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World Bank’s IFC Arm Responds to Our Critique of Its Poverty Fighting

Below is a letter from an official of the World Bank's International Finance Corp., taking issue with our article posted Jan. 2 and co-published with Foreign Policy magazine. It is followed by our brief response.

We are deeply disappointed by your article, "Can You Fight Poverty With a Five-Star Hotel?," which raises an important question about the International Finance Corporation's (IFC) impact fighting poverty in developing countries. It failed to be fair and it failed to fully examine our impact.

What is our record?

Every dollar of profit we make is reinvested to support private sector development, increasingly in the poorest countries. Since 2007, our profits have totaled more than $10 billion. Of that amount, we've contributed about $2 billion to the International Development Association (IDA), making us a major contributor to the World Bank's fund for the poorest in recent years. The rest has been reinvested in developing countries—creating jobs, modernizing infrastructure, expanding access to finance for small entrepreneurs, and building the conditions for sustained prosperity. This is what our member countries want us to do, and we believe it is the right thing to do.

Since IFC began in 1956, we have invested more than $125 billion in developing countries, improving the lives of millions. In Ghana, for example, IFC's support for KHI Ghana helped create 1,500 construction jobs and more than 300 permanent jobs at the Movenpick Hotel—providing much-needed employment and opportunities for small businesses while also supporting environmental and social best practice. In Egypt, our investment in Orascom Construction Industries is expected to provide more than 2,500 jobs and help boost agricultural production. Those are just two small examples of our impact. In the last few years, roughly half of our projects have been in countries with a per capita income of less than $1,175.

The World Bank Group's recent World Development Report focused on the importance of creating jobs. One of its conclusions was that 90 percent of all jobs in the developing world are created by the private sector. That is the central part of our mission to fight poverty: encouraging private companies to invest in developing countries, which creates jobs in areas that are starved for private investment. In 2011 alone, our investments provided 2.5 million jobs in developing countries.

Our investments are not nearly enough—not at a time when 1 billion people go hungry every day and 600 million jobs need to be created within this decade. That's why we encourage other investors—small, medium, and large—to join us. By working with them, we demonstrate the benefits of investing in challenging markets, and help ensure that our values of sustainable development are incorporated into their work.

In addition to failing to examine this record, the writer, Cheryl Strauss Einhorn, also made several factual errors. One is the IFC was established to "muster cheap loans" for private businesses. We don't provide "cheap" loans, and never have. IFC's loans are at market rates.

A second is that she says the IFC "likes to work with huge corporations" and "tycoons." Yet she provides no support for that broad claim about our preferences. In fact, she later says 20 percent of IFC's investment projects were for amounts less than $5 million—the type that tycoons typically avoid.

And critically, a third is an incorrect summation of a 2011 report by the World Bank's Independent Evaluation Group on the IFC's performance. She concludes that the report finds that IFC's work "at times may even sacrifice the poor." The report, however, makes no such finding. Its conclusions are far more nuanced, and we invite readers to judge for themselves.

Finally, Ms. Einhorn hindered her own ability to accurately report the story by identifying herself not as a reporter on assignment but as a college professor conducting "research." This is a clear violation of ProPublica's own ethics code. ProPublica's editor's note acknowledges Ms. Einhorn was "incomplete" in identifying herself.

Can we and others who work with the private sector improve and make a larger impact on poverty? Yes. But articles like this one don't help make a case for that. Ms. Einhorn's reporting was flawed because she failed to examine IFC's record and then to make an independent evaluation of all relevant facts. We also expect a degree of fairness from such highly respected media. Its absence in this case is a disservice to readers who trust you to uphold the high standards of fair and impartial journalism.

Sincerely,

Bruce Moats
Director, Corporate Relations
International Finance Corporation

ProPublicas's response: Much of this letter supports the theme of the story, which is that the government-funded IFC is solidly profitable and is operated much like a profit-minded bank, and that it helps the poor only secondarily rather than as its central focus. The few assertions of error we think are wrong. Mr. Moats says the IFC doesn't make "cheap" loans, only loans at market rates. That is semantics. The IFC has long been proud of saying it makes loans to borrowers who can't get private financing. What is a market rate for a loan that isn't made? Mr. Moats says we offer no evidence for the statement that the IFC likes to work with huge corporations and tycoons; we named more than a dozen and could easily have named two or three times that many. Mr. Moats doesn't like our conclusion that the 2011 report by the World Bank's own Independent Evaluation Group portrayed the IFC as a profit-oriented, deal-driven organization that often fails to reach the poor, and at times may even sacrifice the poor. Mr. Moats says the report is more "nuanced" than that and invites readers to judge for themselves. We join in that invitation.

