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Submitted by Richard Allen on
An important element in developing the Public Sector Management for Development program is analyzing the impact of "political economy" factors - the informal rules and incentives that drive the behavior of politicians and government officials - and working out the implications for Bank's lending and other support operations. Everyone in the Bank recognizes that "political economy matters", but the Bank is much less good at standing up to the implications of this mantra. Billions of dollars have been wasted - and continue to be wasted - on lending programs and projects which, if assessed cooly and logically would never have proceeded because of the high political risks of failure. The Bank has operationalized its assessments of fiduciary risk. Why not of political economy risk, which presents at least as serious a challenge? The answer may lie in the Bank's internal incentives which are to lend at virtually any cost without taking too seriously the risks of failure or reduced development impact. Ideally, political economy risk analysis should be used as a filter, to sift out projects and lending proposals that are deemed politically viable from those where the risks are simply too high to go ahead. This of course might result in a reduced or more selective portfolio of lending and technical assistance operations, a result which will not be welcome in many parts of the Bank. Does the Bank have the bottle to take such work seriously, and take it to its logical conclusion? Increasing the Bank's work on political economy analysis also raises the issue of who should do such work. Does it require specialists with Ph.Ds in political science? Or experienced operators who have spent many years working in the field and understand a region's political dynamics inside out? While specialist knowledge of political science is certainly an advantage, I tend to side with the latter view. In particular, country teams should be encouraged to build relationships with leaders and groups that give the CMU an inside track on a country's political dynamics. Is a proposed $40 million IFMIS project, for example, likely to succeed, or will it fail because the finance ministry hasn't taken the trouble to build up a consensus in favor of the project with his cabinet colleagues, and reach the necessary political bargains to break down opposition?