The World Bank’s Land of Kiosk: ’Community Driven Development" in East Timor

12 March 2004 by Ben Moxham


Ben Moxham is a volunteer with Focus on the Global South, based in East Timor. He worked with a joint government-civil society Timorese research and evaluation team looking into the Community Empowerment and Local Governance Project (CEP). Email - ben at focusweb.org.

It’s hard to avoid kiosks and their sad stories in East Timor. In one quiet, dusty clearing in the village of Meligo, in Bobonaro district, five groups of widows had set up five of these small shops next to each other. Here, the customers most likely to purchase some of their imported, packaged goods were the scabby, salt-resistant bushes littering the clearing. The women had each obtained a micro credit loan as part of the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

’s Community Empowerment and Local Governance Project (CEP), and saw only one business option in the wretched economic environment of the newly independent nation.

Fifty four per cent of CEP micro-credit loans went to kiosks and the resulting “oversupply” has led to predictable owner complaints of few customers and too much competition. These difficulties are exacerbated by the sky-rocketing price of wholesale goods due to the inflationary pressures of the international reconstruction circus with its well paid consultants and US dollar-economy.

The widows from Meligo don’t know the exact financial health of their businesses because they are illiterate, but some World Bank researcher does and concluded that in 70 percent of cases, widows under this program wouldn’t make enough money to pay back the original loan. If the project actually enforced loan repayment, most of the recipients would have plunged further into poverty. Welcome to independence.

THIS NEW BUSINESS OF COMMUNITY DEVELOPMENT

As the dust cleared in the aftermath of the Indonesian military orchestrated chaos following the August 30th, 1999 vote for independence, the World Bank arrived. With key Timorese elites, they led a ‘Joint Assessment Mission’ which drew up a policy blueprint for the new nation and the Trust Fund for East Timor (TFET) - a trust fund the Bank would administer to direct donor funds into this framework. While the UN focused on elections, law and order and creating an interim national government, the World Bank, IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
and ADB set about reshaping the country’s economy.

The widows of Meligo are a tragic example of what happens when the World Bank’s agenda of hastily resuscitating and building a market economy (the leitmotif of all the Bank’s projects in Timor) takes precedence over everything else. The CEP was the micro economic flagship of this agenda, and more. It was meant to kick start the rural economy and to “build democracy” by decentralizing government by giving locally elected CEP councils block grants to spend on small projects they felt best met their community’s development priorities.

Commencing in early 2000, the $18 million project covered all of the country, using all of the new vocabulary of development: A ‘decentralised’ system of village development councils would (a) exercise ‘good governance’ through the ‘transparent’ and ‘accountable’ use of three cycles of project funding to (b) ‘empower’ communities to ‘participate’ in their own ‘poverty alleviation.’ At the project’s wind-up, nearly three years later, over 400 CEP councils have helped cover the country with a range of community projects such as repaired roads, water sanitation projects or micro credit funded kiosks.

The CEP is part of the Bank’s foray into what it labels Community Driven Development or CDD. Many ‘developing’ countries now have some variant of this World Bank program. In all, $5.6 billion was spent on CDD in the financial years 2000 to 2002 and the figure rises to $9.7 billion if expenditure to lay the groundwork for these programs is included [1].

The move into CDD and ‘good governance’ also mirrors the Bank’s move into the financially riskier area of post-conflict reconstruction. As Anne Carlin from the Bank Information Center points out in a recent report on IFI activity in Afghanistan, IFIs such as the World Bank have moved into nation building as a ‘new line of business’ to offset the reduced demand of large borrowers such as India and China [2]. Timor’s Bank-managed trust fund system has been replicated in Afghanistan and was recently proposed in Iraq. All of these developments strengthen the claim that the World Bank and other IFIs are the de-facto managers of the ‘developing’ world.

‘DRIVE-BY’ NATION BUILDING

The Bank’s CEP in Timor epitomizes the contradictions of the new trend in nation building on the quick. It tried to both deliver speedy material assistance and to leave behind robust institutions of local governance that would “empower” communities to tackle their own development. The Bank prioritized the former, keen to show project results in a competitive reconstruction environment accountable primarily to donors.

