83785 THE WORLD BANK ARCHIVES ORAL HISTORY PROGRAM Transcript of interview with DENNIS N. DE TRAY February 15 and 21 and March 22, 2006 Washington, D.C .. Interview by: Charles Ziegler 1 Session 1 February 15, 2006 Washington, D.C. [Begin Tape 1, Side A] ZIEGLER: Today is February 15th, 2006. My name is Charles Ziegler, a consultant with the World Bank Group Oral History Program. I have with me at the Archives of the World Bank Group Mr. Dennis de Tray. Mr. de Tray joined the World Bank in 1983 as the chief of the Living Standards Unit, Development Research Department. In 1986, he became policy adviser in the Development Research Department. From June 1987 until the end of 1990, Mr. de Tray was the research administrator in the Policy, Planning and Research senior vice presidency. He became senior economic adviser in the Development Economics vice presidency in 1991. In January 1992, Mr. de Tray switched to operations. He became the chief ofthe Bolivia, Colombia and Dominican Republic Country Operations Division in the Latin American and Caribbean Region. In April1994, things really became interesting, as he became director ofthe resident staff in Indonesia, being appointed as one of the first decentralized country directors, in this case for Indonesia, in July 1997. As such, Mr. de Tray had a front-row seat for the Indonesian segment of the Asian financial crisis of the late 1990s. In September 1999, Mr. de Tray was appointed senior resident representative of the International Monetary Fund in Hanoi, Vietnam. In August 2001, he returned to the World Bank, briefly holding the post of senior adviser, Central Asia County Unit, Europe and Central Asia Region. In October of 2001, Mr. de Tray was appointed regional director for Central Asia, Europe and the Central Asia Region, and was based in Almaty, Kazakhstan. He retired from World Bank in January 2006. Well, we're very glad to have you here, Dennis, and to start things off, would you just put things in autobiographical context? When and where were you born? DE TRAY: Thank you, Chuck. I was born in Napoleon, Ohio, aptly named, as my ancestors are French, in 1944. I grew up for the first six years of my life there and then-my father is a veterinarian-we moved to Mexico for a year, and then to the East Coast, to Maryland, near the Beltsville Research Station, where my father was working. My overseas experience began in earnest in 1954, when my father moved the family to Nairobi, Kenya, where I eventually graduated from the Prince of Wales High School, returning to the States to attend Cornell University, graduating from Cornell in the absolute heat of the Vietnam War era, deciding that graduate school was better than going to Vietnam. I went to Utah State for what turned out to be a little over a year-and-a-half, where I met my wife. I got a master's degree and was eventually accepted to the University of Chicago for the Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 2 Ph.D. program. So it was a very productive year. I graduated from the University of Chicago, and then began my professional career. ZIEGLER: I note there is a publication from the Prince of Wales School, The Old Cambrian Society, and it notes that your school nickname was Texas. I wonder how that came about. DE TRAY: I was the only-and maybe the first-American in the Prince of Wales. This was back in the mid- to late '50s. It was still very much a colonial era, still a segregated society, so the school was all white. It was a boarding school-and I was a boarding student-that drew from many parts of eastern and southern Africa, from Rhodesia to Kenya. So it had a mix of Afrikaners, of British, of others there, and back in the days when Kenya was known as a wild and woolly place. But, anyway, I was the only American, and for most of the world at that point from cowboy movies, etcetera there was only one state in the United States. That was Texas, so I was Texas. ZIEGLER: That's interesting. My wife is British, and she said it was the same thing in England when she was growing up at about the same time. American was the Wild West. DE TRAY: Absolutely. One of my earliest recollections during that period was the incredible need to be accepted, and I had just enough of a British accent that when I came back here I was teased for that, and just enough of an American accent that when I was there, I was obviously not British. So it was one of those things that always stuck with me, our innate desires to be accepted by our peers. And the other thing I can remember distinctly-it was a fantastic time. You know, Kenya was a paradise in those days, and still remains a place near and dear to my heart. ZIEGLER: But corrupt now. DE TRAY: An enormously sad story. I took my family back there on a sort of roots trip in the late 1980s, and it was one ofthe most wonderful, most amazing vacations we've ever had. My kids were at that point 16 and 10, I think, two boys. My older son was just graduated from high school. He would have signed up for the duration if he could have found a job. He loved it. We went to Masai Mara. It was truly one of those great events oflife, and for me wonderful to see the joys and the high points of Kenya. But also it was very sad even in those days to see what was happening to what should be a great country. I can remember leaving Kenya in 1961 and, first, incredibly excited to return to the United States. I thought the streets would be paved with gold, that it was going to be just wonderful and that all the things that bothered me about Kenya wouldn't be there. I was determined to find a small town and settle down and never travel again. That was my aim in life then, but things turned out quite differently. ZIEGLER: Prior to joining the World Bank, what were some of your earlier work experiences? Dennis N. de Tray February 15 and 21 and March 21, 2006- Final Edited 3 DE TRAY: I left the University of Chicago in 1971 and joined the RAND Corporation, which is a policy research institute on the West Coast. ZIEGLER: Now, one thing-that was more of a defense think tank? DE TRAY: It was started after Second World War by the Air Force as a defense research tank, working on very broad, strategic issues. By the time I arrived in 1971, it had begun to develop what it called the domestic side of its research program, and that's the side that I joined. Domestic research was about 45 percent of RAND's activities at that point, and it focused on issues of welfare reform, population analysis, labor regulations, and so forth-U.S. domestic policies, and that's what I was hired to do. I continued to work in those areas until 1976, when, almost as a lark, my wife and I decided we would take a leave of absence and join the Population Council for two years under a USAID [United States Agency for International Development]-funded project. I served as the resident research adviser to the Pakistan Institute of Development Economics in Islamabad, Pakistan. It wasn't a lark. It turned out to be a very interesting thing to do, but it was certainly a major adventure-we had at that point a three-year-old son, our first child. We went over and had a marvelous time. I was the only expatriate in PIDE [Pakistan Institute of Development Economics], and that gave us a very special "in" to Pakistan society, especially to the young, bright people that were associated with the research institute. So it was a grand time. Most importantly, it was a time that shaped my career. Before I went there, I was an economist interested in U.S. welfare issues and the U.S. labor markets. When I came back, I was convinced that the interesting questions and issues were in the developing parts of the world, that I could be one of 1,000 or 10,000 economists working on U.S. developed-country issues, or I could actually try to take the best of economics to the really difficult issues of developing economies. You may recall that in those early days-and this is sort ofthe end ofthat period-development economics was almost a separate field in economics. It was right at the end of the period when economists still viewed developing countries as operating under a different set of economic rules. That view no longer exists, and I was very fortunate to study with people who helped change that image-T. [Theodore] W. Schultz and others at the University of Chicago. By the way, one factoid: I was one of very few people that had two Nobel Laureates on my thesis committee. I didn't ever go that far, but that ... ZIEGLER: Who were they, if I may ask? DE TRAY: Gary [S.] Becker and Schultz. They were fantastic people. The University of Chicago was a life-shaping experience for me. It was a great university and that's where I began to understand what economics was all about. ZIEGLER: Was [Friedrich von] Hayek there at the time? Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 4 DE TRAY: It was after his period, but it was in the heyday ofthe University of Chicago Economics Department. It was ranked the number one graduate program in the world at that time. ZIEGLER: In the world? DE TRAY: In the world. It was the time ofMilton Friedman and [George J.] Stigler and [H. Gregg] Lewis, and ... ZIEGLER: That's W. Arthur? DE TRAY: No. Gregg Lewis, who was a labor economist. ZIEGLER: Oh, okay, yeah. DE TRAY: And who else was there at the time? [Arnold] Harberger, and-Stigler I got. But aside from the names, which at that point MIT [Massachusetts Institute of Technology] and Harvard also had, it was an environment in which the faculty made the students feel like they were the most important people that they were dealing with. Access was terrific. The support we got was fabulous. We were treated with respect, as serious people. A marvelous experience-so it was a great early start to my career. Anyway, we went to Pakistan, and I came back to RAND and was determined to shift gears and work on development issues. Fortunately, at that time some of my colleagues at RAND had been working on something called the Malaysia Family Life Survey, which was an effort to understand over time the way households evolved and responded to their environment and policy changes. I came back and decided to put together something called the Family in Economic Development Center, which was financed by, I believe at the time, the largest single research grant that USAID had given, a million-[$] 1.8 million, or something like that. It was a substantially large research grant in those days, and it supported me for, I think, five years. Through that we launched a program that continues to operate at RAND today. That experience paved the way for what I eventually did when I first got to the Bank. It introduced me to the ins and outs of the collection of household data, and also to what kinds of data from households researchers needed to analyze interesting questions and issues. I got a call in 1983 from Anne [0.] Krueger, who was then the Vice President for Research and Economics at the Bank, the Bank's chief economist, whom I knew a bit from my research days and who had been a colleague of a colleague ofmine, Paul Schultz, Ted Schultz's son. She asked me ifl would be interested in joining the Bank to take over the living standards measurement study. I can to this day remember calling Ted Schultz at the University of Chicago, somebody I turned to for advice almost until he died. And I said, "What do you think?" Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 5 And he said, "You know, Dennis," he said, "I think the World Bank needs you," which was wonderful advice. So I decided, okay, I'd go. ZIEGLER: Well, as you say, you began your career as chief of the Living Standards Unit. What kind of work did you do there? What was the work of the unit, its major accomplishments during your period there, and the major obstacles and challenges that you faced? DE TRAY: When I arrived to take over the unit, it was-I think it's not too extreme a description-sort of moribund. It had started in 1979 under [F.] Graham Pyatt's guidance, and it had really gotten bogged down in minutia-debates among survey experts about what could and couldn't be done. It had lost its way. I think my success in that period was because I brought in some very good people to work with, but also that I told those people that within 18 months we were going to have a survey in the field or we were going to close shop. I said, "We cannot keep spinning wheels. We have to do something. If we get into the field and it fails, so be it. We have to do something on the ground to test this out." It was a wonderful experience, something that has influenced me ever since. If you give good people clear stretch goals, it's amazing what they will deliver. ZIEGLER: If they're the right people. DE TRAY: Case in point: one ofthe aspects ofthis work that distinguished it eventually was the speed with which the data became available. In those days, researchers got data that were often two or more years old. In the fast-changing world of developing countries, that's okay for basic research, but not good for policy research and policy design. We wanted a process that would yield data not in years, but months. I was lucky that PCs [personal computers] were just coming of age. I wanted an entry system that allowed computer-illiterate people in developing countries-high school grads-to add data in a way that at the end of it we could press a button and we would get the basic set of reports out. I asked the Bureau of the Census if this was possible and if they would help. They said, "Yes, it's possible. It would probably take 18 months to two years to develop." I didn't have 18 months. I was in Cote d'Ivoire on a Bank mission, and I met a Chilean, Juan Munoz. Juan Munoz ran a small survey firm in Santiago. We met at the Hotel Ivoire. He was working with a friend, and we spent an evening together. I happened to have brought one of the first-ever laptops with me. This was a Radio Shack. It was one of the little things, completely useless in today's terms, but it was months, if not weeks old, so it was a hot item. Juan was fascinated with it, so he asked if he could borrow it. I think he stayed up most of the night, and by morning he had managed to program this to do some amazing things. Dennis N. de Tray February 15 and 21 and March 21, 2006- Final Edited 6 I said to Juan, "I have a serious problem. I want a program that will be bullet-proof, that we can put on a PC with very simple instructions so people can enter these data. It has to have safeguards that won't let them do the wrong thing. It has to have consistency checks so that if somebody makes a mistake and puts in 10,000 instead of 1,000, the machine will say, 'Are you sure?"' I asked him, "Do you think it's possible." He said, "Sure." I said, "How long will it take?" He said, "It might take me two months." And I said, "You're hired." A long story short, I brought him to the Bank for two years, and he developed a whole software structure for the Living Standards Measurement Survey. When we first took this survey to the field in the Cote d'Ivoire, two months after the final household survey, we had not only usable data but results-tables and some basic analysis. In those days that was absolutely revolutionary. Nobody had ever seen this done before. That methodology still underpins the Bank's efforts to monitor welfare change in households, and in many other places-the Asian Development Bank, the Inter-American Development Bank, and others. When Anne Krueger met me after she left the Bank, she very kindly said that she considered one of her greatest accomplishments at the Bank the work that was done under the Living Standards Measurement Study. It was one of the more lasting things that I can point to that I've done. It still exists. It was an institutional investment, but I think it has really paid off. ZIEGLER: How has it evolved since then? DE TRAY: It is now widely used in all of our poverty assessments. It's an almost regular feature of most of our poor country dialogues. It's part of the monitoring program that people use in everything from CPIA [Country Policy and Institutional Assessment] assessments of countries' performance. It has fueled a massive amount of research on everything from labor force participation to school attendance, to health outcomes, to the role of credit markets. ZIEGLER: So it has had a wide-ranging influence within the Bank even on ... DE TRAY: Within the Bank and outside the Bank. It has, in my judgment-and I haven't kept that close tab on it-it has taken too much of a research tum. I wanted this to be a direct tool for policymakers in developing countries. I think the team could claim considerable success for producing data that were timely and of a quality and a breadth that would serve to inform policymakers if they chose to be informed. We were much less successful at integrating this into the decision making that policymakers in Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 7 developing countries do. It was probably something that was a bit before its time. Even today in many countries, they really don't have the capacity to go beyond the immediate challenges they face. But the data do begin to inform programs to allocate resources in countries by identifying where the poor are and who they are. When the Bank strengthened its focus on the poor, this was a tool that really came into its own. ZIEGLER: The Bank's research program began in 1971. In 1984 the Research Policy Co.uncil, which had been established the previous year, felt that while the Bank's research program would remain eclectic, it was necessary to shift its focus at the margin to meet new concerns and needs. It therefore sought to translate the continuing broad objectives of Bank research into specific new research priorities. It noted that a useful and policy-relevant applied research program in the social sciences must be concerned with testing and changing beliefs and behavior based on premises about how the world could, should or does work. In this task, both basic research and applied research are relevant, and the beliefs are based both on logical deductions-that is, abstract theorizing-as well as inductive empirical evidence on various aspects ofthe economy. How did this shift affect you, specifically, as chief of the Living Standards Unit, and did you have any input into the decision to make this shift? DE TRAY: The Bank has always struggled to find its niche in the research community. The debates that were taking place at that time-in some ways the design and use of the Living Standards Measurement Survey methodology was really a microcosm of that debate. My view was that if it didn't have a policy outcome, I was not interested in supporting it. I never viewed the Bank as a basic research organization. Universities are basic research organizations, think tanks are basic research organizations. The Bank should be taking that knowledge and applying it to better the lives of people. This was a theme that went through both the Living Standards Measurement Survey and my work as research administrator. It's something I still think is relevant today because the Bank does too much research that is indistinguishable from university research. In my view, that's not right. We have some of the highest paid researchers in the United States, and that work could be done quite well at much lower cost outside the Bank. ZIEGLER: So in the Bank historically, over time, there has been a push-well, not a push, but how shall I put it-a bias toward basic research, as opposed to more policy-oriented ... DE TRAY: The challenge, particularly in PREM [Poverty Reduction and Economic Management] and among economists, is what master will they serve. They want to be part of a professional community that rewards publications and refereed journal articles and cutting-edge research. That is not what the Bank should do. We need to do a little of it because it's a part of creating our enabling environment and giving us credibility in debates, but we should limit it a lot. What we really should focus on is extracting Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 8 the lessons from what we do. We're a unique organization. I say "we" even though it's no longer we, but you understand. ZIEGLER: When you say "we" ... DE TRAY: The Bank, the World Bank. ZIEGLER: Yes, but extracting the lessons-when you say what we do, you mean more than just research, but the whole-everything? DE TRAY: No, it's precisely what we do outside of research that makes us unique. ZIEGLER: Yes. DE TRAY: We do I don't remember how many projects a year. Every one of them is an experiment in development. There is no consistent focus on learning the lessons in a systematic way that maximizes the returns to this extraordinary wealth of information. ZIEGLER: Not even the Operations Evaluation [Independent Evaluation Group], for instance? DE TRAY: The problem with Operations Evaluation are twofold-one, what they're being asked to do is incredibly difficult because often they're being asked to speculate on the counterfactual. What would have happened if this instrument or that project or policy hadn't been put in place? A very difficult question under any circumstances. Two, they're being asked to tease out what this particular project or policy did in a policy environment that's very messy and in a global environment in which a thousand things are changing. Where we miss-and it has gotten better, but I don't think it's as good as it should be-is that we need to design projects and policies with a capacity to evaluate them later-better baseline surveys, maybe some random assignment of the treatment; you would stand a much better chance of understanding what the treatment actually did. We just haven't done enough of that. There's also a sense in which our analysis is hampered by the fact that we're an institution that wants to succeed. The research focus is one thing, but for me the issue is one of learning the lessons from our own history and our own activities. If one wants to see why this is not working, go to a meeting on an early concept of something to do with institutional development. More often than not, what's recommended by the experts has failed 27 times in a row. If you ask them, "Can you give me a case where it has worked in this environment?" the answer is silence. That's not good enough Our institution is a development institution. Our relationship with clients and the project and policy dialogue is our key product; everything else should serve it. So the incentive structure should be for the research community in the Bank-very smart and very good-to have to do stuff that's being demanded by the operations side ofthe Bank, except, as I said, for a small Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 9 group 'of people that should, be given leeway to do .. ZIEGLER: More latitude. DE TRAY: .. big bang stuff-one needs that-and to represent the Bank in big think discussions. But we're a long ways from the right margin in that setting. ZIEGLER: In 1986 you became policy adviser in the Development Research Department. What occasioned that promotion? DE TRAY: Greg [Gregory K.] Ingram, who was my first director, was looking for a deputy to help him manage the Research Department, and I like to think that the success of the Living Standards Measurement Study program, and maybe some other contributions I had made along the way, made Greg think about somebody inside his group. It was not an uncontroversial appointment. I can remember an unnamed colleague who I still know and I'm still friends with, saying to me, "What makes you think you can give me policy advice?" Reminds me of my being senior economic adviser to Larry [Lawrence H.] Summers. Nobody advises Larry Summers on economics, so these are sort of ... ZIEGLER: Or anything else. DE TRAY: Or almost anything else. We'll come to that later. But my point is that "policy adviser" is a term that covers a multitude of sins, and my job was really to help Greg think through the direction the department was going. ZIEGLER: Yes. I was going to ask you what your primary duties were. DE TRAY: Pretty eclectic: a bit review; a bit strategic thinking; some management support for the department-keeping the trains running on time-but it was only tangentially "policy advice." It was inputs into a variety of work that the department was doing and that Greg was overseemg. ZIEGLER: In November 1986, during your time as policy adviser, a report on the World Bank Research Program, Part One, report number 6505, November 1986, noted, quote, "The Bank's research program continues to be guided by four objectives: to support all aspects of the Bank's operations; to broaden understanding of the development process; to improve the Bank's capacity to provide advice to member countries; and to assist in developing indigenous research capacity in member countries." How did you and your colleagues proceed at that time in pursuit of those objectives? You've talked about this to some extent already, but I'm looking here at specific activities you undertook at that time. DE TRAY: This is as policy adviser? ZIEGLER: Uh-huh. