OVER the last forty years the World Bank in this hemisphere has become synonymous with a multilateral agency that bails outs beleaguered third- world countries who fail to adequately manage their economies.

Created at the Bretton Woods Conference in 1944, the World Bank serves as an international financial institution that provides leveraged loans at low interest rates for capital programmes.

For many years it was criticised for its stringent terms, which served as a deterrent, it was said, to social and civic projects. A common complaint was that the World Bank did not take into consideration the uniqueness and dynamics of individual economies and failed to allow third- world governments in particular any degree of latitude in the management of their economies.

Today the World Bank is hailed for its conciliatory and measured approach and its ability to work with Governments particularly in the establishment of capital projects and fiscal management.

Indeed Jamaica’s Minister of Finance, Audley Shaw, has repeatedly said that the World Bank would prove to be a far better source of funding and advice than a sortie on the capital markets.

Caribbean Business Report sat down with the World Bank’s Regional Director for Poverty Reduction and Economic Management for Latin America and the Caribbean, Marcelo Giugale, at the World Bank’s office in the Courtleigh Centre in Kingston, Jamaica, to talk about the changing role of the World Bank and how it is now perceived in the region.

Marcelo Giugale’s 20 years of experience as an international development leader span the Middle East, Eastern Europe, Central Asia and Latin America. He has published widely on agriculture and applied economics.

He was the chief editor of collections of policy notes published for the presidential transitions in Mexico (2000), Colombia (2002), Ecuador (2003), Bolivia (2006) and Peru (2006). He has been decorated by the governments of Bolivia and Peru and has taught at the American University in Cairo, the London School of Economics and the Universidad Catolica Argentina.

So how does Giugale see the role of the World Bank in the Caribbean and Latin America today?

“The role of the World Bank has evolved over the last decade and it now recognises that countries have their own access to financing. Many of the countries we do business with are democracies and so our clients are representatives of the people, which means you have to be careful and listen closely to the client; you have to focus on their plans, not yours,” said Giugale.

It is this thinking that has informed the World Bank’s role in Jamaica and the wider Caribbean. In the region the World Bank is now clearly perceived as a provider of development solutions. The days of calling in the World Bank for capital projects like schools, roads and other engineering endeavours are over.

The World Bank is now sought when a particular intervention requires an independent voice, be it environmental safeguards or fiscal management. There are cases when its services are required for domestic and political reasons. Providing cutting- edge solutions to problems in various countries more often than not requires more lending.

“Is it more difficult to be a World Banker today? Yes, because you have to be on your technical toes all the time. Today it is a lot less influential but nevertheless provides an invaluable service to many countries around the world,” surmised the World Bank senior executive. Over the last decade, the World Bank has enjoyed a better reputation than the International Monetary Fund (IMF) whose terms are generally viewed as draconian and leading to social instability in the very countries where it is supposed to provide assistance.

Jamaica has recently had to return to the IMF for a US$1.3 billion standby agreement to address balance of payments and local currency concerns. In order to sell this move to the country the Government has painted a picture of a more benign IMF, whose terms are somewhat less stringent. For example, the IMF was insisting that the Jamaica Debt Exchange (JDX) should see interest rates come down to as low as 8 per cent. The government thought this would prove ruinous for many financial institutions sated on interest income from government paper and advocated a more palatable 12.25 per cent per year.

The World Bank is seen as taking a more pragmatic approach, exhibiting a willingness to work in conjunction with clients to a common goal.

How does Giugale view this?

“We have a moral obligation to the poor people in the countries in which we operate. That is its raison d’etre. The Bank is very quick to lean on the side of the people and understands the public agenda. Our concern now is more with the human condition than with money. This has made us listen more and become more closely involved with all stakeholders.The monitoring includes all stakeholders and perhaps more importantly, the evaluation process is all done externally and independently of the same team that put the project together.”

The World Bank senior executive said that today it places a lot of stock in transparency. He pointed out that the Bank’s Country Assistance Strategies (CAS) now called Country Partnership Strategies (CPS) were once very confidential and shrouded in secrecy. Today you can find them on the Internet and translated in local languages.

He sees the global financial crisis as giving the multilateral agencies an opportunity to be more attentive and flexible.

Latin America today

Many Latin American countries are recording enviable growth and making positive strides. Brazil is now among the top emerging countries while Colombia, Peru and Costa Rica have seen not only their economies flourishing but also their social infrastructure making notable gains.

Over the last five years Latin America grew at an average of 5 per cent annually, which played an important role in reducing poverty and improving development indicators in the region. According to World Bank calculations, 52 million people came out of poverty between 2002-2007, while the region boasted the highest life expectancy and per capita income rates among developing nations.

The Sector Director is of the view that Latin America appears to have found a formula that works well.

