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Tuesday, 11 September, 2001, 17:25 GMT 18:25 UK
World Bank pushes anti-poverty drive
A beggar in China
Tricky business conditions and poverty are related
The failure to build strong institutions is the main obstacle to eradicating poverty in developing countries, the World Bank has said.

In its latest World Development Report, an annual survey of economic and social progress in poor countries, the Bank condemned the slow pace of legal, regulatory and financial reform across much of the developing world.

Tangled laws, corrupt courts and red tape are a significant barrier to investment, the Bank said.

"Without effective institutions, poor people and poor countries are excluded from the benefits of markets," said Nicholas Stern, the World Bank's chief economist.

Business blockages

These ineffective state structures make doing business slow and painful in many countries.

Moputu, Mozambique
Registering a business in Mozambique takes patience
In Mozambique, for example, registering a new business requires 19 separate steps, takes five months, and costs more than the average annual per-capita income.

In Australia, the same process takes two steps, two days, and costs 2% of average per-capita income.

The Bank's survey of 85 countries found a striking correlation between speed of business procedures and country income.

In countries in the top quartile of income, registering a business costs an average of less than 10% of annual gross national product per capita.

In the bottom quartile, that figure is close to 120%.

Corruption correlation

These procedures are closely connected with corruption, another key by-product of shaky institutions.

Don't quibble over a bad cheque in Slovenia
Countries where registering a business takes 16 or more separate processes tend to score 80% or more on the Bank's corruption index.

And the same rule applies throughout the range of supposedly routine transactions.

In Slovenia, resolving a dispute over a returned cheque can take up to four years; in Singapore, the same thing takes just 35 days.

Pressing for stories

Nor is the same phenomenon purely associated with procedures that directly hit business.

The World Development Report places particular emphasis on development of a free press, citing a myriad of examples where crusading media have forced the sort of reforms that can - in time - benefit investment.

Belarusian president Aleksandr Lukashenko
Free media is good for democracy, the Bank says
The report argues that private-sector media are in general more effective at digging out information than their counterparts in the state sector.

Mexico's partial privatisation of broadcasting at the end of the 1980s, for example, resulted in a sharp increase in coverage of government corruption scandals, the report said.

Philosophical shift

The new World Development Report is a telling distillation of the Bank's latest thinking.

Over the last few years, at least partly in response to criticism from the developing world, it has striven to reinvent itself.

World Bank president James Wolfensohn
The touchy-feely Mr Wolfensohn

Its old image was more or less as a lackey to the fiercely free-market International Monetary Fund (IMF), on whose behest the Bank would attempt to force through a one-size-fits-all capitalist model on unwilling aid recipients.

But under the management of James Wolfensohn, its president, the Bank has adopted a softer, more flexible style, and has engaged far more willingly with pressure groups of all kinds.

"Copying intuitional models without considering whether they are needed by those they are supposed to serve, and the capabilities of government and citizens, can waste scarce resources," the report said.

Controversial changes

The change has been somewhat revolutionary.

Recently, the Bank said it had altered its lending guidelines, in the hope of ensuring that economic development in poor countries does not bring pollution and degradation of natural resources.

This shift away from hard free-market policies, and towards a more inclusive approach, has been somewhat controversial within the Bank itself.

Some have argued that the Bank should feel free to criticise developing-world politicians more openly, rather than focusing on disembodied institutions, or engaging in critiques of the capitalist financial system.

See also:

19 Jul 01 | Business
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18 Jul 01 | Business
New 'green' policy for World Bank
18 Jul 01 | Business
Bush favours grants for poor nations
18 Jul 01 | Europe
Genoa set for summit onslaught
15 Jun 01 | Europe
Gothenburgers count the cost
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