The Whirled Bank Group


The Willi Wapenhans Report

Over a third of World Bank projects completed in 1991 were judged failures by the Bank's own staff, a dramatic 150% rise in failures over the previous ten years, according to an internal review by Willi Wapenhans, a former vice president of the Bank. Wapenhans submitted his draft recommendations in late 1992 after reviewing about 1800 current Bank projects in 113 countries for which the Bank had lent US$138 billion, and after meeting with a number of policy makers from borrowing countries.

Specifically Wapenhans noted that 37.5% of the projects completed in 1991 were deemed failures, up from 15% in 1981 and 30.5% in 1989. Bank staff also said that 30% of projects in their fourth or fifth year of implementation in 1991 had major problems. The worst affected sectors were Water Supply and Sanitation, where 43% of the projects were said to have major problems, and 42% in the Agriculture sector. .

Geographically, the African region had the most problems with some countries having success rates as low as 17.2%, and two countries in Latin America had 50% of the problems. The report says that far from being isolated sector phenomonen, the problems were spreading ''traditionally strong performing sectors are now affected too: in 1991 telecommunications (18%) power (22%), industry (17%) and technical assistance (27%). New areas of lending were also encountering major problems: poverty (28%), environment (30%) and private and public sector reform (23%).''.

In summary it concludes ''The portfolio is under pressure. This pressure is not temporary; it is attributable to deep rooted problems which must be diagnosed and resolved. The cost of tolerating continued poor performance is highest not for the Bank, but for its borrowers.'' In a candid evalution of the Bank's lending procedures Wapenhans said that many of these problems stemmed from the fact that the Bank did ''little to ascertain actual (underlined) flow of benefits or to evaluate the sustainability of the projects during their operational phase.'' Project completion reports tended to be written shortly after the last loan disbursement, before benefits begin to flow. .

The meeting with policy maker representatives from half of the borrowing countries this past May, provided some startling comments on the Bank. Wapenhans recorded over 400 pages of anonymous testimony which slammed the Bank for ignoring local input in favour of policy mandated from Bank headquarters, that was not even consistent. One borrower said that Bank staff insisted on as many conditions as possible, some of which reflected insensitivity about the political realities of the country, and sometimes even conflicting with fiscal policy required under structural adjustment policy changes required by the Bank and its sister organisation, the International Monetary Fund. (This was backed up by the report's own findings which showed that only a quarter of all Bank projects between 1967 and 1989 were in compliance with financial covenants in loan agreements.) .

Another borrower said the Bank staff ''take a negotiating position not a consulting position - they know what they want from the outset and aren't open to hearing what the country has to say,'' while a third said that they felt ''psychologically pressured'' to take it or leave it, and the country then ends up with a conditions that it has no way of honouring and a contract that cannot be implemented. Others said that the Bank ''changes its wisdom with the passage of time. We saw the Bank talking about import substitution in the sixties, then export substitution, then social problems and then the environment.'' Bank staff were accused of being high handed and insensitive, insisting on designing projects according to its policies at the time instead of consulting with the borrowers and local people. .

One borrower pointed out that decline in Bank success was directly related to the increased role of the Bank. ''There is a consultant who has prepared it, a mission which has appraised it, a Board which has sanctioned it, and there are supervision missions which are watching its progress. (But) unless the borrower is committed, the project will not be implemented - as it is not being implemented.'' The borrowers agreed that the Bank staff appeared more driven by pressure to lend, than a desire for successful project implementation. The Bank staff often insisted on international consultants to prepare projects resulting in poor quality suggestions because the consultants ''from New York or London'' had no experience in the country. At the same time the borrowers said that the Bank often rejects local consultants and local suppliers because they require open competitive bidding which gives the advantage to big international corporations. This process however requires a long time to implement and then results in supplies that cannot be repaired or supported locally, making them useless. .

The taskforce also cited several other factors that have affected performance. It noted that problems increased with the number of cofinanciers (the Bank's total portfolio of 1800 projects are collectively worth US$360 billion of which it provides US$138 billion), such as private banks and bilateral aid. Swings in the world economic environment such as declining terms of trade for borrowing countries, rising international and inflation rates, declining capital inflows, volatility of petroleum prices closely correlated the failure rate of projects, as did problems within the country. .

