O'Neill urges World Bank, development banks switch focus towards productivity

WASHINGTON (AFX) - Treasury Secretary Paul O'Neill called on the World Bank and regional development banks to narrow the scope of their activities, and focus resources on boosting productivity in the world's poorest nations.

	    "The scope of the World Bank's activities is now too diffuse, and this reduces its focus on the core objective of raising income per capita," O'Neill said in remarks prepared for delivery to a Congressional hearing on the Treasury Department's international affairs budget.

	    He described the reform of international financial institutions such as the World Bank "a key priority" for the Bush administration.

	    "In the case of each new loan and each new grant we need to ask: how is this decision going to raise income per capita, or raise productivity," O'Neill said.

	    Echoing comments made at last week's Asian Development Bank (ADB) annual meeting, O'Neill explained that poverty is the result of low productivity.

	    International development assistance should therefore concentrate on raising productivity levels, rather than investing in large infrastructure projects or "cultural heritage projects," he said.

	    Such projects that only have a "peripheral development impact" or "that could easily attract private finance are ... problematic," the Treasury Secretary said.

	    Education is essential to raising labor productivity, he added.

	    "More and better education is an essential ingredient for higher productivity growth (and) I would like to see the multilateral development banks place greater emphasis on (it)," O'Neill said in the remarks to the House Appropriations Committee.

	    O'Neill explained at the ADB meeting that educating engineers would be a better use of development aid than financing the construction of a single road or water project.

	    The World Bank and other development banks such as the ADB and Inter-American Development Bank also ought to concentrate assistance to the poorest countries, and raise loan prices for higher-income developing 

countries, he said.

	    Raising interest rates on loans to middle-income countries can help provide incentives for them to rely on private markets, O'Neill added.

	    Middle-income countries commonly include Brazil, Argentina and Mexico.

	    O'Neill also called for performance-evaluation measures for the multilateral development banks, along with "requiring prior actions before loans are made."

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