Should the World Bank become an ATM?

This page in:

World20bank202 In today’s WSJ Peter Schaefer makes the argument that key to future poverty alleviation is unlocking the “dead capital” or “illiquid savings” of the poor – the capital which is sunk in informal homes and businesses. The article is a direct rebuttal of another theory put forth in the WSJ two weeks ago that the World Bank should start acting more like the local commercial bank on your corner.

In “Why Can’t the World Bank be More Like a Bank?” James Henry and Laurence Kotlikoff suggested that instead of the Bank’s current practice of large loans and grants, the Bank should “establish, manage and oversee individual accounts for citizens or institutions in Third World countries, as well as directly contribute to these accounts.” If an NGO wanted to help a country, they would write a check to the WB and the Bank would then accordingly increase the balances of the account holders in that country. These accounts would be for checking, savings and investing – the theory being that they would decrease the transaction costs of valuable remittances, increase access to important financial services, and decrease the risk of future banking, currency and financial crises.

Schaefer bashes Henry and Kotlikoff’s idea on several fronts (and could have done so on several more, i.e. I could see corruption and organized crime dominating such a set-up) – essentially saying that the numbers don’t add up and that the Bank’s weight can be better exerted elsewhere. He argues that while increasing access to finance is key, this should be done via improved property laws, collateralized lending, savings legalization and other financial reforms. Seems much more sensible to me.

Join the Conversation

The content of this field is kept private and will not be shown publicly
Remaining characters: 1000