Honest governments needed

Business World, March 7-8, 2008

Ex-World Bank chief pushes campaign versus poverty.

ERADICATING POVERTY and growing inequality in countries like the Philippines will require a host of measures such as more investments in education and development in rural areas, but “honest governments” are needed to put things together.

Giving his parting shots yesterday before leaving Manila for Bangkok, former World Bank President James D. Wolfensohn said the misuse of resources was “really a profound negative” hindering efforts to reduce poverty.

“We need activities for regional development in the country and you need government to prepare to do that. More than that you need honest governments... And then you get back again to the question of corruption,” Mr. Wolfensohn told a select group of journalists following a lecture at De La Salle University in Manila.
The “wastage” from corruption is huge and local officials are to blame for most corruption issues involving World Bank-funded projects, he said.
He would not comment at length on corruption issues in the Philippines, but said: “Reading your newspapers in the last two or three days, it seems like it’s a problem even here.”

Mr. Wolfensohn on Wednesday warned that a widening rich- poor gap worldwide could lead to a rise in class conflicts. His remarks came as a state agency that same day announced that the ranks of the poor had increased in 2006, running counter to the Arroyo administration’s claims of an improved economy and an anti-poverty focus.

Sydney-born Mr. Wolfensohn, whose two-term World Bank tenure from 1995 to 2005 has been credited for refocusing the multilateral institution’s purpose toward fighting poverty, was in Manila for the “Bridges” series of dialogues of the International Peace Foundation.

He said anti-poverty solutions being pushed globally, such as the promotion of micro-finance, are “terrific” but will not lessen inequality on their own.

“The most common visible attraction is micro-credit. To me it is an effective tool. Alone it’s no the answer ... unless you combing that with education and health care, and stimulus to young people, it’s not enough,” he said.

Reiterating his views that the widening rich-poor gap in many countries could lead to a rise in class conflicts around the world. Mr. Wolfensohn said the problem essentially was the lack of opportunities for young people, who make up the bulk of the population in poor countries and are the warm bodies in anti-government protests and demonstrations.

Commenting on the ex-World Bank chief’s remarks, Ateneo economist Dr. Cielito F. Habito said social unrest was “precisely going to happen” in the Philippines unless the government finds a way to assist the middle and lower-income classes, whose incomes have been reduced over the years as shown by latest government data.

Youth unemployment is a real problem, he said, considering that about half of the Philippines’ more than two million unemployed are 15 to 24 years old, many of them not even able to finish high school. Given that many of the unemployed lack education, business process out- sourcing and call centers, which require much training, are not going to address the income gap.

“There has to be other sectors like tourism and agriculture,” Mr. Habito told Business World. But corruption and “regulatory capture” of government agencies by business interests, such as in air travel, ports, and power, as well as Manila’s tendency to centralize funding for agricultural projects rather than letting local governments handle them, is preventing growth in other economic sectors.

At the international level, bridging the divide between rich and poor countries is also becoming difficult, Mr. Wolfensohn said, for example, in opening up trade and promoting free markets which World Bank research has shown will significantly increase incomes worldwide.

Opening up trade has resistance at “all sorts of levels’ he said, with rich countries refusing to give up trade-distorting farm subsidies and poor countries demanding more protection for domestic manufacturers unable to compete with imports.

“We just get knocked on the head,” Mr. Wolfensohn said of previous World Bank efforts to end agriculture subsidies that have rendered farmers in poor countries unable to sell to lucrative markets abroad.

There will also be resistance from rich countries on longstanding proposals by renowned economists like Jagdish Bhagwati to tax “brain drain,” he said.

De La Salle economist Dr. Tereso S. Tullao noted during the forum that health systems of rich countries are benefiting from nurses and doctors sent abroad by countries like the Philippines, and so host countries should provide some sort of compensation.

“There is a real claim [to that], but on the other hand, you are getting paid for it,” Mr. Wolfensohn said, noting the Philippines will be getting about $15 billion in remittances this year.

Mr. Tullao pointed out that remittances are compensation to individuals and not automatic, while Mr. Habito said taxpayers of labor exporting countries should get some payback considering that many health workers are trained in state universities.

Ultimately, the migrants will have to bear such a tax, Mr. Wolfensohn said, but it’s “quit difficult to do.”

Mr. Wolfensohn said there should be a “cultural approach tc development” as policies crafted in World Bank won’t work if the) do not fit systemically in countries benefiting from aid.

“It took me at least five years in the job to gradually understand that bringing about social change is not something decided in Washington and passed down,” he said.

“The place where you get the experience is on the ground because the people live there. You don’t have a lock on the answers.”