Changing World Bank Stance of Social Policy in Developing Countries

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The pension policy of the recipient countries has been a key policy debate in the World Bank since 1981. There has been considerable debate, both internal and external, on the subject and the Bank has been periodically realigning its policy in line with the changing opinions and inputs from subject specialists. Prior to 1981, the WB had no real position on pension privatization.

Pension privatization started when government of Chile replaced the pay-as-you-go (PAYG) pension system with one based on individual pension savings accounts administered by competing pension fund companies.

Following the Chilean experiment, which is believed to have created a pool of domestic capital that helped to stabilize and grow the Chilean economy, Other Latin American countries began to consider pension privatization in the early 1990s.

From 1994, WB, along with other international organizations and IMF, led a transnational campaign for pension privatization. However, the campaign was criticised by the World Bank’s Chief Economist in a conference in 1999, questioning the basis of support of privately managed pension savings accounts by the bank and the claim of the advocates that pension privatization had increased national savings rates.

He also claimed that most of the arguments used to support pension privatization were ‘not substantiated in either theory or practice’.

Meanwhile, the number countries adopting Pension privatization jumped from 3 to 30 between 1994 and 2004, which suddenly came to a halt from 2005.

The sudden cession of interest in the privatisation can be attributed to Banks reports published in 2005 and 2006, which were critical of pension privatization and its advocacy by World Bank, along with failure of President George W Bush to enact pension privatization in the United States in 2005 despite his best efforts.

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Meanwhile Chile’s privatized pension scheme was also revised by the new President to improve poverty reduction.

Key Considerations

The opinion of the WB holds considerable policy implications in the developing countries. As the WB is an important funding agency with considerable expertise in subject matters as well as its image of being an impartial open organisation, the advocacy of any policy by it lends significant weightage to the subject matter. The turn-around in policy has become a subject of discussion. WB is being appreciated for its ‘open system’ which allows for analysis of various influences on changing policy paradigms and its culture of encouraging divergent report which is an evidence of internal support for self-critique, and IEG reports are directed by officials in the WB who are reaching the mandatory retirement age in order to dispassionately analyze policy—inviting a critical examination of the WB as their last assignment. However, there has also been criticism, from some quarters, of the frequent turn-around on such important policy matters.


  1. There have been considerable adjustments in the bank’s policy on the issue and frequent reviews on policy matters may corrode the credibility of the bank. As the topic is still open to debate and the verdict is not out yet, WB can defer its decision on the subject, till there is more clarity and consensus on the expert opinion.
  2. The bank may choose to adopt a neutral stand, as a policy, on the subject as no unqualified advantages of either policy have been established till now.
  3. The bank may actively advocate a public pension policy in line with the current opinion of the bank experts.


Given the World Bank’s standing as an expert on policy issues, it is imperative that any prescription by WB be given only after thorough analysis of all implications under different scenario. As the subject matter is still on the table, it is recommended that WB exercised option 1 and defer its stand till there is more clarity with the specialists on the issue.

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Changing World Bank Stance of Social Policy in Developing Countries. (2021, Apr 25). Retrieved from

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