After pressing for the quick disbursement of project funds, training timetables were cut short, forcing the more participatory training topics to be scrapped. As one project trainer reflected, ‘The CEP had a pile of rules to limit corruption but a participatory development model needs time to develop and this was wiped out through program speed.’ Detailed project rules and novel council structures need explanation and consequently, community confusion was rife. ‘The irony here,’ remarked one district CEP worker, ‘is that they’d ask us to finish in two months but the community would not understand the project and this would create conflict. As a result, it would end up taking four months.’

The Bank states that ‘participation’ is the keystone of the CEP: ‘projects will be produced by communities for community activities’ (the emphasis is theirs) [3]. However, this idea of empowerment was limited usually to deciding in what order the community would build either a water project or a bridge. Instead of empowerment, the communities got a technocratic World Bank task manager sitting atop a massive project infrastructure of project manuals, procurement guidelines, organograms, supervision missions and staff training. According to one project trainer, the councils ‘began to resemble little more than an aid disbursement mechanism.’

This brand of participation did little to engender enthusiasm amongst community members. As a result, ‘participation’ was identified by many CEP staff and council members as the biggest problem facing the project. Without people to monitor and contribute to council processes, the system was placed under an incredible strain that no amount of curt Bank memos to project staff could fix. The CEP is an unfortunate example of the depoliticisation and bureaucratisation of some potentially radical and participatory experiments in popular democracy [4].

Even the scope of the communities’ choice of projects seems to have been restricted by the Bank’s preference for infrastructure projects that nurture the market. As the first Project Appraisal Document states, only ‘economic infrastructure’ would be built under the CEP [5]. While this language was changed in subsequent documents, these biases appeared to have already leached into the project approval processes. For example, despite education and health being identified as the top priorities during broad community consultations for a national development plan, schools and health clinics were barely funded under the CEP. [6] Yet rural health facilities are direly needed in a nation where nearly one in every one hundred women dies during child birth [7] and in education, the average student to teacher ratio is 52. [8] Can kiosks double as birthing clinics?

BRINGING DEMOCRACY TO THE COUNTRYSIDE

Project designers were initially enthusiastic that the CEP councils were to be the key institution of local governance. The councils were introduced on the contradictory premises that they would fill a governance void at the local level and provide clarity to the complex structures already existing. It was a deliberate attempt to alienate both the political power of a pervasive and legendary clandestine resistance network and more traditional structures of local leadership. This idea was marketed as part of a civilizing mission: a way to bring democracy to the countryside. Arguably its function was to also keep the political management of the reconstruction process in Dili. But these networks and structures had a genuine local legitimacy that the CEP councils never acquired.

In contrast, the councils struggled to establish a purpose beyond being the transmission line to World Bank-controlled dollars. They were frequently identified by community members as ‘Banco Mundial’ councils or part of ‘the company’. It should be noted, though, that many communities can be proud of what they achieved through the CEP council process. Their fragile political status and financial muscle often led to a variety of problems, as pre-existing authority either tried to usurp them or caused community loyalties to splinter. Consequently, other providers of external assistance such as international NGOs were deterred from consulting with the tarnished councils and usually relied on more traditional structures. [9]

STUNTING GOVERNMENT

The CEP played a role in the Bank plan of entrenching a small government in Timor-Leste by providing for the outsourcing and self-management of many service delivery arms of government as well as local level governance structures. As a justification for their neo-liberal predilections, the Bank warned Timorese elites to avoid the bureaucratic ghosts of Suharto by not replicating a bloated and corrupt government, ‘disconnected from the needs and wants of the people.’ [10]

But this is to simplify the Indonesian administration. While their military’s actions in Timor are a strong contender for the worst act of genocide of the 20th century, the administration, as remembered by one Timorese, ‘opened a lot of schools, created work for unemployed people, built up the infrastructure, shops, markets and other facilities.’ [11] Now, the free market has ushered in mass unemployment and expensive basic commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. causing the conversations drifting along the streets of Dili to cast a positive light on some aspects of the old regime.

