Education and Information are Fundamental to Success

World Bank President James D. Wolfensohn Visits Russia and Eastern Europe

The World Bank's newly appointed president, James Wolfensohn, seeking firsthand knowledge of the Bank's member nations and of the specific problems in their regions, visited Africa, the Middle East, Latin America and most recently five transition economies: Russia, Hungary, Albania, Uzbekistan, and Ukraine. After his latest trip a "town hall meeting" was organized with World Bank Staff of the Europe and Central Asia Region. Here follows a shortened version of his remarks during that meeting.

Dealing with the social issues of transition is of tremendous importance. A terrible anxiety has developed as the economic underpinnings of these countries' social policies have become uncertain, or even disappeared. These nations—in contrast to those in Africa, Latin America, and the Middle East, which I had visited earlier—maintained full employment, as well as a social safety net that includes health care, education, and retirement benefits. Maybe it was inefficient, maybe it was unsustainable, but it was there. Other regions never had that social support system. In the Donetsk region of Ukraine, 450,000 jobs depend on coal mining. Miners work under dismal conditions straight out of the nineteenth century: in lanes less than a meter wide, running at a 30-degree angle, with obsolete machinery, in constant danger of methane gas explosions. These miners' life expectancy is thirteen years shorter than the Ukrainian average, which is sixty-nine years, already shorter than the world average. Some have proposed closing twenty of the mines. Clearly an economic and humanitarian case can be made for that, but what of the mines' employees? At least now they have a job, even if it is not a good job. At present the World Bank is working on a pilot program of $10 million to close three mines and retrain the redundant workers. It will mean moving from a socially secure, but economically inviable activity into a market-oriented activity with fewer social guarantees. Many governments are not prepared to borrow for social purposes. And yet, without adequate social underpinnings, advances on the economic front may seem of dubious value to the average citizen and the risk of political tension may increase.

I was impressed by the high level of education and the tremendous desire for information and knowledge in the region. Dissemination of ideas, information, and education are fundamental to the success of transition. Accordingly, a substantial upgrading of the training and education activities of the Bank's Economic Development Institute (EDI) needs to be considered. The Bank also needs to communicate better with the public both by examining its wide range of activity and by listening to suggestions.

In Nizhni Novgorod I saw a farm that the IFC is helping to privatize. This is a wonderful experiment—but it is still an experiment. The Bank can take three coal mines and deal with their social problems. Or the Bank can go to an auto or a tractor plant, and with some money, demonstrate that the local government can take over administration of the kindergarten or the housing projects that were the responsibilities of those firms. But whether it is privatization of farms or removal of social programs from inefficient corporations—the question is, how can we broaden these good examples so that they can become systemically effective? The Bank can fund excellent pilot projects, but the systemic extension is what it really has to strive for—finding solutions to social issues, together with the host governments. This will certainly require a level of involvement by the government that goes beyond the simple funding of projects.

In Moscow World Bank loan disbursements were a major focus of discussions with Prime Minister Victor Chernomirdin and his first deputies, Mr. Chubais and Mr. Soskovets. Commitments to Russia have totaled $4.6 billion so far, but with the exception of about $1.2 billion in fast-disbursing loans, disbursements have amounted to a mere $200 million. The backlog is enormous. Something is not clicking, and agreement was reached with Mr. Chubais to review all the projects in six months. We will check whether there are problems that can be fixed on our side or on theirs to improve monitoring of the operations. A six-month review, at a very high level, was also agreed upon in both Hungary and Uzbekistan.

A meeting with leading economists at the Budapest Institute for Advanced Studies, hosted by Professor Janos Kornai, proved a very useful introduction to issues in Hungary. I was impressed by the progress that Hungary has made, although with large fiscal and external deficits it still has a long way to go. The 1996 budget will be critical. Prime Minister Gyula Horn backs the tough stabilization program devised by Finance Minister Lajos Bokros and National Bank President Gyorgy Suranyi, despite the apparent social tensions. The World Bank is being called upon to finance transition costs related to social sector, public sector, and financial sector reforms. This request will pose a real challenge for the Bank. I was happy to visit MATAV, the Hungarian telecommunications company, in which both the World Bank and the IFC have invested.

In Albania the World Bank has had great success: in three years 45 percent of the portfolio, consisting of eighteen projects, has been disbursed. Traveling around the country reaffirmed my faith in villages. We went to a mountain village to look at a microenterprise. The villagers were concerned that our loans were small—only up to $500—and they asked for $5,000. "Can you get this amount from another bank?"—I asked them. And they said, "No, we like you, we are very loyal to the World Bank." They vehemently denied that it had anything to do with rates.

In Uzbekistan our trip to the Aral Sea was perhaps one of the most moving experiences. We went to a fishing village, now some 40 kilometers away from the coastline because about 3,400 square kilometers of sea have dried up since 1960. In the Soviet era, irrigation systems, fed by rivers that flow to the Aral deprived the sea of water. The challenge for us, together with the five governments of the Aral Sea Basin, is to stabilize the situation—so that degradation of the Aral Sea can be arrested—and to do something for those villages that have been left behind by the receding water. These people's traditional skill is fishing and fish processing. The Bank has participated in creating wetlands with fish cultivation. In this village where people had absolutely nothing, a child came up to me and gave me five sums, about ten cents, because the tradition is to give travellers some money for the rest of their trip. It was a moving moment that revealed that the strength of spirit and the values of the local people, at the village level endure—it is important for us to build on these strengths.

In many countries that I visited, the IFC office is at one end of town and the World Bank office is at the other. This is more than symbolic. In the realm of ideas and operations, IFC and the Bank often function as independent units. Independence is a good thing, but within the World Bank Group, the relationship needs to be that of best friends working together. I do not propose to merge either IFC or MIGA; but there is a need for better coordination within the World Bank Group especially dealing with the private sector.

World Bank Lending to Russia, 1993-October 1995
(US$ million)