategy that the World Bank utilizes in developing countries such as Liberia in fighting poverty is channeled to three main areas: opportunities, empowerment and security. Economic

policies entail market incentives and liberalization which is meant to create labor-intensive growth. The second area entails minimum levels of social services for the poorest which entails basic health care, primary education and family planning.

There are various policies issues with their respective implications in Liberia that the World Bank would like the government of Liberia to enforce them which are pro-poor growth. The policy issues are: monetary and exchange rate policy, fiscal stance, financial sector, human capital, regional inequality, donor policies, private sector, political economy of reform, land inequality and gender inequality. The supposed implication of monetary and exchange rate policy on Liberia is that a competitive and undervalued exchange rate is very crucial prerequisite for ensuring macro stability and the need for governments intervention which is essential for capital flows. The fiscal stance policy issue implication is that the government should concentrate on average budget deficits through broadening of the tax base and also focusing on expenditures especially cuts in subsidies to state-owned enterprises. The third implication of the financial sector policy issue is that there should be a phasing of the capital account and financial sector and its implementation should only occur after achievement of macro stability and accompanied by competition policies, tight regulation and policies to improve access of the poor. Human capitals policy issue implication is aggravated investment in health and education especially basic education and primary healthcare. Quality should be the prime focus and the reallocation of spending to the poor as well as use of subsidies to enhance health and education of the poor. We have the regional inequality policy issue with its respective implication which is: the targeting of state transfer programs and areas of high concentration of poverty hence regional inequality should be greatly looked at in programs of fiscal equalization and decentralization. The implication of donor policy is: aid is supposed to take into great consideration the states leadership. Secondly, aid is supposed to flow through budget and obviously be accounted for in the governments national process. Lastly, aid is supposed to be focused only on the poorest countries which promote propoor growth. On the gender equality policy issue, the supposed implication is: first, there should be an immediate enactment of affirmative action policies. Secondly, there should be political empowerment of women. Thirdly, there should be an immediate removal of restrictions on female control of other assets. Finally, there should be more supply of girl education and also the presence of targeted subsidies for boosting enrolments of girls in school.(Cling,Razafindrakoto &Roubaud,2003) The World Bank has employed a new strategy in fighting poverty called the poverty reduction strategy (PRSP) replacing the structural adjustment program (SAP).Liberia is part of this initiative that is intended to foster development by combating extreme poverty. There has been an evident mobilization of resources and people to ensure the success of the PRSPs.

The formulation of poverty reduction strategy (PRSP) of Liberia has to have four mandatory stages. The first stage is, there should be a poverty diagnosis bearing in mind the different dimensions in place. The second stage is a valid precise strategy for fighting poverty. Thirdly, the enactment of an action plan which entails precise measurable goals. Finally, the enactment of evaluation and monitoring procedures. What is really the effectiveness of Aid in Liberia? Development aid is supposed to stimulate economic growth and bring about poverty reduction but only in those countries that have good economic policies and strong institutions. Aid disbursed to Liberia after the year two thousand and three when the fourteen year civil war ended, has brought about noticeable economic growth and reduction of poverty in Liberia.(Hermes and Lensink,2001) According to Hermes and Lensink (2001) there are two distinctive views or studies about the topic of the effectiveness of development aid. The first view entails the articulate study which is on a macroeconomic plane that deals with the effects of aid on macroeconomic aggregates such as the growth of GDP, saving and investment. The second view is on a microeconomic plane that deals with microeconomic effects on aid such as project analyses. Some scholars argue that increase in aid helps in boosting a country in investment which might help the country to come out of the poverty trap. It also helps a country to reach the path of self sustenance. This paradigm is known as the gap model which was commonly used in the 1960s to 1970s .The critiques of the gap model points out its setbacks such as the assumption of constant savings rates, constant exchange rates and constant prices.In addition, the model utilizes an unrealistic production function that cant permit substitution between inputs. Other critiques argue that aid can affect domestic savings in a negative way such that it impedes economic growth since it leads to increase in consumption. Aid becomes a substitute to domestic savings instead of adding up to domestic savings. This situation is evident in many African countries such Liberia putting other factors aside such as bad governance and corruption. So theoretically we do not have a clear stance on the relationship between development and aid, if it is either positive or negative. Therefore what we are left with is the empirical evidence from a certain case study such as Liberia. The conclusion of the analysis of the relationship of the two variables (development and aid) is complex for both sides can be argued out with valid explanations. For instance macro studies in Liberia do not find any evidence of growth on the rate of Liberias Gross National Product (GNP) but micro-project related studies in Liberia are so positive on the effectiveness of aid. In simple terms micro studies on aid are positive whereas macro studies on aid seems to have no effect on macro -economic aggregates of the state of Liberia. So the paradox of the relationship between macro and micro studies is precisely explained by the fungibility of aid. There are some scholars like Lensink and White who argue that aid has positive effects only on countries which have good economic policies. They further add that aid has positive but it also entails decreasing returns which will eventually have a negative impact on the growth of the receiving country after it reaches a certain level. Their argument is simply that too much aid to a recipient country brings about aid dependency to that country instead of development. In other terms, high levels of aid affect the productivity of a state mainly because the recipient country is most likely to have a limited absorptive