“Just as we have defined our thinking in the last decade as the Washington consensus, today there is now a Latin American consensus. Why? Because many of the countries of that region seemed to have managed balancing macroeconomic discipline with social solidarity, efficiency with equity. Colombia, Chile, Peru and Uruguay have been particularly impressive. These countries have clearly shown that economic discipline clearly brings the goodies. They have attained investment grade, therefore lowering interest rates and bringing in financing for projects. The flow of investors coming to their doors will help to boost their economies.

“But on the other side of the ledger is that the further you have this new social solidarity the more you see governments declaring an interest to help the poor and make it their problem. We have discovered that formula gives political sustainability to the economic model.”

Giugale recalls a recurring pendulum in Latin America which saw one government coming in imposing economic hardship that led to social upheaval. That now has gone, with a consensus becoming the norm. He sees that people are paying with their votes for leaders who get the job done.

“We are also experiencing for the first time a generation of former presidents who are world-class leaders who champion social and economic balance.”

The Caribbean

Many of the economies of the Caribbean have been reeling from a decline of their major industries and fiscal imbalances. Over the last two months Jamaica, The Bahamas and Barbados have been downgraded by the rating agencies. The Caribbean Single Market and Economy (CSME) has failed to score a notable impact on the region and many of the countries are mired in debt and rampant inflation.

The World Bank has played a vital role in helping to recalibrate many Caribbean countries’ economies and has assisted in the financing of many projects in the region.

The World Bank is of the view that the current global economic crisis brought a string of five years of sound economic growth in the Caribbean to an abrupt end. The forecast for regional growth, which averaged 5.3 per cent between 2003 and 2008, has been revised downward as the crisis intensified.

The effects of the crisis are being felt mostly in the real economy – drop in demand, declining remittances, and falling commodity prices. Nonetheless, the region has weathered the current downturn without experiencing massive currency devaluations, bank collapses, debt defaults, inflationary spikes or capital flight. All this is due in part to improved financial regulation and supervision implemented in the wake of the 2001-02 financial crisis.

Only last week, the World Bank released its Global Economic Prospects Report for 2010 in Thailand. Speaking specifically about Latin America and the Caribbean, the report noted that stronger fundamentals helped the region weather the crisis much better than in the past, and following an estimated 2.6 per cent drop in GDP last year, regional output is projected to increase by 3.1 per cent in 2010 and 3.6 per cent in 2011.

However, it said, weaker investment will keep growth from attaining boom-year levels.

“Remittances and to some extent tourism, both important sources of external finance for Caribbean countries, are expected to recover only modestly in the 2010-11 period, undermined by weak labour market conditions in the United States and other high-income countries,” the report noted.

“Key challenges include the winding down of stimulus measures; providing for the unemployed in a fiscally sustainable manner; and maintaining openness towards international trade and investment.”

That in mind, what is Marcelo Giugale’s view of Caribbean economies, particularly those that have not exhibited fiscal discipline?

“I think there is recognition now that you cannot continue mortgaging your kids’ future. Sometimes it takes one success story that is imitated to inspire a region. I believe that leading country will be Jamaica. It cannot be done by a country that doesn’t have critical mass or geo-political presence.

“Jamaica is now saying, “We have to put our house in order,” and is asking not only its creditors but also its citizens to tighten their belts. What is heartening to see is the government explaining it to the country and the initiative is being embraced by society. This will show the way to others. If Jamaica is successful it will show the way to others and it will be just a matter of time before the rest of the region goes down the same path.”

A question that Giugale thinks bears further examination is once the Caribbean puts its fiscal house in order, can it succeed? He firmly believes the answer is yes. He sees the region doing well with the opportunities presented by the knowledge-based economy and services.

The way he sees it, the world may be depressed now but it will not be depressed forever. He thinks it is important to establish and maintain links with markets not only in the United States but in Asia.

“There are important opportunities coming the Caribbean’s way, but the first step is to get its house in order. I remain cautiously optimistic for the Caribbean as a whole,” said Giugale.

In Jamaica the issue of tax reform is once again a hot topic. At the end of last year the government increased taxes to garner more revenues and some are calling for a more equitable tax regime.

On this contentious issue, the senior World Bank director said: ” Any time a government decides upon tax reform it is trying to hit six targets at the same time. You want revenue generation, you want economic efficiency, you want social equity, you want simplicity in your tax regime, you want federal consistency and finally you need political solidarity.

“Now, you will find combinations for whatever you want, hence the debate about whether a flat tax is better than a progressive tax and the administration of a consumption tax. To arrive at the implementation of tax reform you have to be very clear what your primary objectives are. Deciding upon the efficacy of tax reform and expenditure reform has to be country-specific. It is very difficult to say, “Here is a formula from the World Bank that will solve it all.”