John-Albert Eadie

Jan. 4, 2013, 11:31 p.m.

He invalidates himself from the first.  Promoting capitalism is not a pure motive, and doing it in poor countries has immediate bad effects, as the Publica article is *very fair* to point out.  World Bank *requires* inspection and critique.

I agree mostly with Mr Moats.  A fund cannot operate successfully and help more people if they give away money.  They are a fund, not a charity and the mentality that you should get everything for free if you are poor does not instill a culture of or desire for improvement.  The more charities who start working like this, the more worth it will be to the communities they serve.  Let’s stop this “handout” culture and rather make people work for their new found businesses.

The problem is, as I see it, that the IMF (or IFC) isn’t so much wrong as outdated.  They have their facts right, but are insisting on propagating nineteenth century notions about how an economy works.

Specifically, that private sector jobs come from a rich person starting a big company to employ an army of minimum wage serfs.  But business isn’t capital-intensive, anymore, unless no money is allowed to reach the poor to begin with.

Microcredit seems far more effective, allowing businesses to grow from the bottom up, rather than the top down, ensuring they match the local needs and resources.  And all the opposition I’ve found to microcredit appears to arise from socialists or similar people who want to see equal results to all startups to consider a plan a success.

Yes, ninety percent of jobs come from the private sector.  But they don’t all come from the same guy.

But that’s what I suggested previously:  The IMF is predicated on the idea that developing nations will and must develop on the path that European societies did.  Our industrial revolution was engineered by rich people building company towns, so the company town must come to the third world to improve their lives.

Tom Blinkhorn

Jan. 7, 2013, 3:44 p.m.

As a strong Pro Publica supporter, I too was disappointed with the Einhorn piece and was delighted that the IFC responded so promptly in an effort to set the record straight. An underlying assumption in the article seems to be that private sector investments cannot help alleviate poverty. This is naive nonsense and Mr. Moats in the IFC letter tried to explain why. In responding to the IFC letter you failed to mention that Einhorn portrayed herself to people she was interviewing as an academic researcher not a journalist. Full disclosure on my part: I am a retired World Bank employee with extensive experience in Africa, including Ghana.

I agree with Tom Blinkhorn. Either you are honest and therefore should have led with the acceptance of the criticism of Einhorn misrepresenting herself or you are no better than other mainstream media.

Amitava Banerjee

Jan. 8, 2013, 12:03 a.m.

I agree with Mr. Moats and IFC’s response.

The fight against poverty in developing countries is fought on many fronts.  Some try and help the poor directly. Others try and improve the country’s macro-economic situation to make it attracting to foreign direct investment and so help create jobs to give people the opportunity to improve their lives.

Ms. Einhorn clearly has views on how poverty should be eradicated, although she does not elaborate on them in her article.  However, the title of her piece ” Can You Fight Poverty With a Five-Star Hotel?” gives some indication of her thinking and in answer to the question she posed, my answer is an unequivocal “YES!!”

The private sector has a role to play in poverty alleviation through job creation, as do those who work directly with the poor—mainly civil society organizations staffed by Ghanians—who are doing very valuable work on the ground and within their communities to help the poor.

However, in addition to their work, an international aid agency, headquartered thousands of miles away in Washington DC but also with a presence on the ground in Accra, is also making a difference by persuading a firm owned by a Saudi prince, partnering with a German hotel management firm to come to Ghana and provide an opportunity for some poor people to have jobs and acquire new skills.

On a separate point, it takes an organization with a deep sense of purpose to publicly post the findings and criticisms of its work done by the Independent Evaluation Group.  As IFC Vice President, Mr. Rashad Kaldany, has noted, IFC is not perfect. But it is making an important difference in the lives of thousands of poor people in developing countries, by providing them with jobs and the opportunities to learn new skills.

And finally, it does not help Pro Publica, or Ms. Einhorn, if she chooses to misrepresent herself in doing investigative journalism.  Most of what IFC does is a matter of public record.  There is no need to go under cover to produce an investigative piece.