capacity. Consequently the aid most likely will be utilized in a wasteful manner which will automatically result to diminishing returns of the aid. There are four main reasons that made Liberia to be a fragile country despite the amount of aid she has received. The first factor is the case of maturity then we have the second factor which is government capacity. The third factor has been termed and leadership and the fourth/last factor is conflict. The issue of maturity is valid considering Liberia just got its independence in 1847 .It cannot be compare with China which has been in existence for several millennia. Although longevity of a state does not necessarily equate to stability of that state, statistics has proven that most of the fragile states like Liberia have not been in existence for long. It is therefore correct to deduce that longevity of a state confers identity and confidence of a state. Therefore critically using this argument, Liberia lacks the necessary identity and confidence. Government capacity of developing countries like Liberia was not at par with the other countries of the world considering the developing countries were just new states that did not have any experience in governance. In addition in the new developing states after the end of colonialism; the civil society was weak or lacking completely. In Liberia the public sectors were not run efficiently hence they were bloated. The government had a monopolistic power which its political power overlapped with economic and commercial interest .Consequently; it blocked the opportunity for flourishing of independent private enterprise. On the contrary, the East Asian tigers (Taiwan, Korea and Hongkong) the government enacted a very efficient and a well coordinated system of planning and also invested in the human resources (social sector).The government also put conditions that helped the private sector to thrive. If only Liberias government could have used the East Asian tigers strategy then it would not need even the foreign aid from the World Bank to develop itself. Leadership is a very vital factor that greatly affects the development of a country. Good leadership should be present for development to be effective. The impact of military leadership in Liberia does not foster development which mostly is an authoritarian government. For instance Charles Taylor was a Liberian president who was a warlord and was later charged of war crimes and crimes against humanity when he involved himself in the civil war of Sierra Leone. He was responsible for the commencement of Liber ias first civil war that greatly affected Liberias development. Conflict has really affected the African continent especially Liberia which is a victim of a fourteen year long civil war .There is a clear relationship between civil war and low income in Liberia. Poverty can increase the eruption of civil war and civil war also increases poverty in a state. The civil war not only affects the victim state but also its neighbors as well, especially the displacement of refugees in the neighboring countries. As a response of World Bank in helping the fragile countries such as Liberia, in the year two thousand and two the World Bank set up a trust fund called Low income countries under stress(LICUS).IN the year two thousand and four the International Bank for Reconstruction and Development set aside twenty five million dollars for the low income countries under stress (LICUS) trust fund. Another twenty five million dollars was further set aside by the World Bank fir the trust fund in the year two thousand and six. The World Bank continued funding the trust fund by adding thirty million dollars in the year two thousand

and seven. These countries are those countries which are delinquent debtors and also who are liabilities for the World Banks lending portfolio. (Browne, 2006).The trust fund was set up to help such countries attain millennium development goals by development of systems which are resilient in such way that they will function even during civil war conditions by mobilization of multi donor support. Moreover to support the implementation of policies so as to enable the countries to reengage with the international community.

CONCLUSION In conclusion, Liberia has been used as a case study to come up with the stance on the relationship of aid and development growth in Liberia. The situation is complex it is not as easy as it may sound. The aid might have helped in little economic growth but that is just part of development, we also have other sectors of development such as social and political development. Liberia seems to be a low income country and it needs a lot of assistance in the area of political and social development.

RECOMMENDATIONS

The way forward for Liberia is to attain good governance and follow the example of the East Asian tigers by being free from foreign aid and debt. The debt on the surface seems to be positive but that is only on a micro level plane because in the macro level plane the effects of development on the macroeconomic aggregates are negligible.Liberia should use the aid it receives in a manner which will help it break from dependency on aid. In this way Liberia will be independent and sustainable. It (Liberia) should also encourage investments in the private sector such as growth of private enterprises. Lastly Liberias government should also invest in human resources.

BIBLIOGRAPHY Browne.S.2006.AID &INFLUENCE DO DONORS HELP OR HINDER?London:Earthscan Cling,J.P, Razafindrakoto,M.&Roubaud, F.eds.2003.New International Poverty ReductionStrategies.New York:Routledge Delphos, W.1999.INSIDE THE WORLD BANK GROUP.Wahington D.C:Venture Publisher Hermes,N and Lensink,R. eds.2001. CHANGING THE CONDITIONS FOR DEVELOPMENT AID: Anew Paradigm?London:FRANK CASS PUBLISHERS

Written by Masero Beatus