World Bank's Asia projects in danger
More than 25% of projects in South and East Asia may fail due to the economic crisis, says Bank official
WASHINGTON -- More than a quarter of World Bank projects in South and East Asia may fail to achieve their goals because of the economic slump in Thailand, Indonesia and South Korea, a bank official said.
At the end of 1998, 27.5 per cent of the US$35.2 billion (S$59.2 billion) in bank projects in the region were "at risk" -- almost double the percentage of 1997, said Mr Robert Picciotto, director-general of operations evaluation at the World Bank. These include everything from keeping children in school to overhauling financial systems.
He spoke at a press conference, where the Bank released its annual report on its projects' effectiveness. It pledged US$16 billion in the 1998 fiscal year to help the three nations resurrect their banking systems, reeling from short-term debt obligations.
Those loans were needed to develop strong financial and legal institutions, which are crucial for development projects to succeed, the report said.
The crisis "confirms the serious adverse effects of neglecting institutional development", said the report, titled 1998 Annual Review of Development Effectiveness.
That has led to "almost a doubling of the share of active projects in the region at risk of not achieving their development objectives".
The World Bank, which usually gives long-term loans to governments for projects to reduce poverty, doubled its lending to the region in the 1998 fiscal year, ended last June 30, to help stem an economic collapse. It approved US$9.62 billion in new money for 45 projects, up from US$4.9 billion during fiscal 1997.
In 1997, only 14.6 per cent of its regional projects were considered in danger of failing. Worldwide, its average was 27.4 per cent in 1998, about the same as the previous year, Mr Picciotto said.
Overall, its success rate for completed loans was 76 per cent in 1998, compared with 75 per cent in 1997. That is up from 60 to 70 per cent in the previous six years.
About 2.5 billion people live on less than US$1 a day, the World Bank estimates, and tens of millions of Asians slid into poverty last year because of the economic crisis.
While Asia suffered, development projects in Africa and Latin America have improved, he said.
Significant improvements were seen in agriculture, transportation and health with the aid of Bank loans. But only half the countries using Bank funds to fix their financial systems succeeded and only 40 per cent of projects have improved the strength of government institutions, the report said.
It concluded that the three countries' recessions were accelerated by the lack of strong regulation and weak financial systems, even though they had "strong fiscal situations, sound monetary policies and outwardly oriented trade policies".
About 11 per cent of Indonesian banks' total loans were non-performing. It was 16 per cent for Korean banks, and 15 per cent for Thai banks, the report said. The weakness of their banking systems stemmed from government-directed loans and the lack of deposit insurance systems, it said. "The financial panic would not have spread without weaknesses in domestic institutions."
Bloomberg News