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East: World Bank Report Blames Poverty On Governments, Vested Interests

Critics of the World Bank say its policy recommendations are widening the gap between rich and poor. Yesterday, the bank sought to counter those allegations by releasing a report that blames the governments of former Soviet republics for desperate living conditions in their countries. World Bank economists say most Eastern governments haven't paid enough attention to their recommendations. Instead, the report says, post-Communist reforms have been hijacked by criminal groups and other vested interests. RFE/RL correspondent Ron Synovitz looks at the report.

Prague, 20 September 2000 (RFE/RL) -- A new World Bank report on poverty says that falling living standards in former Soviet republics are largely a result of government policies that favor a narrow set of private interests rather than the broader public good.

The study was released yesterday in Prague ahead of next week's annual meeting of the World Bank and International Monetary Fund. It says economic policies in the poorest countries of the former Soviet bloc often serve an elite group of individuals with close ties to governments.

World Bank economist Ana Revenga put forward a new economic term to describe what she says is a major cause for the widening gap between the rich and poor in former Soviet republics. She spoke of the "capture of the state" by powerful business elites.

"The increase of inequality in the CIS [Commonwealth of Independent States] has a lot to do with the capture of the policymaking and the legislative agenda by vested interests -- or the 'capture of the state,' you may call it."

High levels of bureaucratic corruption and criminality also were cited by both Revenga and the report as major causes of poverty.

"There are countries in the region (Eastern Europe and former Soviet republics) where, in some sense, the state is captured by vested interests. It's very hard to imagine these governments taking action in a sustained way that is good for [fighting] poverty if many of those actions go against those interests that have taken the state hostage."

The World Bank says the creation of new jobs has been severely hampered by widespread protection rackets which allow criminal groups to extort money from small businesses to such an extent that many are unable to survive. In contrast, Revenga notes that small businesses have been a major source of new jobs in Central European countries where post-communist reforms have been more successful.

Another dangerous corruption trend cited by the World Bank is that doctors and school teachers in the poorest ex-Soviet republics increasingly demand what the report calls "under-the-table" payments because they cannot survive on their meager state salaries. Revenga says this trend is especially dangerous for the poor because they are becoming trapped in a cycle where it is difficult to receive proper health care and education.

Disturbing health trends in post-communist states include a decrease in male life expectancy, the resurgence of tuberculosis, a drastic increase in sexually transmitted diseases and a looming threat of an AIDS epidemic.

Emerging signs of nutritional deficiencies among children are becoming apparent in parts of northeastern Romania. Eastern Ukraine and Georgia's Imereti region also were listed as regions where poverty abounds.

The World Bank says the gap between rich and poor is becoming especially pronounced in Russia, Armenia, and Moldova. In Russia, for example, about 20 percent of the population is surviving on less than $2 a day. That means that Russia is home to nearly two-thirds of all people trying to survive below the $2-a-day poverty line in a former Soviet republic.

"In places like Russia, you've had a shrinking pie and the poor have been getting a shrinking slice of that pie."

The World Bank also says countries with the most number of people living on less than two dollars a day are Tajikistan (67 percent), Moldova (55 percent), Kyrgyzstan (50 percent) and Armenia (42 percent). About a fifth of the people in Azerbaijan and Georgia also live on less than $2 a day.

Serbia was not included in the study because it is not a member of the World Bank and because the bank has no way to verify whether the data provided by Belgrade accurately reflects the situation for the country's poor.

Turkmenistan and Belarus were mentioned as countries no longer receiving fund from the World Bank because of their refusal to follow the institution's reform programs.

World Bank Vice President Johannes Linn admits that the institution becomes defensive when faced with criticisms, such as that its recommendations are a cause of the widening gap between the rich and poor. And Linn also admits that the bank has committed several errors in its recommendations to countries making the transition from central planning to market economics.

Linn says one mistake has been to underestimate the scope of corruption and criminal influence in Eastern Europe and the former Soviet republics. Another mistake, according to Linn, was for the World Bank to have insisted on broader control of the reform process in order that fewer monopolies would be created through sales of state-owned assets and other market reforms.

Finally, Linn said the World Bank did not properly emphasize the importance of maintaining social security programs when the transition process began 10 years ago.