Monday, August 22, 2005

Wharton Study: IMF/WB Bad for Infrastructural "Reforms"

Finally, the mainstream B-School academics are waking up to this reality, that many knew since long: there is something wrong with the "Free-Market Reforms" driven by IMF/WB:

Wharton's Prof Witold Henisz and his colleagues became curious about the "mob-on-the-street story": Angry crowds protesting on the street. Political unrest. Governments caving in. Privatization failing. Money being lost for the investors.

Combing through three decades of market reform and industry decentralization projects in dozens of countries, they tried to find the reasons for the failed or troubled reform efforts.

And they found the link: The IMF and World Bank do indeed play a significant role in these areas - but often in a negative way. "If you see the IMF and World Bank influencing reforms in a country...," says Henisz, "It's not a seal of approval. It's a warning flag."

Knowledge@Wharton site reports:

"But why should the involvement of these large multilateral institutions - founded, as they were, in the interest of global good and having a positive impact on regulatory reform and privatization - be a bad thing? The reason, Henisz says, is rooted in their lending policies. Loans from those groups inevitably come along with certain conditions -- and a good degree of pressure - that can stir unrest among populations resenting what they may perceive to be foreign control over their country. "I think for a long time people have focused on the potential benefits of the reforms," Henisz says. "People thought, 'Well, you just deregulate the market and that's the answer.' But the market part is only focused on efficiency, and people can be resentful that foreign [institutions] are forcing you to make a change. That can cause a dynamic that can have a real impact." In fact, Henisz, Holburn and Zelner found that investors who sent their money to nations facing above - average pressures to enact reforms from the IMF or World Bank are 63% more likely to face subsequent government interference with those reforms - a sign that the reforms may fail - than investors in countries where the World Bank and IMF are exerting less pressure."

The two studies by Henisz et al can be downloaded from:

I guess, this posting is relevant to the news that World Bank will loan upto $3bn for the Indian Govt's Bharat Nirman programme.

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