CONDITIONALITY AND TRANSFER GAMES BETWEEN THE WORLD BANK AND LDCs

World Bank's transfers or outflows to the less developed countries turned negative in recent years, as no new capital increases are being approved and the Bank establishes its own limits to external finance. On the other hand, conditionality, that was rather an IMF practice, turned into a major World Bank policy, as structural adjustment loans became an essential part of its operations. Actually, the scope of conditionality was enlarged, including environment and human rights issues. The outcome was a contradiction between conditionality and negative (to the LDCs) net transfers, that we will analyze in this paper. When the World Bank was created, the assumption was that the Bank would finance governments in a similar way as investment banks finance industrial projects. For some time the Bank would have an outflow (a positive net transfer) to a given country, but once this country became developed, graduated, the flow of funds would be reversed. At present, for most countries this flow has been already reversed, i.e., it has turned into an inflow to the Bank, although a satisfactory stage of development has not been achieved. If this is so, and if it is not realistic to expect substantial new capital increases for the Bank, so that it will presumably stop being a net provider of funds to developing countries, can the Bank still b