The CEP treated East Timor as a blank slate, bypassing any institutional knowledge in the former administration. Instead, the project used technical assistance from the fledgling private sector that lacked the skill and ability to plan or coordinate with other projects. Two years later, with technical failure common and many projects facing uncertain sustainability, one World Bank report concluded that perhaps it would have been better if projects had coordinated with line ministries ‘who have the technical capacity to advise on appropriate design guidelines.’ [12]

It is a common story across Bank run CDD projects. In his review of the Bank’s 2004 World Development Report, Tim Kessler noted that they ‘typically bypass local government’ and that “a significant sample of CDD (Social Fund) water operations revealed a likely sustainability of 24 percent of operations.’ [13]

At a heated meeting in Manatuto District, local government staff were angry about a decentralization model that failed where they believed they could have succeeded. For them, technical failure, corruption and community confusion and conflict were the common symptoms of an uncoordinated and poorly designed system of governance.

After the meeting, the agitated District Development Officer led the research team across miles of sweeping rice paddies to what he thought summed up the failures of CEP: an irrigation project that had lost its tussle with some basic laws of physics. The consequences of project cost cutting and poor technical skill would be expensive to fix. ‘This thing just floods’ he sighed.

The CEP frustrated a national government that felt it was ‘treated like the bombeiros’, a fire-brigade, called upon only to dose the flames of project failures. Although the project was nominally under a government department, it was left out of the day to day running of the project. CEP staff were in practice more accountable to the Bank. Fuelling this division between the parties was the Bank’s attempt to create CEP staff in their own image. Superior salaries and resources for project staff caused tensions with government, especially as the government department director handling CEP was meant to supervise a project manager earning four times his salary.

This is a theme now transcending national boundaries: a well paid, managerial elite, overseeing the outsourcing and impoverishment of social services - while communities are forced to pick up the slack in an act of what establishment social scientists have excitedly misdiagnosed as ‘community empowerment’ or the ‘rebuilding of social capital’. One disgruntled community member interviewed didn’t need as many words to describe this: ‘This is just doing the work government used to do but being paid less for it.’

The project did achieve some success, though. Water projects in particular vastly improved access to and quality of water to communities, especially helping women who do the bulk of cooking, washing and cleaning. But the project’s failures overshadow these achievements, especially as some 35 to 45 percent of the entire project budget was spent on project overheads - to prevent the problem ridden project from derailing. In addition, while much of this money went into capacity building and institutional development these skills will be scattered to the wind when a frustrated and newly elected government winds up the project.

RETURNING TO THE LAND OF KIOSKS

The most enduring legacy of the CEP will be its problems with micro credit. Micro credit can usually do little wrong in the eyes of the development establishment. Funders and NGOs alike are excited by what is a rare breed of development project - one that is neo-liberal friendly and manages (sometimes) to alleviate poverty. However the correlation is always a fragile one. Simply assuming that handing out some capital and some basic accounting skills will cause the poor to blossom into savvy micro entrepreneurs ignores the deep causes of people’s poverty.

Instead, credit often placed recipients in a precarious position as many spent the money on urgent needs or ran what, for them and everyone else, was the only viable option, a kiosk. Overall, poor business health, combined with a lack of education about the scheme and a dysfunctional system of incentives to repay, mean that only 30 to 40 per cent of credit will eventually be repaid.

In response, the Bank tried to correct these deficiencies, arguing for more training of credit recipients and better and more accessible information on market activities Market activities
trading
Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit.
. But there are stark limits to what this can remedy. One credit recipient living on the lonely and barren coastline of Bazartete sub-district, cynically observed that she was thankful for the one day of training in business tactics she’d received from the project two years ago. It helped confirm her long held conclusions that her kiosk was miserable, as were any other possible business options.

