Wednesday, January 19

The Second Rule of Foreign Policy

"Dear Pundita:

Isn't the World Bank's PALll project (Ukraine) and similar projects correcting the type of mistakes you noted about the Bank's development loan model? I think the Bank's lending policy has become sensitive to the need for establishing the basic mechanisms of democratic government in developing countries.
[Signed] Kumar in Bethesda"

Dear Kumar:

Okay, let's look at PAL-2. First we'll read the first three sentences (written in Bankese, which means they take up half a page) from the PAL-2 project description:

"The Second Programmatic Adjustment Loan (PALII) Project will continue deepening the program of achievements, in the five thematic areas of the first PAL operation: fiscal and financial Discipline; regulatory reform; creating and protecting property rights; public sector accountability; and, management of social and environmental risks. The project will encourage policy coordination - PAL provides an anchor for the pro-reform constituency in the Government and the Verkhovna Rada, it acts as a catalyst for change, and it is able to direct technical assistance to areas so requiring. Wider participation of civil society in the design, and implementation of reforms will be supported, as will the continued macroeconomic stability, through the establishment of structural reforms, crucial for growth over the medium term. "

All that sounds helpful toward creating a modern civil society, one that supports the mechanisms of democratic government. Now let's break down all those words into crystal-clear English:

PAL-2 Contracts (awarded Spring/Summer of 2004)

Analysis of Conformity of Ukrainian Legislation with WTO Standards
Contract amount: $409,000
Contractor: HTSPE Ltd.
Contractor Country: United Kingdom

Advisor on the Strategy Paper for Further Development of Public Procurement System in Ukraine
Contract Amt: $40,000
Contractor: Simeon A. Sahaydachny
Contractor Country: United States

Assisting in Preparation of a White Book on Internal Financial Control
Contract Amt: $35,000
Contractor: Lars Lage Olofsson
Contractor Country: Sweden

(There's a fourth contract--for computers. The contract was awarded to a UK company; that contract is also pocket change--pocket change in USD, that is; it takes about 5-1/2 Ukraine hryvnias to buy 1 US dollar.)

Readers who have been following the situation in Ukraine will intuit something odd about the PAL-2 way of helping to install the mechanisms for democratic government in Ukraine. Well, yes--if installing such mechanisms is the primary goal, it would be skewed priorities to borrow half a million bucks to conduct an analysis on how to make Ukraine's legislation conform with WTO policy.

However, that's not the goal. The Bank has clearly stated their goal with regard to Ukraine. From "Ten Things You Never Knew about the World Bank in Ukraine," here is the #1 thing that we (to include the American commentariat on the Right and Left) never knew, unless we lived on the World Bank website, of course:

"1. For Ukraine, European Union integration is proving a challenging task. The Ukrainian government’s “European Choice” program aims at harmonizing Ukraine’s laws and practices with those of the European Union. The World Bank is supporting this program by helping Ukraine establish a more inclusive and responsive government, with a view to forging closer relations with the EU."

Alert readers might be scratching their heads at the "European Choice" reference. Yes, thanks to the Canadian press and the research talents of the bunch at World Socialist Web Site, Pundita's readers are aware that more than one choice was under consideration. Kuchma had discussed the possibility of Ukraine joining a trading bloc with Russia. That set off a panic in EU circles, which reverberated in Washington.

Further discussions were suspended after the howls went up but just the EU fear that Kuchma would go ahead with the plan was probably his undoing, leaving aside other factors. If you look at the dates on those PAL-2 contracts it's obvious the ship had left the pier before Yuschenko's election campaign. Under Kuchma Ukraine had been on a track to join the EU and NATO; the Bank wouldn't have committed the funds to PAL-2 if they'd thought otherwise.

Pundita repeats herself here: The World Bank is a one-trick magic show. To the extent that better business practices and freer markets help democracy, the Bank helps democracy. But the World Bank, as with all development banks, is founded on the concept of the development bank project loan. The loan model is meant to be a trickle-down aid to economies. The same model is used, only there is a mid-step inserted: bring the Ukraine government's way of doing things in line with EU and WTO practices.

The other night Stephen Cohen gave John Batchelor's audience a summary of the thinking on the US side that led to strained relations with Putin. He finished by observing that the first rule of foreign policy is that actions have consequences.

Here's the second rule: Know exactly what your country's foreign policy instruments are doing in any given fiscal year.

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