The occasion of the 50th anniversary of the Bretton Woods Institutions has been used by many as the partial basis for asking the question: is there a need for reform of these international financial institutions? Posing the question in this way automatically puts one on the path of thinking about major surgery and radical reform. This tendency can be worrying because evolution has always seemed to be the way of making successful changes in institutions that have a large number of stakeholders.

When one thinks about the International Monetary Fund (IMF) and the World Bank over the last 50 years, one has to conclude that their evolution has been quite significant. The IMF has clearly grown and changed from an institution that was initially in the business of supporting fixed exchange rates. After 1973, the nature of the work changed and the IMF concentrated its resources most heavily on macroeconomic stabilization, deficit reduction, and inflation reduction, as objectives to be achieved for financing general balance of payments stabilization. So the IMF has evolved and will continue to evolve.

The World Bank has also undergone significant evolution. At the outset, it focussed primarily on funding investment projects of a fairly defined and concrete nature, such as the building of bridges and dams. In the 1970s, there was a need for fastdisbursing loans to countries that had been hard hit by the oil crisis. The Bank got into the business, not dissimilar to that of the IMF, of making fastdisbursing loans for balance of payments support ¾ general revenue financial support in exchange for a country meeting certain kinds of sectorwide (as opposed to projectspecific) conditions. This shift represented a major change in the business of the World Bank.

When dealing with the reform of the international financial institutions (IFIs), there is some difficulty

of definition. It is not always clear what part of the spectrum of IFI reform to focus on, because it is a fairly wide spectrum. For the sake of convenience, one can divide the issue into three categories. One might be called shock management; the second, policy responsiveness; and the third, overlap and duplication, which is almost synonymous with institutional issues.

First, shock management has been raised recently because of the Mexican peso crisis. Questions arise such as, is the problem, which arguably derives from the increased significance of private sector capital flows and the associated volatility and risks, a systemic one? Increasingly, the answer to the question seems to be yes, it is systemic. Therefore, what should be done about it? Ministers in Halifax are likely to consider this as an important issue and to ask questions about whether the IMF needs new instruments, whether it should be in the surveillance game earlier, or whether it should be more decidedly in the surveillance game. These are all good questions, and it is a very important area. Nevertheless, it is only one area on the spectrum of IFI reform.

Second, under the heading of policy directions and IFI responsiveness, there is a distinction between two sets of questions that one can ask. The first set involves some major policy issues that exist in the development field and which have to do with the allocation of funds from the IFIs, particularly the World Bank. The allocation of funds across regions and basic strategy orientations becomes particularly interesting when one sees what is happening (and not happening) in Africa, and what is happening in the countries of the former Soviet Union.

The second set of questions involves the responsiveness of IFIs, particularly the World Bank, to crosscutting policy issues. The World Bank is perceived as an institution that has been slow to respond to the crosscutting policy thrusts which have emerged in recent years, such as the environment and sustainable development, poverty reduction, women and development, private sector development, and what the Bank calls "beneficiary participation," which is the involvement of local groups in the development of projects and policies. While the Bank may be seen to have been slow, as a general proposition, the Bank has been relatively responsive to these new issues.

For example, on the environment and sustainable development, quantitatively, when one looks at spending on fairly narrowly defined environmental projects between 1986 and 1989, total spending was about $28 million. And the total number of projects in that fouryear period was about 15. Between 1990 and 1994, total spending increased by $326 million, and the total number of projects defined as environmental rose by 103. That is a significant quantitative response. Qualitatively, there are a number of signs of change in the Bank's approach to the environment and sustainable development which cover such items as assistance to 25 countries in 1995 to produce national environmental action plans. The improvement is due partly to the increasing role of environmental assessments, and to the way in which the Bank goes about assessing the developing projects. The improvement reflects the Bank's methodological contribution. The Bank is past the point of saying: we should do methodological work and environmental national accounting. It is doing it, and it is doing some impressive and pioneering work. And the Bank's internal procedures and organization increasingly reflect the need to build sustainable development into its thinking. Programs on other crosscutting issues, such as the role of women, may not be as significantly developed as those on environment, but they are under way.

There is always room for improvement, and the Bank is facing significant constraints in its operations. Specifically, there is resistance from developing countries with different histories, different cultures, and views which often surprise those with a North American mindset, to moving quickly in many

of these new areas.

