Let's ask what aid is for: The World Bank: reforming economies or spreading destitution? Richard Dowden reports

As the World Bank and its sister organisation the International Monetary Fund held their 50th birthday parties this week, they came under unprecedented attack from the major private aid agencies, led by Oxfam.

The agencies accuse the Fund and the Bank of undermining the relief of poverty, making people poorer and giving short-term economic aims, such as the reduction of inflation, a higher priority than long-term reduction of poverty.

For more than a decade the Bank and the Fund have been used by their major shareholders, the Western governments, as the battering ram of free-market economics in developing countries. Western donors deny aid to countries unless they have a deal with the Bank and the Fund.

The deals, termed 'structural adjustment' programmes, require total obedience to the free market. The 'adjustments' appear more like the total transformation of national economies from state management to free market.

The aid agencies see the Fund as being out of range of criticism, as it is only mandated to deal with the macroeconomic health of countries and takes no responsibility for the social side-effects of its policies. So they have turned their fire on the Bank, with its poverty reduction mandate. In the minds of many it is too closely associated with the Fund's policies.

The Bank's first response to criticism was to declare itself open to dialogue and recruit some of its most vociferous critics. John Clarke, a former Oxfam radical, and John Mitchell, of the World Development Movement, were both given jobs. But the war of words continues.

A few years ago the aid agencies would have argued against structural adjustment. No one now would deny the need for reform or the dismantling of state bureaucracies. The essence of current criticism, according to Oxfam, is that 'the Bank's adjustment policies continue to impose unacceptable and unnecessary social costs on the poor . . . (and it) appears unable to learn from the mistakes it has made in its projects'.

Oxfam says that primary education and access to health care - key bastions in the war against poverty - are also under threat from policies promoted by the Bank. It quotes the Bank on Ghana, where the average citizen will not cross the poverty line for another 50 years.

The Bank, attempting to take the criticisms on board, has included better education and health care in its recent 'vision statement', a list of the five major challenges which will dominate its agenda in future. Oxfam replies that where the Bank has introduced social-welfare safety nets to protect the poorest people during a period of structural adjustment, it has been too late. The extra programmes to protect the poor have been 'bolted on' to an existing programme.

Ten years ago the aid agencies were at war with the Thatcher government. They accused her of meanness in cutting overseas aid; she referred to aid as hand-outs. Then Chris Patten was appointed Minister for Overseas Development and within a year the aid agencies were eating out of his hand.

He increased the amount of money channelled from the Government to the agencies and managed to persuade them that they were basically trying to do the same things: give poor people better lives.

The alliance between the aid agencies and government was strengthened by Baroness Chalker so that the only criticism of the Government from the aid agencies now is about the size of the aid budget.

If the Thatcher government could succeed in taming the Third Worldists, how did the World Bank fail? And is the criticism justified? As the Bank has moved away from being a funder of development projects to a manager of national economies, it has become dominated by Washington-based economists. The sense of success which emanates from the headquarters in Washington after achievements in countries such as Korea, Malaysia and Thailand is not matched by the sense of despair and destitution in many African countries where organisations like Oxfam operate.

Some Bank officials do not have the imagination to see the effects of their macroeconomic policies on people already below the poverty line. They see things from above - Oxfam sees them from below. Both have been working in a climate of faith in free-market economics which has stifled any debate at all about state controls.

Bank reports have begun to use adjectives such as 'correct' to describe free-market policy, and 'bad' to describe attempts to maintain state institutions and state-controlled industries. Since many of these institutions were set up with the help of World Bank funds 20 years ago, fashions - even in the realm of economic ideology - clearly change.

'They have an almost ideological faith in the deregulated market as the only way of producing sustainable growth and a reduction of poverty,' says Kevin Watkins of Oxfam. He argues that it is possible to introduce free-market reforms and maintain health care and education programmes. If currencies must be floated and state institutions sold off, this should be planned and carried out in such a way and within a time-frame that spares the victims of the changes total destitution.

The two views, from above and below, need to be brought together. The Bank and the Fund, donor governments and the aid agencies need to agree about the subtle differences between creating wealth and relieving poverty.

At the moment the discussion about aid and economic reform encompasses both the former Soviet Union and Africa, as well as much of Latin America and parts of Asia. It is time to distinguish between 'real aid' going to the poorest in Ethiopia and 'temporary' aid which is provided to reorientate the Russian economy. Above all, it is time to clarify what aid is for and who it is for, then draw up a common agenda of aims and methods.

(Photograph omitted)