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 10 DE TRAY: The question is actually for me more relevant in my next job, which was research administrator. But in this case nothing comes springing to mind that was directly related to this job except a general statement that Greg was partly responsible as director of the Research Department. I codified the general platform on which the Bank's research program was being driven at that point. It was at a time when, as I recall, Deepak Lal and Anne Krueger were dominant figures in the Bank's research program, and somewhat controversial figures. Deepak had his famous comparative studies program. ZIEGLER: And he's still writing books, too. He's got some interesting ones around. DE TRAY: He's a very smart guy. ZIEGLER: Unintended Consequences [MIT Press, 1998]. Isn't it the title of it? DE TRAY: Yeah. ZIEGLER: Yes. DE TRAY: But anyway, I think it had no direct bearing on what I was doing, except that it was the filter through which we were putting our decisions on resource allocation. The Research Department had its own budget and did its own things, and then there was the Bank's research program, which the research administrator was running at that point. ZIEGLER: The report on the Bank's research program cited earlier notes that the four objectives of the program" .. guide the current Bank's research program as they underline the twin functions that research performs in the Bank, both supporting Bank operations as an intermediate input-important for the Bank's role as policy adviser to developing countries-and as one of the important final outputs of the Bank in keeping the Bank in the forefront of thinking on the economics of developing countries and sharing research results with the development community." In your view, did the intermediate input over the years that you were involved provide value to the Bank's operational work commensurate with the cost of producing those products, and if so, could you cite some examples? Now, again, you've been touching on this quite heavily. I've always been-for no reason other than sheer intuition, which is most likely wrong, but I've always had trouble seeing how the research-! mean, I can see how it could input into the Bank's operations, but does it? And that's really my question. DE TRAY: Your instincts are correct to ask the question. You can cite, for example, the work we did on the Living Standards Measurement Study, which has become a standard operational tool that informs the allocation of resources in developing countries, informs the allocation of Bank resources in developing countries, is the touchstone against which we judge the poverty Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 11 mandate of the Bank. It had clear, practical significance which remains in effect today. That's a sustainable institutional impact. I think far too much of the research we've done has been at a level of generality that makes it very unhelpful to those on the front line. I am not a fan of big, splashy studies, as an operations person. As a positioning instrument for the Bank, yes, the WDR [World Development Report] works. It's probably way more expensive than it needs to be, but it has a niche that carries the Bank's intellectual capital forward on a regular basis. But I had a long debate with my ex-colleagues in ECA [Europe and Central Asia Region] about our regional studies program. No decentralized operational manager, whether a country manager or country director, none that I was dealing with found any of those studies useful. They were simply too abstract, too generalized, and often came out with research statements that you could have written before they did the research that bore an amazing resemblance to common sense. They were lost opportunities. The real reason that I don't think the Bank should do basic research is that in many respects we know what the objectives are that we're trying to achieve. We know, broadly speaking, the instruments that we need to use to achieve them. Where we fail is on implementation, and so the research should inform that. We do not have a good paper in the Bank's cadre of work that tells you how to develop the private sector where there is no banking system, no rule of law, no courts, and property rights are weak. ZIEGLER: Good luck to you. DE TRAY: But we're asked to do it every day. For countries in the bottom half ofthe IDA [International Development Association] income distribution we're told, "Make the private sector work in this country." How do you make a banking system work where none of the prerequisites exist? We spend money, technical assistance, lend money on doing this without having answers to basic questions. Those are the questions that we should be focusing on as an institution. It's something I feel quite strongly about as someone who has had one foot in research and one foot in operations for a very long time. I think we answer general questions that make for grand documents and that allow us, as somebody put the statement at a conference I was at the other day, to operate at 30,000 or 40,000 feet in the air, but not to actually move the ball forward on the ground in the countries that we need to help. ZIEGLER: Yes. You're particularly interesting because you've been on the research side, and then you were on the receiving end, so to speak. DE TRAY: Exactly. ZIEGLER: So I think you have an unusual perspective. I don't think that transition happens too Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 12 frequently. DE TRAY: I'm amazed it doesn't. First, I will tell you when I left RAND, I knew I wanted to be in operations at the Bank. Ifl wanted to be a researcher, I would have stayed at RAND. It's a great place to do research. My frustration was not being closer to the action. I didn't want to advise people. I didn't want to write papers that somebody else implemented. I wanted to have the buck to stop on my desk. I wanted to be the person that was trying to sell a change to the person who was going to implement the policy. I could not have been an elected official, but I wanted to be as close as I could be. It took me eight years to shed my research background, and I was lucky that [S. Shahid] Husain took a flyer on me and let me into LAC [Latin America and the Caribbean Region]. And the rest is history. I loved it. It remains an enormous mystery to me why people that come to the Bank don't go the route I went. The real excitement of the Bank is what I did, not in research. Being a researcher for 8 or 10 years and moving into operations is exactly right. You get this broad basis of knowledge, and then you get an opportunity to use it. ZIEGLER: Yes. I was going to ask did it help in your ... DE TRAY: Absolutely, particularly if you're going to move in the direction of country manager or country director. In those places, you need a broad base because you're making difficult tradeoffs among sectors, within sectors, among instruments, stuff that really nobody can grasp in the full. But if you dealt with all this through your research career and read the literature a bit, had some sense of the debate and what is going on and developed some instincts, it holds you in good stead when you come to the operations side. I have absolutely loved being in operations at the Bank. ZIEGLER: Lumps and all? DE TRAY: Absolutely, and there have been some major lumps, as we'll get to. ZIEGLER: Yes. DE TRAY: I've asked some of my research colleagues, who have been at the Bank for 20 years and always in research, why they didn't move to operations. They say, well, you know, we're pretty happy where we are. But it's just not where it's at, so I'm puzzled why more people don't do what I did. I think it's exactly the right path. (End Tape 1, Side A] [Begin Tape 1, Side B] ZIEGLER: ... mentioned previously, did the research program, in your view, indeed keep the Bank in the forefront of thinking on the economics of developing countries? DE TRAY: There's no simple answer to that question. It did in some areas; in some areas it did Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 13 cutting-edge work. As I say, my concern was not that the Bank did or did not have the ability to do cutting-edge work, but should we be doing cutting-edge work? The more basic and cutting-edge the work would appear to me as a policy adviser, and later as research administrator, the less I was likely to support it unless it was cutting-edge, as I said, on understanding implementational failures or institutional failures that would be directly relevant to the work that operations staff did. The Bank has produced over the course of the years some seminal work. The WDR series is a compendium reference work in a particular area that is turned to by many, many people. They are very high-quality and very well done, and usually done by some of the Bank's best and brightest. But they are positioning documents that keep the Bank in play intellectually, as does the Annual Bank Conference on Development Economics, which I started with Stan [Stanley] Fischer. These are not arenas in which you debate the nitty-gritty of on-the-grourid implementation or policy issues. So it's not a matter of yes or no; it's a matter of how much. My sense is that the Bank spends too much money on positioning. Maybe it should do one big report a year that thinks about the sort of big-ticket issues. The rest of the Bank, the intellectual property of the Bank, should be aimed at improving our impact on the ground. ZIEGLER: In the September 1988 issue ofthe Bank's World you were quoted as saying with regard to the dissemination of the results of research projects in the Bank, quote, "The problem is that we have done a less than adequate job of disseminating the output of research projects in a form that is accessible to development practitioners, as well as to active researchers," unquote. How were the results of research actually disseminated, both internally and externally, at that time, and how did you proceed to address the problem of dissemination of the results of research projects? DE TRAY: This problem of dissemination remains until today, in my judgment. It is fundamentally the problem that the Bank's research is not developed in a market environment. Nobody has to buy it. When I was at RAND-RAND is a non-profit organization, and it does have a chunk of money that comes from the Defense Department as a funding base, but a large part of its annual revenues comes from competitive grants and contracts. It has to be market-sensitive, and dissemination was hugely important. RAND had an entire department that did nothing but review what today would be referred to as PowerPoint presentations that would go back to Washington, a small, but very, very effective department. You had to dry run your presentation, and inevitably they took it apart and put it back together again because researchers instinctively get it wrong. Their main aim in life is to tell you how hard they worked, and all the nitty-gritty details of what they did, something that 99 percent ofthe world doesn't care about. Eventually they may actually tell you what they found, but almost never did they tell you why it mattered. So we tried to reverse that and to get people to focus on the "why." When people came in to ask for research money, one of the tests was, "Why don't you write down what you think most likely Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 14 you're going to find? Guess, and then prove to me that it matters." Researchers would come in and tell me, "Population is a very important problem for development. Therefore, you should give me money to do population research." It doesn't follow. What would we do differently if you find "x" or "y" or "z" or "a?" If you're a basic researcher, you don't have to tell me that. If you're an applied policy researcher, you have to tell me why it's going to matter, or we cannot go forward. We tried, I think, with only limited success to move the Bank out of the Stone Age era of dissemination to one that actually tried to package the output of research in ways that would impact on the audience we were trying to influence. ZIEGLER: In June 1987, you became research administrator in what shortly became the Policy, Planning and Research Senior Vice Presidency. What were your primary duties in this position? Now, clearly, you were running the research aspect ofthe Bank, but could you just be a little bit specific about what you ... DE TRAY: The Bank's central research program was in those days a $5-$5.5 million grants- based competitive program. People applied for the money, and there was a review committee that I chaired. We also were responsible for helping promote dissemination of Bank research. There were at that point two Bank journals. One was somewhat more theoretical, and one was more applied. We began, as I said, when Stan Fischer came in after Anne Krueger left, to develop a dissemination program built around the Annual Bank Conference on Development Economics, ABCDE, an acronym that Stan Fischer himself came up with. We were trying to do two things: one, to inform the world about the research the Bank was doing, but, almost as importantly, to connect Bank researchers to the rest of the world. Bank researchers can be very isolated. They often don't have to publish in refereed journals. They're not as visible in the conference circuit. Oftentimes, they're very insular, and that's not healthy. Often, they re-discover the wheel because they don't know it has been discovered twice before. Each year we had to take to the Board the Annual Report on Bank Research, which was a report on research across the Bank: work done in the operations complexes, work done outside, and work done inside the centrally-funded Bank research program. We tried to create some sense of coherence in all this research and give the Board a sense of the directions we were trying to take in the future. And that was under the broad remit the Bank's chief economist. ZIEGLER: How did the Board usually react to-how were your interactions with the Board? DE TRAY: I have always enjoyed interacting with the Board. I have ... ZIEGLER: That sounds-that's probably unusual. I don't know. Dennis N. de Tray February 15. and 21 and March 21, 2006- Final Edited 15 DE TRAY: It may be, but again, it's one ofthose things that puzzles me. I have found it extremely easy to work with the Board, and one thing that I think has made a difference is that I never hesitated to tell them what was true. I never pulled the wool over their eyes. I never played