As well, the size and complexity of the World Bank group, which includes a number of agencies, (the World Bank, the IDA, the International Finance Corporation, and the Multilateral Investment Guarantee Agency), comprising close to 10,000 individuals, many different cultures, and a geographically heterogeneous Board of Directors, mitigate against rapid change. The question is, in the face of these constraints, are the responses to the crosscutting policy issues as reasonable as can be expected? The answer is probably yes. And the question that should be addressed is: are there changes that could be made to the institution that would make that responsiveness even better?

The third area on the spectrum of IFI reform encompasses the institutional issues ¾ overlap and duplication ¾ such as exist in the UN, for example. Another institutional question that touches the World Bank is the relationship between the World Bank and the regional development banks, such as the Asian Development Bank and the African Development Bank. There is probably significant room for improvement in the coordination between the World Bank and the regional development banks. There is a major task force now in place which is examining these kinds of questions, and it is expected to report on an interim basis late in 1995, with a final report due in 1996.

In regard to the relationship between the Bank and the Fund, there are strong arguments about the potential value of integrating the two institutions. There is tremendous duplication at the administrative level, with the organizations built on two large bureaucracies doing largely the same thing. The more challenging issue is with respect to their policy convergence or divergence. There appears to be a significant amount of convergence. The Bank is significantly into what is called structural adjustment lending, which is what the IMF does. The economic paradigm that drives the two institutions flows almost linearly from macroeconomic stabilization, deficit control, inflation control, and exchange rate control, which is the preserve of the IMF, into structural adjustments economywide, which the Bank and the Fund share, and which covers issues such as trade liberalization, price control, public sector reform, and privatization. And both the Bank and the Fund are providing funds to countries with conditionality attached in these areas. The Bank is even into sectoralwide adjustment far more than the Fund, which is the next step, but again with economywide conditionality attached to the financial sector, the health sector, the energy sector, and so on. Finally, at the end of the spectrum is what was traditionally considered the Bank's role: the financing for investment projects, schools, bridges, and so on.

Developing countries question this paradigm, but that is a separate issue for discussion at some other point. Further, developing countries question the social impact of some of the conditionalities that both the Fund and the Bank insist upon in return for lending, and they question the developed countries' adhesion to the paradigm.

Structural adjustment projects at the Bank clearly touch upon the business of the IMF and could act as a basis for much closer, if not total, integration of the two institutions. However, over the past year, the Bank itself has been moving back to its original lending function, which involves less lending for structural adjustment and more lending for projects. At the same time, the IMF is increasingly focussed on the need for more surveillance at the very front end of that paradigm. So, the two institutions are actually moving further apart in terms of the points and the paradigms upon which they are focussing, which suggests that perhaps both institutions should be maintained. This trend is reinforced by the fact that the Canadian constituency in the Caribbean and other developing countries are sometimes highly critical of the IMF. If the Bank is going to be successful in implementing projects in developing countries, it must be seen as a friend. The greater the differentiation between the two institutions, the easier it tends to be for the Bank to get its job done.

In summary, IFI reform covers a broad range of quite distinct propositions and areas. The topic is in need of problem definition. The more one can sort out where on the spectrum one wants to be, the better.

Although the World Bank is doing a reasonable job in terms of responding to crosscutting policy issues such as sustainable development and poverty, there is room for improvement with respect to policy implementation. It is one thing to have the policies, but it is another thing to implement them. In areas such as resettlement, the Bank has been criticized for not following its own policy. In 1994, an inspection panel was created, the purpose of which is to respond to complaints that the Bank is not following its own policies. This is a useful institutional change, and it clearly illustrates some progress.

With respect to the Bank's relationship with the regional banks, there is some evolutionary rather than radical change due in the long term, which might involve making the Bank's lending role less significant. Private sector capital flows are increasing while governments' capacity to channel financial resources into official development assistance is flat or decreasing. So the relative importance of flows through the IFIs is clearly going down, and that trend is likely to continue for the next decade. In this context one must ask: what is the relevance of, and what should be the focal points for, the World Bank? Given that it will do less lending, should it consider becoming more of a serviceoriented institution which could promote more and better technical assistance to countries, better policy dialogues with the developing countries, and increased coordination among international stakeholders? The Bank can certainly do more, but it will involve a significant reorientation, and will take time. Perhaps that evolutionary process can be started now under its new President.

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Len Good is the Executive Director for Canada at the World Bank and a former Deputy Minister of the Environment.