'South Asian Economy is Growing Fast'


Written by Huma Iqbal • Special Features • October 2009

ishrat_hussain_21 In this wide-ranging interview, well-known economist, Dr. Ishrat Husain explains the key role of the World Bank in the world’s developing economies and how it can further benefit the South Asian region

How important is the World Bank for South Asian nations and their developing economies?

The World Bank has been providing assistance to developing countries since it was established in 1945. The Bank is the largest provider of both intellectual and financial aid to developing countries. What makes it more distinguishable is that, unlike episodic involvement of the IMF, which comes in on for a period of a year or two to help the ailing economies, World Bank is a long-term development partner of the developing countries. The Bank sees development as a continuous process.

How do you define development?

When we talk about development, we need roads, highways, bridges, hospitals, schools, etc. Overall development of a country is its distinguishing characteristic which is evident both in its economic and social sectors. Development doesn’t come in for a short period of time but is a long-term commitment. Speaking about the World Bank, it sees development as a continuous process. Not only in Pakistan has every big project been established with the help of World Bank like the Tarbela or the Mangla dam but the Bank has been the largest provider of funds for development in India, Sri Lanka, and Bangladesh, etc.

The majority of population of South Asia lives under the poverty line. How can this problem be addressed?

Poverty alleviation comes under development. When we speak about development, it not only covers infrastructure, education, health, water supply, nutrition or gender but also addresses the means to make the provision of these facilities to the poor possible. The accessibility can come about only if the rate of economic growth is increased. In actual terms, economic growth of any developing economy makes the procedure of provision possible. Poverty persists only when economic growth is non-linear. Therefore, development per se – both economic and social - is not the objective. The real objective is to remove the root causes of poverty. In South Asia, for instance, the World Bank and the respective governments are trying to address these root causes instead of going for a superficial treatment. However, alleviation of poverty takes time. It doesn’t happen overnight. It takes ages to reduce poverty.

How successful has this approach been?

Poverty in South Asia has not ended but it certainly is not spiralling. In 1990, for instance, 25% of the developing countries’ population was living below the poverty line. Today it has reduced to 17%. In China alone, 50% of people were living below the poverty line in 1980; today it is less than 10% of the population. In India, 40% of the people lived below poverty. As we speak today, the number has reduced to less than 20%. In Pakistan too, the number has reduced from 40% in the early 90s to 23% today. In Bangladesh, though the rate of poverty has not decreased, it is on its way down. This change has been going on for the past 20 to thirty years and, with the right plans in place, is likely to continue. We need to understand that poverty elimination might take time but it has to be a continuous process.

When the World Bank assists us in different development projects, how do they go about in implementing their policies?

In Pakistan, the World Bank operates through the Government of Pakistan. In every country of South Asia, the Bank has a country assistance strategy which is developed in consultation with the government and civil society organizations. Different strategies are prepared on the basis of feedback from local NGOs, academics, business community, politicians, etc. The respective governments then have to prepare a project, which they send to the World Bank for approval. The Bank then examines it, scrutinizes it, and it is then accordingly approved or otherwise.

Given the overall concept of mismanagement in the governments of different countries of South Asia, how does the World Bank make sure that the proposed policies follow a smooth path?

The World Bank has strict public performance scales. There are safeguards and checks and balances in place. World Bank missions are placed in the capital cities of the countries and they monitor each project. Apart from this, special missions from Washington pay visits and follow up on the strategy. The money is released on the basis of solid evidence. If there are reports of misuse of money, the Bank does not make any disbursement.

What is the trickle down effect of this money? Does it reach the grassroot level, the down-trodden population of the developing nations of South Asia?

Provision to the common man is the whole purpose of the financial assistance of the World Bank. In Pakistan, for example, the Punjab Education Sector Reform project was initiated with the help of the World Bank, where every girl student who was enrolled at a secondary school was paid a stipend of Rs 350 per month. This money, provided with the assistance of the World Bank, ensured that every female student enrolled and got education in exchange for a small amount which could be used to facilitate the educational expenses. This is how trickle down is taking place.