One ardent supporter of micro credit in Timor defends the proliferation of kiosks, arguing that, having seen foreign goods in kiosks, farmers have an incentive to increase their production. Apparently it takes the lure of kiosks selling instant noodles to motivate farmers to increase local food production, something seasonal hunger - experienced by 78% of Timorese - hasn’t managed to do. [14] Instead, kiosks are often undermining local production by selling cheaper imported cooking oil, rice and coffee. With almost half the population living on less than 55 cents per day - the UN’s absolute poverty line - East Timor is the last country in Asia that can afford these free market experiments. [15] Development instead must promote local industries and agriculture and move beyond Timor’s non-competitive advantage in selling other people’s goods.

WHO’S DRIVING COMMUNITY DRIVEN DEVELOPMENT?

The Bank’s entry into community development and local governance has been met with mixed responses from affected communities, aid workers and activists. Perhaps they should bear in mind the following:

Firstly, the CEP shows that the Bank has borrowed concepts such as ‘Community Empowerment’ and the ‘rebuilding of social capital’, and has used them like pieces of theoretical putty to cover up the gap between the Bank’s rhetoric and their manifest failures of the past twenty years of structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
. In the process, these concepts are being emptied of their meaning and used as a smokescreen for extending the Banks ambit of operations. [16] For these reasons this model should be resisted and their license for using terms like ‘empowerment’ and ‘participation’ revoked.

Secondly, if the Bank’s Country Assistance Strategy was meant to place the East Timor government ‘in the driver’s seat’ - the Bank’s current phrase of choice - then in the case of the CEP, the government was the taxi driver, taking instructions and money from itsWorld Bank passenger. And where was that car driving?; through a maze of contradictions inherent in building a nation on the quick; and across flimsy theoretical foundations that masked the inappropriate imposition of free market economics on the grassroots. Perhaps it’s time for the Timorese to repossess the car, and kick out the free-loading passengers.



Footnotes

[1Nalini Kumar, ‘Community Driven Development: Lessons from the Sahel, an Analytical Review’ Working Paper, The World Bank Operations Evaluation Department, 2003 p. iii

[2Anne Carlin, ‘Rush to Reengagement in Afghanistan: The IFIs Post-Conflict Agenda’, Bank Information Center, (December 2003)

[3World Bank, CEP Project Appraisal Document

[4See Chapter Six of ‘Depoliticizing Development: The World Bank and Social Capital’, John Harris, Left Word (October 2002) New Delhi

[5A nation-wide consultation for Timor-Leste’s National Development Plan organized over 1000 forums covering more than 38,000 Timorese citizens. They produced the 20-year national vision for the country; identifying education, health and employment as the top priorities.

[6‘Timor Leste:: Poverty in a New Nation: Analysis for Action’, National Poverty Assessment Project, (May 2003), p. 75

[7‘The 2001 Survey of Sucos: Initial Analysis and Implications for Poverty Reduction’, ETTA, ADB, World Bank and UNDP, (October 2001) p. 39

[8World Bank, ‘CEP 1 Project Appraisal Document’ (2000), p. 9

[9See ‘East Timor Community Development Review Report’, Community Development Working Group (December 2001)

[10World Bank, ‘CEP 1 Project Appraisal Document One’ (2000) p. 9

[11Tanya Hohe and Sofi Ospina, ‘Traditional Power Structures and the Community Empowerment and Local Governance Project: Final Report’ (June, 2001) p. 55

[12World Bank, ‘CEP 3 Project Appraisal Document’, (2002), p. 39

[13Tim Kessler, ”Review of World Development Report 2004, ‘Making Services Work for the Poor’", taken from www.networkideas.org (January 2004)

[14The 2001 Survey of Sucos, above n. (7) p. 59

[15UNDP ‘Timor-Leste National Human Development Report’ (2002).

[16For a thorough dissection of social capital and how Bank-led economics is colonising the social sciences, see Ben Fine, ‘It Ain’t Social, It Ain’t Capital and It Ain’t Africa’, Studia Africa, No. 13, 2002, pp. 18-33

Ben Moxham

Ben Moxham is a volunteer with Focus on the Global South, based in East Timor. He worked with a joint government-civil society Timorese research and evaluation team looking into the Community Empowerment and Local Governance Project (CEP).

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