any bureaucratic games. ZIEGLER: Not the mushroom theory of management? DE TRAY: Not the mushroom theory. I treated them like adults. The research reports were always really quite well received. It's a kind of noncontroversial part of the Bank, so it was a nice entree into the interaction with the Board. Through my early days in operations, which we will come to, I found that being open and honest with the Board was repaid with respect and understanding. I have always looked forward to taking strategies or operations to the Board because it's an interesting interaction. The Board was always supportive of the research program, and we got good marks on that. ZIEGLER: In the summer of 1987, the World Bank underwent a thorough reorganization, or as some of us think, a disorganization. Among the results was the establishment of a Policy, Planning and Research Senior Vice Presidency. Did you have any role in formulating and establishing this new organization entity? DE TRAY: As were most senior staff at that time, I was part of the broader dialogue and was consulted on the research side. But this was a study on how not to do a reorganization, as we all know, and so I don't want to claim too much credit for anything that went on there. For an institution that preaches the gospel of incentives, this reorganization provided the worst set of incentives to deliver on the objective it was trying to deliver I've ever seen. You put a minus sign in front of everything that you're trying to achieve and that's what you ended up getting. It was not a very well-thought-through reorganization. ZIEGLER: How did the reorganization of 1987 affect you personally? DE TRAY: It was very good for me because I was selected as research administrator. That was a major promotion from my previous position, and it gave me a point of visibility in the Bank. I may have been the last, if you will, research czar at the Bank. After that, the position of research administrator really became much more administrative and much less substantive. I was very fortunate to work under people, particularly Stan Fischer, whom I've known since my Chicago days. ZIEGLER: Oh, you knew him ... DE TRAY: He was a post-doc [post-doctoral student] at [the University of] Chicago, and he and I have remained close friends since those days. He's a man I have enormous respect for, and a man whose life and mine intertwined in amazing ways over the years. This was one of those Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 16 ways. He came in as the Bank's chief economist, and he was extremely supportive of the work we were doing in the centrally-funded research program. And as I said, we worked very closely together on the conference and many other things. He was the best boss I ever had. I was fortunate. Research administrator was still a position of interest and some authority. It did have a role in shaping the research program. I didn't have dictatorial powers but what I didn't want done didn't get done. It was my job, I thought, to bring a sense of direction and quality to the program. ZIEGLER: Is it better to have what you would call a research czar, as you were, compared with what you have now, where it's a more administrative job? DE TRAY: I think it's more administrative now because the structure has changed so much within the Bank with the networks. Now, you've got a vice president for DEC [Development Economics], Francois [J.] Bourguignon. You've got a whole process that looks after this, and to whom the research administrator reports, and it is an administration role now. So is that bad? Good? Maybe just different. The work from those days-! think we did some interesting things. As I say, the Board seemed to like what we were doing and gave us kudos for it. ZIEGLER: The report on the World Bank research program, report number 7125, February 1988, published a few months after you became research administrator, notes, quote, "Four shifts in research spending between the early 1980s and 1987 are noteworthy. First, the share of departmentally-approved research rose from 42 percent to 51 percent, meaning that less research is subject to central review and coordination. Second, the share of research on sectoral topics has fallen from 65 percent to 42 percent, reflecting a growing emphasis on macroeconomic and international trade issues. Third, the centrally-funded research portfolio was dominated by four large comparative studies and an array of small projects, with relatively few medium-size projects in the $100,000 to $300,000 range. Fourth, the share of centrally-funded research managed by regional staff continued to decline." Taking each of these shifts in turn, or even just generally if you prefer, from your perspective were they positive or negative developments? DE TRAY: Some were positive and some were negative. They are related. The shift to macro and trade and the four large studies are the same thing. Anne Krueger was a trade economist; Deepak Lal was interested in macro issues, and so forth. The four large comparative studies were not all macro, but they largely would have been-would have fallen in that category, and they dominated in that period of time. That was more Anne Krueger's time through Stan Fischer, too, after he came in. The shift away from Regional staff research to center, I personally thought was a good thing. I've never really understood why the Bank felt that operations staff would make good researchers. It's a specialty that needs to ask the right question, but in terms of writing ability and being up to Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 17 date on methodologies, why would somebody who is in the midst of an operations complex qualify, except by chance? ZIEGLER: I \vas thinking more like real-world perspective, adding ... DE TRAY: That's a very correct assessment and an important point. There should be another name for what people write about the operations work aside from research. I don't know, experience or notes or something. The shift away from centrally-funded research to non- centrally-funded research was, at the time, worrisome because it meant less coherence in the research program and therefore harder to defend. And I think it's still true today. In those days, either Anne or Stan was responsible not just for the research under their mandate but the Bank's research program more widely. So the coherence issue and whether it all added up, or the sum was greater than the parts was an important issue. The less oversight there was in what got done and the more it was driven by different agendas across the Bank, the less coherence there was. So it was a tough tradeoff. On the one hand, by no means do you want everything centralized. That's not a good thing. On the other, you needed some mechanism to provide coherence to the process. So ... But the period '80 to '87 was Anne Krueger. Anne, who remains a very dear friend and colleague, and was one of the key reasons why I came to the Bank, did take the Bank's research program in a very specific direction. She had a very clear agenda. She was very much influenced by Deepak Lal and what he wanted to do and what he thought was right, and that imprint is all over the numbers you cited. ZIEGLER: The February 1988 report we just mentioned also addresses a matter of direction for the future of Bank research in the post-1987 reorganization era, quote, "The highest priorities for current and future research include: one, finding ways for countries to adjust their economies and at the same time to sustain growth; two, developing strategies and tools for solving the debt problems of highly-indebted countries; three, spurring the development of Sub-Saharan Africa; and, four, alleviating poverty. "Three additional areas that have emerged as new priorities for the Bank, and thus for Bank research, are: five, the preservation of the environment; six, the problems and possibilities for women in development; and, seven, the best approaches for enlarging the private sector's contribution to development. "Within this broad agenda, the recent evolution of the Bank's lending program points to the need for an analysis of the Bank's experience with policy-based lending and the management of adjustment programs." How did these priorities evolve during your period as research administrator? A rather large topic there. DE TRAY: My first reaction is, you could have been reading out a list of issues for today. Dennis N. de Tray February 15 and 21 and March 21, 2006- Final Edited 18 ZIEGLER: I was thinking the same thing, yes. DE TRAY: And I think that's the answer to your question. There is little new under the sun. The issues-the broad sets of development issues that the Bank has struggled with for years-are still here today and were there in 1987. And the list you read is really the list ofkey issues that the Bank has been and continues to struggle with, and therefore ought to be the basis for the research that we do. As with most things that we do in the Bank, it's much too broad. We are a victim of the breadth of demands on our time, our skills, our staff. I could put that list in front of any current Bank staff and say, "Do you think this currently describes the issues that the Bank faces today," and I bet you nine out of ten would say yes. So I think the answer is-what is the right quote? It's always been with us, and always will be. So, country assistance strategies have an unfortunate tendency to have the same boxes checked: environment, women, private sector development, Africa, poverty, adjustment, growth. That's our business. So the criticism of a list like this, as I've said, is it's far too broad to be valuable. There's no way of excluding anything-everything fits in this agenda somewhere. Now, was that a conscious effort? No, but obviously anybody who's putting together a strategy for research wants to give himself or herself as much flexibility and wiggle room as possible going forward. Later, when you try to align outputs with objectives, you don't want to be to be caught out in some way. But looking back on this list, yes, these are the key topics of development, and were the key topics of development in 1987. ZIEGLER: Well, some of them emerged-for instance, women in development, environment-about 1970 or so. DE TRAY: This was the beginning ofthe Bank's movement into some of these types of issues--environment, women, private sector development. You know, the late [RobertS.] McNamara, early [Alden Winship "Tom"] Clausen years were the years when the Bank began the move from a project institution to a policy institution. It was, as Ernie [Ernest] Stem argued, always doing policy stuff, but the focus became much more clear with structural adjustment. ZIEGLER: Not always successfully, though. DE TRAY: No, not always, maybe not mostly. ZIEGLER: That has always been a controversial ... DE TRAY: Absolutely, and an interesting and long debate. These were issues, almost foundational issues of what we deal with. My guess is ten years from now the same list would apply. ZIEGLER: In which of these priorities was the Bank research most successful and in which was it the least successful, in your assessment? Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 19 DE TRAY: Bank research? That's a tough question. I don't actually think, without going back and looking at what we were doing specifically, I could answer it. The Bank as an institution really hasn't had a great deal of success in Africa yet. We still haven't figured out how to solve the debt problem, probably because we aren't thinking about it correctly. The experience in the former Soviet Union suggests we didn't get adjustment and sustainable growth right. Poverty will be with us forever. We've probably made some progress on environment in the sense of visibility and maybe being a little more tuned to the issue. Women: we've done some important work. Private sector development: again, I'm not sure we're thinking about it right, but that's a different set of questions. But I confess it would be hard for me to tell you where research has had the greatest impact. The area I know best is our work on poverty, and certainly we've made a notable and noticeable contribution to the world's knowledge on poverty. The Bank has really led that work around the world, and I take some credit for that. Much of the information that was used for that work came out ofthe Living Standards Measurement Study. But maybe I was following that work more closely than on other areas. ZIEGLER: Did the influx to the Bank of a large number of formerly centrally-planned economies, especially those that had been formerly constituent elements of the Soviet Union, significantly affect the research program? DE TRAY: It threw down an enormous gauntlet to the Bank. I remember a wonderful anecdote on that front. It was after Johannes [F.] Linn had been the vice president for ECA for some time. There was an event of some sort, and Johannes was talking about the mess he found ECA in when he took over. Wilfried [P.] Thalwitz was sitting in the audience, the guy who created the mess, and at some point I remember Johannes looking at Wilfried and realizing where he was headed and back-peddling-he is a very smart guy-to get out of it. That's a long-winded way of saying that we were scrambling so hard to get traction in an incredibly fast-moving environment in the former Soviet Union that I don't think there was much research done at all. There was a lot of effort to tap into what we knew on privatization, and so forth. ZIEGLER: And that didn't go all that well either, in any event. DE TRAY: No, but this was an unprecedented event, so we really had very little experience to follow. As you know, there's been quite a lot of research done since then, the work that ECA has done among others, and I think that's good and interesting work. There was certainly research that went on during that time, but it was more that the new ECA just appeared one day. