World Bank, World of Banks

From the Guardian: World Bank president Paul Wolfowitz denied that there was a row with Britain, despite the announcement earlier this week by Hilary Benn, the international development secretary, that Britain would withhold £50m of funding unless the Bank started to lend money to poor countries without onerous strings attached.

This rang an ominous bell as I have just been doing some work on country risk. The problem is that 'open market', 'transparency', 'corruption' and so on are relative terms: what they mean depends on where you are standing. On man's big risk is another's irrationally and delightfully high spread.

Hilary Benn apparently believes that Wolfowitz has been rather laxer with some countries whose friendship the U.S. values, like Pakistan, than others. I have no view on this, but I do know that however you decide to write sovereign loan covenants, if you are the World Bank someone is going to be upset with you. Perhaps the answer is to negociate with all of the potential borrowers simultaneously, so at least there is a standard hurdle for everyone? But of course if Benn is right, that is the last thing Wolfowitz would agree too. At least, though, let us agree it is a game where, rightly or wrongly, the guy with the money makes the rules. And of course those rules determine when sovereign default is rational. For Pakistan, it probably isn't. Other states, treated differently, may have another view.