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. .