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 20 ZIEGLER: One ofthe few Bank reorganizations that I thought made sense. DE TRAY: They did amazingly. It was, "Throw out the rule book and get it done," and that's how they had to do it. You needed tough hombres to do it, and they had the right hombres in there. So, no, I don't think there was a major influence on research. ZIEGLER: Aprill989 saw the first of the Annual Bank Conferences on Development Economics. What was your role in establishing what became a long series of ABCDE conferences? DE TRAY: As I mentioned earlier, Stan Fischer carne up with this idea that it would be good to have an event each year, very carefully organized, on a limited number of topics that didn't make the same mistakes that most research conferences make, that was designed to showcase what the Bank was doing, but also to provide a venue for a real conversation about some of the key issues facing development. ZIEGLER: What are those mistakes, by the way, briefly? DE TRAY: Conferences are generally incredibly badly managed. People design them on the premise that we're spending a lot of money on this, therefore, we have to pack them as full as we can. There is never enough time for discussion. There are too many topics, too many speakers, no time to explore ideas. ABCDE was designed exactly to avoid those problems. As I recall, in the days that I was managing it, we would have at least two two-and-a-half-hour sessions on every topic, maybe one, two speakers, lots of time for discussion from the audience. This did come out of my research background. I had been to lots of conferences, and I found most of them boring and frustrating. Stan was the person that carne up with the name. He loved the ABCDE name, and it stuck. When Stan left the Bank, he gave a goodbye speech. I was not present, but the ABCDE was one of the successes that he mentioned. He mentioned that, in fact, he and I had done it together, and he was very proud of that. He thought it was one of his important legacies. ZIEGLER: As you've mentioned, the ultimate objective of this series is to improve both the member country and Bank policyrnaking by enhancing knowledge bases. Do you believe these conferences have been successful in that regard? DE TRAY: I haven't followed them more recently, but I believe they were to start with. I think they have now taken on a different role, and one that I am less supportive of. They take pla,ce now every other year outside of the Bank. That's a contradiction of the ABCDE that I was involved in. It was exactly as it states, to 1nforrn Bank staff, so the audience for this was Bank staff. It was an intellectual feast that was to take place once a year, open to Bank staff in Washington, bring in the best and the brightest, have a real discussion of issues, and energize people, get them informed. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 21 You can't do that if it's in St. Petersburg, where you're freezing to death. It's a different objective. Good, bad, I don't know, but different. I think it should have stayed focused. Now it has become more a showcase outside of the Bank. It's very much a research showcase-rather than a way of energizing Bank staff. There are other events, including the sector weeks, and so forth, that also try to do that. So, as I say, the world has changed since then, but I remain convinced that our original notion was the right notion. ZIEGLER: In 1991 you became the senior economic adviser in the Development Economics vice presidency. What occasioned the move from your position as research administrator, and what were your primary duties as senior economic adviser? DE TRAY: In 1991 Larry Summers took over as the Bank's chief economist. In late 1990 I went to Stan Fischer and said, "I want to leave the Bank's research administration position and move to operations. That's what I came to the Bank to do." ZIEGLER: Oh, so you actually initiated the change to operations? DE TRAY: I wanted to move out, and I said, "I came here, I served my time, and I want to get into operations now." Stan said to me, "Dennis, would you do me a personal favor? Would you stay one more year? Larry needs somebody who understands the Bank and who understands the role of the chief economist, and you've worked with two, Anne Krueger and myself, and he's going to need a lot of support. Would you stay a year, and then we'll hopefully get some institutional commitment to move you into operations." I said, "Sure, but not until I talk to Larry," whom I didn't know. I knew him by reputation, but I'd never met him. So I flew up to Cambridge, and we spent an afternoon together, and it was his choice. I said, "Larry, it's your call, but Stan said you do need somebody who knows the ropes around here." What were my duties? Well, they certainly weren't to advise Larry on economics. It turned out to be a period of-I don't know what the right non-pejorative word is-"educating" Larry on working in a bureaucracy. ZIEGLER: Yes, because he had come from an academic environment. DE TRAY: He was 36, the hottest economist around, the best blood line, et cetera, the youngest full professor at Harvard, one of the smartest guys I've ever worked with, but as recent events have suggested, not one of the most diplomatic people you will meet. A lot of my early time with Larry was spent trying to get him to understand that being right might be important and might be the name of the game in academics but it was not the name of the game in a bureaucracy. To be effective you had to build coalitions. Beating everybody down Dennis N. de Tray February 15 and 21 and March 21, 2006- Final Edited 22 by scoring debating points every time you walked into a room was not the way to get people committed to your ideas. Whether Larry ever appreciated that, I don't know. My other main job was to try to get him to dress right. Larry has the kind of figure that doesn't hold together, and he was constantly losing his shirt out of the back of his trousers, walking around with his jacket on and his white tail behind him. Finally, I bought him a pair of suspenders and said, "This is not my job, but why don't you try this for a while?" And he did, to his credit. He also then lost them and never wore them again. And I think he then finally found somebody who could make him trousers that would stay on. It was an interesting and slightly stormy relationship. I think I wasn't quite what Larry wanted, and it wasn't the job I wanted, but we parted friends, and it was fine. I can't remember who took the job after me, but they tended to be more detail-oriented, follow-up people. I'm much more conceptual and strategic. That's what I like to do. As I say, Larry and I have remained friends. ZIEGLER: I know you have to go very shortly, but we can wind up this session in a moment and then proceed on operations next time. DE TRAY: Sure. ZIEGLER: You've already touched on a lot ofthis, but maybe you could make some observations or comparisons and contrasts between the senior Bank economists whom you've known-Anne Krueger, Stanley Fischer, and Larry Summers-and maybe touch on some of the other colleagues who have particularly impressed you during your time in the research complex. DE TRAY: I was very fortunate to work with an extraordinary group of people. Each had his or her strengths and weaknesses, but all of them were open to discussion and ideas, and were patient with my idiosyncrasies and inability to keep my mouth shut. Anne brought me into the Bank. She was always willing to listen, and I was willing to talk. We had some pretty strong conversations at times about her approach to the Bank. She was also one of those people who didn't fit into the Bank's bureaucracy comfortably. She never quite trusted the Bank. ZIEGLER: Was she was more comfortable in the Fund, do you think? DE TRAY: Yes, and she is-and she said so to me it was because the Fund is run by economists and she understands economists. And she said, "I never really understood the Bank because there was nothing that I could get my hands around there." She didn't always have the best advice around her in terms of how to deal with bureaucracy. We had many conversations about that, and to her credit she was always prepared to listen. I never felt she held any of my sometimes fairly strong statements about how she should change against me. Stan, as I said, was one of the people in the world I have the greatest respect for. He is a true gentleman, a great scholar, and a great manager. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 23 ZIEGLER: He's, what, governor ofthe Bank of Israel now? DE TRAY: He is now governor ofthe Bank oflsrael, which I think just speaks volumes for his dedication. He left a very influential and lucrative position at Citigroup to become governor. ZIEGLER: Yes. DE TRAY: And they really didn't want him to leave. He's a committed person, and a very great role model. Larry, as I've said, was at a major transitional point in his life. You know, he was probably the wrong person for the position in some ways. He really needed a special assistant to look after him, and probably a more junior person would have been better. He is, along with Milton Friedman and a few others, among the smartest people I've ever known-fast, great instincts. He has a great sense of people. He has huge courage to take on tough issues. He's very committed to women, to the environment, things like that, but he will not hide behind politically-correct mush statements, for which I respect him enormously. We'll see if he survives the current mess at Harvard. ZIEGLER: That was a red herring from the beginning. DE TRAY: There's another one now .. ZIEGLER: Oh. DE TRAY: .. more recently that I think is a real problem. He is a person, as I've said, who stands behind his principles and is prepared to fight for them even if it means a lot of uncomfortableness. He doesn't like to back off of an issue. I have a lot of respect for Larry. I like him a lot. His selection and promotion ofNancy Birdsall, my current boss at the Center for Global Development, is an indication of Larry's ability to identify talented people whom other people saw as good but never realized that they had the potential that Larry saw in them. Nancy went on to do wonderful things and continues to great work today. So, as I say, they were all terrific people to work for, and I learned an enormous amount from them. So it was a good time. ZIEGLER: Any other colleagues, you know, briefly, at your level, above, below? DE TRAY: I've got to go, so why don't I think about that and let's make that the opening question for the next round? ZIEGLER: Okay, thank you very much. [End Tape 1, Side B] [End of session 1] Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 24 Session 2 February 21, 2006 Washington, D.C. [Begin Tape 1, Side A] ZIEGLER: Today is February 21, 2006. My name is Charles Ziegler, a consultant for the World Bank Group Oral History Program. I have with me here in the World Bank Group Archives Mr. Dennis de Tray, for the second session of his oral history interview. Well, glad to have you back, Dennis. Today we will start with your switch to operations. From January 1992 to March 1994, you were the chief, Bolivia, Columbia and the Dominican Republic Country Operations Division in the Latin America and Caribbean Region. What were the circumstances under which you made the move from research activities to operations? DE TRAY: When I left the RAND Corporation in '83, it was with the objective of getting into operations, but one's past tends to haunt one, so it took me eight years to get out of research and into operations. As we mentioned in the last session, I had agreed to spend my last year out of operations as Larry Summers' senior economic adviser and, at the end of that period, began to look for an assignment in operations. I learned quickly that even though I was relatively well known in the Bank and on a first name basis with most of the operational VPs [vice presidents], it wasn't that easy to make the switch. There were concerns about "you have never done this; therefore, so you can't do it." I was also at a fairly senior management level, I guess in that time a grade 25, and operations division chiefs were grade 24 mostly. To cut a long story short, Shahid Husain, for reasons that I am not entirely sure of, agreed to take me on and to give me the job that I was looking for, as a country operations division chief. I wanted something that spanned the