The Changing Transport Policy of the World Bank

The Institute for Transport & Development Policy (ITDP) based in New York has reached significant results in changing the transport policy of the World Bank into a more environment- friendly and public transit supporting strategy. In the interview below we ask Dr. Walter Hook, director of the institute about how they managed to bring about the changes.

W.H.: ITDP is a non-profit organization dedicated to promoting environmentally sustainable and equitable transportation policy. Many of us who set up ITDP had been long active in the campaign in the U.S. to reform our domestic transport policy and promote public transit, cycling and walking. Unfortunately our country is very much dependent on private car use. What is more, our country even exports this policy into Central Europe and the developing countries by the help of the World Bank and other international institutions. So we joined a large U.S.-based campaign called "50 Years is Enough" to reform the World Bank.

— Would you outline the beginnings of this process for us?

W.H.: ITDP became the above campaign's transport expert. We first organized many leading transport planners and engineers in the field to pressure the WB to develop a Transport Policy. The WB's practices at that time were virtually unaccountable to anyone, including its own Board of Directors. The idea of forcing them to develop a Transport Policy was to give the WB staff some guidelines to which they could be held accountable. We started documenting extremely questionable WB transport loans for very destructive highway projects with extremely bad environmental and human consequences.

Pretty soon WB staff had agreed to develop the policy, which was done under the close scrutiny of many NGOs and transport experts in the field. A meeting in Budapest, Hungary, hosted by the Clean Air Action Group was organized in 1994 for Central and Eastern European NGOs to discuss the early draft of the policy. The WB staff made a good faith effort to incorporate the many diverse comments, and the final policy is quite good.

As a result of these efforts, there has been something of a sea-change in WB transport policy. In the late 1980's they were publishing reports about urban transport in China where the word "bicycle" was never even mentioned despite the fact that bicyclists represent more than 70% of the traffic on the road in many Chinese cities. The new transport policy, however, explicitely recognizes the importance of promoting bicycling and walking.

— So the Clean Air Action Group also participated in this process. What was the role of Hungary in the campaign?

W.H.: Of course, we soon realized that we would never really be able to reform the WB unless we understood how they operated in the countries where they were active. Because we had the good cooperation of the CAAG, we decided to make a case study out of the WB's activities in Hungary. What we found was that there was a bias in the way the WB decided on the viability of loans which made it easier to make loans to the highway sector than to the public transit sector. The WB had made two key loans to help fund the M0 ring road. They justified this loan based on something called "cost-benefit analysis" which showed that the M0 would save Hungarian motorists millions of dollars in fuel costs because many motorists would be able to make much shorter trips, and these fuel savings justified the investment. Of course the road was very expensive, and it generated more traffic. Traffic did not diminish significantly even on the roads where it was meant to be done and the damage caused to the environment remained the same. In other words, the subsidies to road users would go up, and Hungary's debt problem would also go up. But the WB was not interested in all this.

— What do you think about the loan to BKV?

W.H.: Together with the above loan another loan was being considered to improve Budapest's buses and trams. Inside the WB there was a huge fight about this loan. Many people high up inside the Bank felt that public transit was doomed anyway, and that any loan to improve it did not make any economic sense. They claimed that the "cost-benefit analysis" was lower than for the M0, and tried to use this to kill the loan. We then critiqued the cost-benefit analysis being used and showed how it was biased in all sorts of ways in favour of motorists, and the loan went forward. Then the WB staff decided to impose conditions on the loan that the level of subsidies to BKV be reduced from 70 percent to 50 percent. We protested against this as well, giving data on subsidies in many US and western European countries where they were even bigger than 50 percent. (Though in the final conditions of the loan this 50 percent is there, we feel that the WB would not be very strict if BKV didn't reach it.)

Because of these events the loan was perfected a year later than planned and its amount fell to the half of the original. We then launched a major campaign aganst the WB, pointing out that while they were forcing public transit operators to increase their fares and cut service in order to reduce the level of subsidy, they applied very little pressure to increase the fees paid by car users and reduce the level of subsidies to car users. We know among others from CAAG studies that if we include environmental and other damages, car use costs much more than the amount paid by car users. That is why we insisted on increasing the fees paid by motorists to reduce the levels of subsidies to car users. We have reached considerable results in this field too: the support coming from the WB and EBRD helped launch parking policy in Budapest.

It is known for the staff of the Bank too that people who own a car are usually richer than the ones who use public transit. As the WB's primary mandate is 'to reduce poverty', we pointed out to them the hypocracy of their approach.

— What characterizes the activities of the WB in other countries and what are its contacts with other international institutions like?

W.H.: This discrepancy in the WB's approach to different transport modes is true all over the world. We carefully documented this discrepancy based on information from many countries. Most facts, data and arguments we collected in Hungary. Our study, which proved that WB was biased in favour of motorists and its role in spreading car use, was presented to over 40 senior WB officials in the fall of 1995. A debate had raged for several months within the WB what to do about it and finally they admitted that we were right in what we had said in the study.

Since the early 1990s, however, the World Bank has played a much more productive and even handed role in Hungary, and many of their responsible positions are being undermined by the increasing involvement of the European Union institutions. EIB and PHARE seem to be undermining the activities of the World Bank which are supported by us too. For example, the World Bank, after a thorough review of Hungary's highway needs, decided that it was much more economically important for Hungary to improve the maintenance on its existing road network than to build more new highways. Poor maintenance is costing the Hungarian economy billions of Forints each year in additional vehicle oprating and maintenance costs, whereas the economic importance of several of Hungary's ambitious new highway plans, particularly the M3, were dubious at best.

— What difficulties did the European banks cause with the M3?

W.H.: The World Bank's position was undercut by the EIB and the German KfW bank (Kreditanstalt für Wiederaufbau) , both of whom were willing to provide financing for the M3 highway, no matter how economically foolhearty it may be for Hungary, because contractors from Europe and Germany were certain to make profits regardless, since there is government guarantee for paying back the loans. The banks, of course, are not interested in how much the taxpayers have to pay.

— What can you say about the new metro line and the role of the EIB in financing the project?

W.H.: In terms of Budapest public transit, the World Bank also felt that upgrading the surface system and modernizing its rolling stock and tram tracks was much more important than spending money on an expensive new metro line. For the same money that it would require to build this 4th line, which would serve only a handful of people, almost the entire surface transport system and commuter rail service could be improved, which would benefit a lot more public transit users.

But the EIB and PHARE again, however, appear to be willing to finance this expensive new metro scheme probably because it will be EU companies who will win many of the contracts for building it.

— Does that mean that the next step is to reform all the other banks?

W.H.: We see a similar pattern in other parts of Central Europe, with the World Bank behaving increasingly responsibly, but with the financial institutions of the EU are willing to to fund anything, no matter how economically foolhearty for already heavily-indebted countries. Because of this, we have shifted out attention to getting our Western European colleagues to focus on reforming the EIB. In September 1996, ITDP worked closely with the CAAG preparing a case study of the M3 highway loan, which we presented to the staff and leaderhip of the EIB, pointing out many irregularities and violations of EU directives. The EIB admitted that they had funded the road despite the lack of public hearings required under EU guidelines, and despite the fact that the economic rate of return was barely sufficient to cover the cost of capital. The EIB, however, remains virtually unaccountable.

Nonetheless, the close cooperation between ITDP and the CAAG has not only helped the MDBs to behave more responsible in Hungary, it has helped make the World Bank behave more responsibly the world over. Hopefully the EIB, EBRD and KfW will learn these lessons as well.

Zsuzsa Kajtor