The World Bank and the Middle Income Countries

March 1, 2006

The World Bank’s role in middle income developing countries needs to change. Not to end lending to them, or adopt the other proposals from extremists on the right or left. But rather to modernize both what the Bank does and how it does it, so as to respond more effectively to the changed circumstances, needs, and preferences of this group of countries.

Recommendations on how the Bank should modernize are set out below. First, though, the case for it to stay engaged is discussed, since a handful of voices are still trying to argue otherwise.

The World Bank Should Remain Engaged in the Middle Income Countries

Arguments for axing World Bank lending to middle-ranking developing countries enjoyed short-lived notoriety a few years ago, with the publication of a report by Prof. Alan Meltzer. Since then, however, that fringe view has been endorsed only by a handful of American conservative academics (primarily those who worked on the report in the first place).

Few know this better than Paul Wolfowitz. Nominated in 2005 as the new President of the Bank by a strongly conservative US administration, of which he had been a key member, Wolfowitz’s appointment was initially acclaimed by the critics on the right. (“An inspired choice,” wrote Alan Meltzer in The Wall Street Journal on March 18, 2005.) But Wolfowitz didn’t fall for their odd theories. In his first Annual Meetings speech in September 2005 he stated unequivocally that “To help the middle income countries grow and prosper, we need to continue to tailor our knowledge and financing to their specific needs.” Subsequently, on the eve of a visit to Brazil, he was quoted as saying, “I really want to underscore the World Bank’s commitment to Brazil and all the other middle income countries in Latin America…”