spectrum of development issues and was concerned with broad strategy of country development rather than a specific sector. I could have gone into, for example, the Human Development Division in Latin America but decided against that, and I am very pleased I made this decision. ZIEGLER: Was Latin America your choice, or was that just what was available? DE TRAY: It was serendipitous. I didn't speak Spanish, so it wasn't as if it was a natural calling. I found Latin America interesting because it spans the range of development challenges, and indeed I liked it very much. There is an interesting similarity to the beginning and end to my operations career. I started in operations with three countries that spanned much of the range of development challenges the Bank faces as an institution. The Dominican Republic was a relatively low income, difficult policy environment, with an autocratic ruler who was not popular internationally. The Bank had Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 25 a difficult program there and was struggling to find a foothold. Bolivia was and has always been a donor darling for the Bank. Enormous amounts of resources have been put into it with not a great deal of permanent effect, I think. And Colombia was a middle income country, very sophisticated in some respects and facing very serious development challenges in others. ZIEGLER: And political challenges, too-just ... DE TRAY: Serious political challenges. In my last assignment at the Bank in Central Asia I faced these same characteristics, and I must say I liked those assignments. It gave me the breadth of the perspective of the Bank. ZIEGLER: What were the main challenges in moving from research to operations? You mentioned that some people were saying, "Well, you can't do this sort of thing," and, clearly, you did. But what were the challenges you faced? DE TRAY: There were really two. One was, I suppose you might say, a change in mind set. In operations you can't just offer advice-on the one hand, on the other. You have to come to a decision. ZIEGLER: You can't offer advice to whom? DE TRAY: You can offer advice to countries, but in the end, you are going to be making decisions that involve judgments about whether to go forward or not go forward, whether to impose a penalty or not. One of my clearest recollections of my early days in Latin America was two or three weeks after I had taken the job, when I was still very much struggling to understand what it was. I had to go to Bolivia-to La Paz-to meet with the minister of mines to tell him that we were suspending a loan that was designed to close one ofthe major mines in Bolivia-a state enterprise and completely uneconomic. The government had reneged on the policy agreement underlying this loan, and we were going to cease disbursements on it. I got down there and, of course, I didn't speak any Spanish, barely knew Bolivia, and certainly didn't know the project. I met the minister and said, "It is difficult to be meeting in these circumstances." We are working on Bolivia, but in this case, I was bringing bad news, and, of course, he knew it was coming. As we were walking out, I said to the interpreter, "How did it go?" And she said, "Oh, it went fine." I said, "It was a little difficult to hear because of all the noise outside." There were all these boom, boom, booms. But she said, "Yes. Those were. the miners." Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 26 I said, "What were they doing?" She said, "They were throwing sticks of dynamite up in the air as a protest against your visit here." I have to say, to this day that has been a defining moment when I realized the difference between doing research and doing operations. In operations you are dealing with real lives, real people, real policies, real workers, real conflicts, no first-best solutions, lots of compromise. ZIEGLER: The Bolivian miners are pretty tough, too, I understand. DE TRAY: They were. The Bolivian lower middle class, as we are currently finding out, is generally a very tough independent group of people. The miners were indigenous, as opposed to of Spanish decent. So they were making themselves known in very obvious ways, which really did bring home to me how different operations was to giving advice on research. ZIEGLER: In your operations experience, starting with this particular assignment, did you actually experience the ways in which Bank research informed the way in which the Bank operations were conducted? DE TRAY: Yes, in the sense, in the broad sense that when one was in the process of engaging in dialogue with governments, often reticent governments, to try to get them to adopt a policy that was perhaps politically unpopular or gored somebody's ox, one did need to have the breadth of knowledge that research gives one to make the case that a particular approach that was being suggested was based not in ideology but in facts, that there had been lots of experiences like that, and that what was being suggested built on those experiences. So in that sense, the knowledge generated by research and ... ZIEGLER: But the knowledge generated in general or simply, for instance-what I mean is, you were pretty much the head man in research when you transferred over. So you would have a lot of this in your mind, but say, not you, but, you know, some-a manager, just a normal operations manager, without that kind of background, that is what I am really trying to get at. I am personally-for not very good reasons, I suppose-somewhat skeptical of how much research actually informs operations in the Bank. DE TRAY: That is a fair skepticism, and I share it. I believe I mentioned last time that I was surprised at how good spending 20 years in research was as a foundation for operations. You really do learn a lot, and you have a broad sense of what is important and what is not important. A great deal of policy is built on facts and research, but it's the judgment oftradeoffs involved that really moves you from the elements of policy research to the elements of policy implementation. As I mentioned before, the Bank's research community has not done a particularly good job of either codifying the lessons of experience of the Bank in a way that is accessible to .. ZIEGLER: That is what I'm trying to get at, yes. Dennis N. de Tray February 15 and 21 and March 21, 2006- Final Edited 27 DE TRAY: ... overworked Bank managers or, indeed, to extract from the more cutting edge types of research that academia does, or the Bank sometimes does, the implications for operations. We spend a lot of money on doing what is technically good analytic work, but far, far too little money in disseminating it. And that doesn't mean doing conferences or writing volumes. It means figuring out how to make it accessible to the clients who we are trying to serve. And oftentimes these are country clients, but very frequently they are Bank clients, operations clients. ZIEGLER: It is the accessibility I am thinking about, because, of course, I never worked in operations, but I have known people who have, and these are busy people. They don't have time ·to go through stacks and stacks of research reports. They need fairly small, bite-size pieces of knowledge, so to speak. DE TRAY: There are two sides to that coin. On the one hand, I don't think there is enough oversight and incentive on the operations side to get over-taxed task managers to actually seek the knowledge. There are processes that try to do it, but they do it, I find, in an artificial way. But much more importantly, the unmitigated truth of what has gone before is often difficult to find. We are an institution that is both judge and jury, and oftentimes the judge is a part of another jury, and so forth. So you get, not intentional conflicts of interest, but groups of expertise for whom it is in their self-interest to see the glass as half full. In much of our institutional development work-public sector reform work-the track record is pretty abysmal, and yet you don't hear enough up-front criticism of trying to do the same old thing again and again when you get those people together and have them review a new project or a new policy stance. ZIEGLER: What were the main issues that you had to address in the countries covered by your division in Latin America? DE TRAY: Colombia was precursor to the whole middle income debate going on right now. How do you work in a country that is both technically quite sophisticated-! mean, our counterparts there were, in many respects, better economists than we were, very bright people. ZIEGLER: Were they U.S. educated? DE TRAY: Yes, in the best universities, and some very, very good people, often with a lot more experience than certainly I was bringing to the operational table at the time, in a very politicized environment that was struggling with the drug issue, with the guerillas and so on. A new oil field in Cusiana was just coming online that had the potential to create "Dutch Disease" problems in Colombia. So they were interested in technical advice and in some money, Dennis N. de Tray February 15 and 21 and March 21, 2006- Final Edited 28 but the money was really secondary. But they were interested .. ZIEGLER: Technical advice. DE TRAY: .. they were interested in the best technical advice. So I was able, for example, to bring, interestingly, Indonesian experts in to tell them how Indonesia managed its oil reserve. [Interruption] ZIEGLER: We were talking about Colombia and their excellent economists. DE TRAY: Right. A key to success in Colombia was the ability to bring in people that had .. ZIEGLER: You had an Indonesian expert. DE TRAY: .. similar experiences on the oil revenue front. I must say, I respect the Colombians because Indonesia was, in some respects, a less developed country than Colombia, but Indonesia did very well in managing their oil resources, and the Colombians wanted to know how that happened. ZIEGLER: That is interesting. Given the known corruption in Indonesia, they still managed to do a decent job with their oil. DE TRAY: I'll come to that later. They did one of the best jobs managing their oil. Anyway, Bolivia was a long-term development challenge, everything from infrastructure to human development, an IDA country, resource-constrained, difficult political circumstances in the sense of a division between the elites and the indigenous Bolivians, a country that had a very up-and-down history: hyperinflation, military dictatorships. ZIEGLER: Political instability. DE TRAY: And when I got there, it had come out of most of that, and was on relatively benign path. As I stated, the Dominican Republic was a country run by. a dictator. A challenge to figure out how to operate, and what sectors in which we could do some good without doing harm. So that assignment spanned a range of, I think, development challenges. ZIEGLER: Were there any persons with whom you dealt in those countries who made a particularly strong impression on you? You mentioned, for instance, some of the economists in Colombia. Anybody in particular that stands out in your mind? DE TRAY: I remember the minister of finance, Rudi [Rudolf] Holmes, from whom I learned a great deal. I know it is supposed to be the other way around. He was U.S. trained, might have Dennis N. de Tray February 15 and 21 and March 21, 2006- Final Edited 29 even been from my alma mater, Chicago, but I don't think so, but maybe. Very smart guy, very savvy politically. Let's see, in '92, I would have been in my late 40s and Rudi was probably a decade older, and it showed. He had been in this business a long time. He was very tolerant of the advice we would give, often smiled quietly, but, you know, he could have been on either side of the table. I suppose in Bolivia there was a whole group of people whose names I am not going to remember who were there when I first arrived. There was bunch of others, Goni [Gonzalo] Sanchez de Losada. Goni, who was an American-raised Bolivian, spoke Spanish with an American accent. A real character, but was a duly-elected Bolivian. He put together a very good technocratic government. We brought them to the Bank for almost a week and put them through a course on development, about what needs to be done, about what we knew about the Bolivian economy and so forth. An amazingly productive and useful week, and very good people to work with. ZIEGLER: From April 1994 to March 1999 you served, first, as director, resident staff in Indonesia, and then country director for Indonesia. In both cases, you resided in Jakarta. What were the circumstances that led to this appointment? DE TRAY: Again, I owe it to Shahid Husain, who by that time had left LAC and was the vice president for personnel, an interesting appointment for Shahid. While I had been country operations division chief I had done a couple of country assistance strategies that caught Shahid's eye. One of them he sent around and said, "This is what I want to see in other countries." So he seemed to like the way I did business, and at one point he called me up in early 1994 and · said, "Dennis, I have an opening that I would like you to take. It is to run the Bank's liaison office in London." I said, "Shahid, my wife is going to kill me, but I didn't come to the Bank