In an analysis of the success rate for major country portfolios, a number of countries had a success rate of less than two thirds for completed projects - Bangladesh (66%), Philippines (65.8%), Algeria (58.3%), Mexico (56%), Brazil (55.9%), Kenya (48.2%), Tanzania (34.8%), Nigeria (26.3%) and Uganda (17.2%). .

The taskforce recommended that the Bank needed to increase country level performance management over a country portfolio of projects, as opposed to the current system of global sector management which ignore the reality of other local factors, let alone other Bank projects. It said that local "ownership" of projects should be stressed, and the emphasis be shifted from loan approval to performance, and the impact of the project. .

In fact at the time other reports by the Bank's own staff showed a similar disturbing trend of ignoring local impacts of projects. A five volume operations evaluation of completed projects in Brazil published internally by the Bank earlier in 1992, noted that loans of US$1 billion made in the 1970s and 1980s for projects in the Amazon rainforests, the drought prone north eastern region of the country and the slums of Sao Paulo, bore out environmentalists concerns at the outset. Among examples of this impact provided by the report was the Itaparica dam on the Rio San Francisco that resulted in the displacement of 40,000 people. In 1992 five years after completion, promised irrigation schemes for the displaced (and rehoused) people had not materialised resulting in ''prolonged idleness'' and consequently ''incidents of intra communal violence, alcohol abuse, family disintegration, and low morale.'' .

The Wapenhans review resulted in a great deal of alarm at all levels of the Bank. It provoked especially sharp reactions from the Bank's board of directors like Evelyn Herfkens (Netherlands) Jorunn Maehlum (Scandinavia) Patrick Coady (US) and Fritz Fischer (Germany). A series of high level meetings were convened by the directors with the Bank's management in November and December of 1992, where several directors floated the idea of an independent unit to monitor Bank projects and stem the failures. .

One follow-up review was conducted by the Finanial Reporting and Auditing Task (FRAT) Force, headed up by George Russell, a financial adviser in the Bank's central and operational accounting division, to find out what happens to the money once it is handed over to countries to use. .

Russell 's report which was distributed internally in 1994 showed that over 60% of the audits of its projects are not received within the grace period of four to nine months after the fiscal year end of the entities to be audited making them ''inconsequential for project management purposes'' while a fifth of them have qualified, adverse or disclaimers of opinion. That is to say that the auditors believe that either additional information is required before the audit can be signed, the audit is misleading or there is insufficient information for the auditor to judge the audit, respectively. .

Russell did find that than 90% of the reports are received within two years but seven% of them are not received at all, says his report. It blames a number of factors -- poor accounting standards in the borrowing countries, lack of experienced staff and ''unduly burdensome'' reporting requirements that do not reflect what is necessary. .

In addition Russell's team report that ''the format of the (financial) information received often does not allow for (i) comparison with staff appraisal reports (ii) linkage of physical achievements with project expenditures and (iii) reconciliation with Bank disbursement records.''.

The FRAT force pointed out that the Bank also needs to upgrade its own technical staff. In 1980 they say the Bank had 270 financial specialists of which 29% were considered experienced. By 1992, it discovered that there were 190 specialists, 30% less, of which a mere 22% were considered experienced. .

''Financial statements frequently are not reviewed or are reviewed by staff with the necessary skills to identify significant problems and to take appropriate action,'' says the report. .

Interviews with members of the team also revealed that in many countries, particularly in Africa, government auditors who have to check the projects have little or no training on how to prepare proper financial statements. .

''Nobody was reading the auditing requirements because they were too complex,'' said Bank president Lewis Preston. ''Our accounting and legal departments are now working together to try and simplify them.''.

The study recommends that project managers need to learn that ''without efficient accounting and auditing arrangements, project management is not under control.''.

It also adds that the Bank needs to carry out assessments of borrowers auditing standards, review auditing requirements for each project when it is first prepared, reduce the number of reports required, collect audit reports within six months of the financial year end. .




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