How do you view the reports of mismanagement and corruption within the systems of the South Asian nations?

The rate of corruption is very high in all South Asian nations and the respective governments. But there is a mechanism whereby the projects which are being funded by the World Bank are insulated from these practices. For instance, if you are building a school, the World Bank ensures its construction first and visits to see whether the building is built or not. If it is not there, the money will not be disbursed. Therefore, a country may have a very corrupt system but within that corrupt system the Bank sees to it that proper safeguards and measures are taken to ensure that the money is actually spent on the proposed scheme and does not go waste.

How important is public participation in this regard?

Public participation is inevitable. The public has to be a part of the system to keep a check and balance as the World Bank cannot be present all the time to inspect. For example, a school management committee in every school built with the assistance of the World Bank, consisting of public representatives, can alert the Bank that the money being spent is not going in the right direction. It will make the work of the World Bank easier and effective. Such local community organizations can play a very important role in order to curtail corruption at all levels.

Don’t you think there is a lack of community service organizations in countries of South Asia, which can play an important role in strengthening public participation at all levels of society?

In the rural areas of Sindh and Punjab, for example, one can find many good organizations like the Sindh Rural Support Programme and the Punjab Rural Support Programme which seem to be doing a very good job. It is just that we don’t appreciate the kind of good work these small organizations, both public and private are doing at the grassroots level. It has become our national psyche that we always look at the half glass as empty. I have worked in 50 countries in the world and have not found any country which is so negative for its own people and its own country. Governments make mistakes everywhere. We should criticize our governments but should also be willing to put in individual efforts instead of looking down upon everything in the country.

Can you highlight the interest rates which come attached to the loans provided by the World Bank?

The interest rates on the loans provided by the Bank are very little. The loans are disbursed through two windows of the World Bank. One is the International Development Association (IDA) which has very easy conditions attached, like zero interest, 0.75 service charge, and 15-year grace period. The other one is the International Bank for Reconstruction and Development (IBRD) window which gives a five year grace period and charges 3 to four percent interest rate. The impact on the recipient countries is therefore quite favourble and, unlike IMF, the loans provided by the World Bank are not resented because of the easy conditions attached to them Things become grave when the subsidies, given by the governments on essential items, do not reach those who deserve them. They are the ones who suffer and hence the lack of confidence in the otherwise smooth procedures of the donor organizations like the World Bank.

Is this because of the lack of implementation of economic policies?

The bureaucrats and political leaders make use of the facilities for their own sake rather than the sake of the poor. Cheating with the country is not something that can be afforded but unfortunately it persists in all the countries of the region. There is a need to think above self-interest and in the favour of the country. The ones who cheat, be they the leadership, should be taken to task and punished. This is the only way to set an example against those who make money out of these public projects. It is the responsibility of our governments to ensure smooth functioning.

How important is democracy to ensure smooth functioning of nations?

We have not been used to the idea of democracy and there has been interruption to the democratic process from time to time. It may take some time to throw away the bad eggs if you have the power to do so. Democracy enables you to elect competent representatives who are efficient and work towards the betterment of the nation.

How important is regional integration in South Asia?

Regional integration of the South Asian nations is very important. In order to advance in today’s globalised world, we have to pool all our resources and complement each other rather than compete with each other. If Pakistan needs cheap coal and iron ore for its steel mill, it should be able to buy it from India. Similarly, India should be able to buy bed-linen from Pakistan. This is where the consumers of these countries will benefit and the economic growth will be much faster. There is a need to settle our political differences and not let them interfere with our huge potential for economic exchange of goods and services.

How do you see the South Asia in the global economy?

India is now part of the G-20 and constitutes 80 percent of the region. It is now considered as a regional and global economic power. It is a recognition that the South Asian economy is growing and it is growing fast. Pakistan, with the help of China and India, should be able to take advantage of the proximity with these two superpowers in order to bring about better prospects for its people. National and regional economic flow should not be stopped at any cost, not even at the cost of any political differences.