to go to London. I really came to the Bank for development, and I'm not so sure I would be good at the liaison job anyway." External relations liaison requires one to be "on message," and I am not a very good "on message" person. I tend to say what I believe, and sometimes that is not the right way to make progress. So I turned him down. About a week or two later, he called me and he said, "Okay. I have got another assignment for you." He said, "There are three major country offices opening up, Delhi, Dhaka and Jakarta. Which one of those would you be interested in?" So I did some quick research and, historically, Indonesia had been one of the Bank's premier field assignments, as had the other two. But most importantly, I had a son then who was just finishing his freshman year in high school, and the Jakarta International School was one of the Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 30 . best in the world. So I said I was interested in Jakarta, and they went through the process. And at that time Marianne Haug was the country director. I met with Marianne. She didn't object. I don't know if she cared. And so I got the assignment. I got the offer on a Friday, and I went home and told my family that this was the best overseas assignment I was ever going to be offered with the Bank. So we had a fundamental decision to make. Were we ever going to go overseas or were we not? I said to my wife and my one son who was home at that point, "Think about it overnight. I have a job I love, my life will go on, it is not a problem, but this is an opportunity." So the next morning, my son came to me, he was a freshman, and said, "Dad, I have a strong sense I am not going to like this, but I think it is the right thing to do." This is a very mature thing to say for a freshman in high school. My wife, who was at that point running her own catering firm here, also agreed it was probably an opportune time to leave, although she didn't really want to shut her business down. So we agreed as a family to do it, and on that Monday I said yes. ZIEGLER: You were one ofthe first ofthe new-style decentralized country department directors. How did it feel to be such a pioneer? DE TRAY: It was an interesting issue because ofthe particular nature of the Jakarta office. The director of the resident staff in Jakarta, while not the country director .. ZIEGLER: At that time. DE TRAY: .. at that-when I first started .. ZIEGLER: Yes. DE TRAY: . :had an enormous amount of autonomy and authority anyways, but ... ZIEGLER: And had for a long time, starting with Bernie [Bernard R.] Bell, I think. DE TRAY: Bernie Bell was a vice president, and he was the first "country director" for Indonesia. There was a decline over time of the status of the job as country directors migrated to Washington, or were in Washington and pulled back the authority that the country managers and country directors had had in the field. But nonetheless, because of the size of the office and the 12-hour time difference, there was a lot of authority. It is a great assignment, even as director of the resident staff. I had a rather unusual ",.,.. ,.... ..-.. ., good instincts in development, There was a sort of odd and never quite clear division of labor. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 31 Along came the '97 reorganization and Jean-Michel Severino, who was the vice president and himself quite new in the Region. I was one of two c<;mntry managers, or whatever you want to call them, who were in situ, and who were given the director assignments without going through the competitive process. I wanted it very badly. I had invested three years in Indonesia and I wanted another two. So I was very pleased, very happy to get the assignment. It was extremely exciting. I was very, very much committed to decentralization and to the value of being in the field, and my time in Indonesia had done nothing but convince me that that was the right way to do development. ZIEGLER: Was your family enjoying it at that point? DE TRAY: Very much. I have come to decide moving has three phases no matter where you move. When we moved from California to here, it was the same thing. For the first year, your family barely speaks to you. For the second year, they sort of think it is okay. By the third year, they don't want to leave, and, the fourth year, they don't even want to talk about leaving. So the first year was a bit tough. My wife had given up her business. She had to learn how to reintegrate herself into a community, which she does magnificently now. She became involved in culture and heritage, and eventually became the president of the Indonesian Heritage Society and left a real impact on Jakarta. My son, within three or four weeks of starting at JIS [Jakarta International School], liked the environment, liked the friends, got into varsity soccer, became, eventually, president of the school. It was terrific for all of us. The last two years were a little tough, as we will get to, but as a family experience, we all look back on it as extremely positive because it was a life-changing expenence. ZIEGLER: How would you characterize the day-to-day relations between the country office and headquarters? And, presumably, this would have changed somewhat from your initial assignment there, which was just as head of the resident office, and then becoming country director. DE TRAY: One of the aspects of the Bank decentralization that I have learned--and we will get to the other side of this when we get to my last assignment--is that when you are dealing with a large country that is a major element of the Bank's overall portfolio, a country that has attracted the best and the brightest in the Bank for many years, as a decentralized country director, you have the best of both worlds. You are in the country, dealing with the government on a day-to-day basis, on the one hand; on the other, the Bank comes to you. You are too important, you are too attractive as a program to Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 32 ignore. It was easy to get good people to work on Indonesia. People call you up and say, "Can I come work in your country?" So in some ways managing the Bank side of the matrix was not a problem. Even so, I don't think I did it as well as I should have. I had a very good country program coordinator Oscar de Bruyn Kops, who was my alter egoin Washington, but I did learn that managing Washington is a real challenge. You have a tremendous sense of esprit de corps and team in Jakarta, but transferring that to Washington turns out to be really difficult, because you are not there, because of the 12-hour time difference. Unless you decide to stay up every night until midnight, you really don't interact with Washington as much as you would like to. And when you are back in Washington, you are usually back running to meetings and other Board events that keep you very, very busy. So you don't have the "corridor time" that you have if you are stationed in Washington. And while I was aware it was a problem, until the crisis hit I didn't realize how serious a problem this was. And until I got to Central Asia, I didn't realize how different it is for a large country than for small countries. ZIEGLER: How would you characterize your relations with local staff and what were their main concerns? Because it is quite an extensive locally-recruited staff there, as I recall. DE TRAY: The Jakarta office was one ofthe oldest offices in the Bank's country office system. It had recruited a number of very good local staff along the way, who had worked their way into positions of confidence and respect with Washington staff. Nonetheless, one of the great challenges that I saw was that these really good country staff were not being used to their full potential. There- was still too much of a sense that they were in service in support of Washington-based task team leaders. They had capacities to do, for example, "continuous supervision." They knew Indonesian, they knew the country, they knew the culture, they could really do it, and often they knew what was going on under the surface much better than our international staff did. One of the obsessions that I have had since I became a decentralized country director is to try to get the Bank to give more authority to national staff. In those days, it was "we can't do this because they are going to come under pressure from friends and relatives"-the corruption issue. I didn't see it. What I saw were a group of people that took corruption much more seriously than we did because it was their country. So I have always been a great believer in giving national staff more authority. It also was a period that really shaped my perspective on decentralization, when I began to realize that the real problem with decentralization is not its cost but the cost of Washington. Washington was a very expensive place. For decentralization to work there had to be a transfer Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 33 of responsibilities to field offices and a concomitant reduction in international staff in Washington to offset the costs of those transfers. The reason that decentralization is seen as expensive is because the second never happens. You basically build up more capacity in the country offices but you don't reduce capacity in headquarters. That is by definition cost-enhancing and is not going to work. ZIEGLER: I remember when I visited the Jakarta office-this was 1997--one of the concerns expressed by the local staff was the quality of medical care. They were all-I shouldn't say all, but there was a hope that there would be more ability to go to places like Singapore for serious medical treatment, if necessary. DE TRAY: This was before the "one staff' policy. ZIEGLER: Yes. Yes, it was. DE TRAY: That was one ofthe more serious elements ofthe different treatment of international staff and national staff. It was never an easy issue. We hire in local labor markets. The question is, did we also provide benefits based on the local labor markets. The Bank is a very good employer in Washington and a very good employer in Jakarta for its national staff. I am not sure I can remember the incident, but that when it was deemed essential, we would send even national staff to Singapore, if we thought the health services were not adequate. One of the challenges of being a decentralized country director is that sometimes you have to make decisions in an hour that you would love to have some advice on. I remember that one of our colleague's wife got very sick and ... ZIEGLER: National staff? DE TRAY: No. International staff. I authorized her MEDEVAC [medical evacuation] at a very significant expense in a matter of hours; on the basis of a doctor in Jakarta. The doctors in Singapore said that another 24 hours and she might not have made it. You have to make those kinds of decisions along the way. I guess that is what you get paid for. ZIEGLER: The Strategic Compact was implemented in early 1997. Under the Compact, an additional $100 million was authorized in each ofFY-98 and FY-99, with an additional $50 million in FY-2000. Also, there was to be a return by FY-01 to the FY-97 net administrative budget level, in real terms, subject to dem~nd for the Bank's approved products and services. Under the Strategic Compact, there were to be better project results ratings, more resources devoted to front line efforts, that is to say, 60/40 compared to 50150; new products, relevant and timely; greater technical expertise; further decentralization to country offices; and a world class knowledge management system, among other things. The Bank was to be faster and organizationally flatter, lower cost, more efficient and flexible, with a better trained staff. That is quite an order. Did the Strategic Compact have any effect on your work in Indonesia? Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 34 DE TRAY: The Strategic Compact was agreed to in 19 ... ZIEGLER: Around February-the first half of 1997. DE TRAY: The simple answer is very little, but the reason is important. (I have views on the Compact, but that is a separate set of issues.) For my program in Indonesia, first, I was there during the money phase of the Compact and not during the reduction phase. By the time the Compact was beginning to take effect in FY98, the Indonesian crisis was under way. No Compact, nothing but that crisis mattered for the next two years, until I left in April of '99. So in that sense, it didn't play a very large role, and I really didn't follow the debate much because I had many other things on my agenda. I was always a bit puzzled by the agenda, by the Compact. As I mentioned earlier, I think one of the great flaws in the process of decentralization is that the Bank never understood that there had to be fewer staff in Washington in order to make it budget neutral. And when the people managing the staff are sitting in Washington next to the people who have to go, there is no way they are going to let that happen. So it was a serious conflict of interest in the way the decentralization process was set up. You had a budget debate taking place in Washington, with all the special interests in the Bank, virtually completely outside the sphere of influence of decentralized country directors. We were not even at the table for the serious budget discussions. What you got is a Compact that didn't deliver on what it was supposed to deliver on, which is a leaner, more efficient, more effective Bank. It didn't deliver on a sustainable decentralization process. It should have produced more decentralization, not less. It basically created a debt for the institution with the Board that we were constantly trying to defend. ZIEGLER: The day after you took up your post in Indonesia can be said to mark the beginning of the East Asia financial crisis, for on that day Thailand abandoned its longstanding policy of pegging its currency, the Thai baht, to the dollar. This crisis, of course, very soon engulfed Indonesia, even though it had been held up as an exemplary model of development for many years by the World Bank. A little over a year later, a World Bank document entitled Indonesia in Crisis: A Macroeconomic Update, dated July 16, 1998, assesses the situation in Indonesia at that point: Indonesia is in deep crisis, but words alone cannot describe the numbing shock that has been inflicted on this country of 200 million people, the fourth largest country in the world. Just a year ago, Indonesia was enjoying its 30th year of virtually uninterrupted rapid growth. Investors were beating a path to its door, demanding to participate and contribute to its growing prosperity. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 35 Inflation was low, foreign exchange reserves plentiful, and the government budget in surplus. The comforting proximity of other booming East Asian economies generated synergies for Indonesia through trade and capital flows. These, mixed with high levels of domestic savings and investment, promised little interruption to continued rapid development and poverty reduction. Within the space of one year, Indonesia has seen its currency fall in value by 80 percent, inflation soar to over 50 percent, the economy swing from rapid growth to even more rapid contraction, unemployment climb rapidly, and the stock exchange lose much of its value. Foreign creditors have withdrawn. Investors have retreated. Capital and entrepreneurs have fled. Longstanding defects in governance, earlier camouflaged by rapid growth, have now been unasked as fatal flaws. Unfortunately, the crisis hit when Indonesia was experiencing its worst drought in 50 years and the international oil price was registering a sharp decline. Social unrest and erupted and shaken to its very core the political stability of the nation. Years of development and poverty reduction are at risk. No country in recent history, let alone one the size oflndonesia, has ever suffered such a dramatic reversal of fortune. Not a very auspicious beginning to your tenure in Indonesia. What actions were taken by the World Bank to address the crisis in Indonesia? [End Tape 1, Side A] [Begin Tape 1, Side B] ZIEGLER: We were just talking about the situation in Indonesia and what actions were taken by the World Bank to address the financial crisis there. DE TRAY: I think to understand the Bank's program you have to understand that the crisis can be seen as having three phases: an early macroeconomic phase, a middle and critical credibility phase-like the better title-and a rebuilding or restructuring phase to try to hold the country together as the crisis burned itself out. In the early phase oflndonesia's crisis, that is, following the devaluation of the Thai baht, many observers, and I was one of them, thought Indonesia was not going to be seriously affected by the crisis. I don't think anybody thought the East Asian crisis was going to evolve into what it did. Peter [L.] Woicke, who used to be the head of the IFC [International Finance Corporation], was, at that point, a banker in Singapore. And Peter told me later that his bank, Standard Charter, as I Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 36 recall, was betting on the continued strength of the rupiah through the end of August. ZIEGLER: That is the Indonesian currency. DE TRAY: Yes. The rupiah, the Indonesian currency, through the end of August 1997. There was nothing in the macroeconomic management of this country that suggested a serious economic crisis in the offing, and, indeed, this was not primarily a public macroeconomic crisis. It was a private debt crisis, if you will, a private sector crisis. In the first phase a contagion began to take place, and East Asian countries generally began to be affected by the notion that just maybe East Asia's time had come and things were going to decline, that people were way overexposed in East Asia, something we had warned against. ZIEGLER: When you say "people" you mean outside investors. DE TRAY: Private, outside investors. The rate of foreign direct investment into Indonesia had always been high, but had accelerated at an increasing rate throughout 1996 and 1997-take it from January 1997 to July 1997. There was no sense that the private sector detected the crisis in the making in Indonesia. Now, that was not true in Thailand. The Thais had a problem that was well known then and later analyzed many times. As the contagion started to affect Indonesia, the initial reaction was to see this as essentially a macroeconomic crisis. That's the territory of the IMF. Professor Nitsastro Widjojo, who was, and still is, the architect of Indonesia's enormously successful growth period from 1966 to 1996, and I spent many, many hours talking about what to do with that crisis. It was interesting that I was, at that particular point in time, without a lead economist. So I was playing that role, as well. And Widjojo and the minister of finance, Mari Muhammed, and Ali Wardhana, another adviser to the president, were all engaged in daily conversations about what to do. The initial reaction of the government was basically to out-Fund the Fund. It raised interest rates very high by taking liquidity out of the banking system-all of the standard recommendations the Fund would have brought, had it been there, in order to strengthen the rupiah. If you don't have rupiah liquidity, you can't buy dollars and, therefore, you can't depreciate the rupiah and appreciate the dollar. Even with all these really quite draconian measures on the part of the Indonesian government, the rupiah continued to slide, and nobody quite knew why. I think it all has to do with the second part of the agenda, the credibility side, which we will get to in a moment. In the end it was agreed, and Widjojo, with my concurrence, agreed that we would ask the Fund to come and do an analysis. And the rationale was that the Fund would be able to certify that Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 37 what the government was doing was correct and give it credibility, thereby providing confidence to the foreign exchange market, reducing pressure on the rupiah. The first Fund team that came was headed by Bijan Aghevli, and he immediately began to develop a program that was aimed at the governance side of the agenda, the corruption and cronyism. They did this in complete isolation from the World Bank, something that I have been extremely vocal about and was vocal about then. It wasn't that we thought it was right or wrong. We just weren't consulted. And the Fund hadn't been seriously in Indonesia for something like 17 years. Cutting a long story short, the main part of this program was the reform of the banking system, in which the IMP was going to close insolvent and illiquid banks. That proved to be a major error on the part of the Fund, and I think is recognized as such now because, of course, they ended up closing far too few banks. There was a run on the banks that were left, causing a banking crisis. There was no Plan B, and this was a highly predictable event. A key question that I think remains far too little understood is why the initial macroeconomic program that the government implemented didn't work. I think the answer lies in something that is outside of economics. Nineteen ninety-seven had been a year of when almost all Indonesians, the Javanese particularly, saw serious "spiritual" signals that Suharto was perhaps coming to the end of his god-given right to rule. Even some very well-educated Javanese saw Suharto as a Javanese king and Javanese kings ... ZIEGLER: As opposed to a simple military dictator. DE TRAY: Very much so. Javanese kings were either given the spiritual authority to rule, or didn't have it. There was no half-way house. ZIEGLER: The Chinese have something like that, too. DE TRAY: Very similar. There had been, as I recall, two or three major airplane crashes. There had been major fires, a serious drought, and a series of things that people were beginning to interpret as signals from on high that the end was near. That was part of the beginning of the end of Suharto's absolute authority over Indonesia. Once it became accepted in the minds of Indonesians that Suharto's time was over, the crisis was simply a matter oftime. You have to remember Indonesia's history. The last time there was a change in presidency in Indonesia, in 1965, between Sukarno and Suharto, nearly half a million people died. There were many, many people in Indonesia in 1997 who remembered that. They remembered it very clearly. The ethnic Chinese remembered it particularly clearly because many of their relatives ended up being killed during that period. As the crisis continued it became a self-fulfilling prophecy. The Indonesians began to believe that Suharto no longer had the capacity to rule. They lost confidence in Suharto and in his economic management and in the rupiah. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 38 This was, and is, an open economy. The first thing they wanted to do was get out of the rupiah and into something safer-to move into dollars. Every day in which there was a little more uncertainty and a little more pressure on the rupiah convinced Indonesians, particularly the ethnic Chinese, that the likelihood of the transition out of the Suharto regime was increasing. That brought with it the prospect of a very, very painful and serious disruption in not just the Indonesian economy but the Indonesian society, as happened 30 years before. So what took place was a series of programs managed by the IMF. I, as the Bank's country director, recognized from day one the Fund's presence there, that you can only have one leader in the crisis and the Fund is that leader. But as I said, I simply couldn't understand why they weren't more interested in understanding our perspectives and tapping into our knowledge, but they were very secretive and very Fund-like. I happened to have an open access to Stan Fischer, who was the First Deputy Managing Director then. ZIEGLER: I think you had mentioned last time that you had known him very well. DE TRAY: Stan had been a postdoc at Chicago when I was getting my degree there in the late '60s and early '70s, and we have remained friends ever since. I had served as his research administrator when he was the Bank's chief economist. I have a great deal of respect to him, and I guess he had some respect for me. So at some point in December of '97 I sent Stan the only personal e-mail I sent him during the crisis, in which I said, "This is simply unacceptable and unbelievable. I wouldn't care if it was just me who was being essentially ignored. This is bad for Indonesia and I won't accept it. Bijan and his team are not taking advantage of the in-depth knowledge that the World Bank has of this country, both politically and economically, and that is leading up to a great many mistakes. We need a better partnership in this. You guys can continue to lead, but you need to draw us in." Stan wrote back and said he understood, and he would see what he could do. That was very late in December. On the eighth of January, which is my birthday, the rupiah had one of its most serious crisis days. It dropped something like 50 percent in a few hours. ZIEGLER: This is 1998? DE TRAY: In 1998. There was, for the first time in the crisis, panic in the streets of Jakarta. All the shops were stripped of everything, especially food items. It was the day when I actually became seriously concerned about the complete collapse of Indonesia, concerned that the place could really, really come apart in a 1965 sense, that there would be massive killings and lootings. Within three days, by the 11th of January, Stan Fischer was in Indonesia. Stan Fischer was the best person the Fund had for this kind of activity. And Stan and Hubert Nice, who was the Director for East Asia, which is the vice president level in the Fund, arrived and took over the Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 39 program. And Stan remained engaged at a very intimate level from then on, although Hubert ran the program and spent a great deal of time in Indonesia. He virtually lived there for the next year, 1998. I met with Hubert and Stan for a couple of hours when they had arrived, and we talked through the program and the issues. And then Stan took me into his room and he sat me down and said, "Okay, Dennis, tell me what you really think." I said, "Stan, what I really think is that there is nothing that you or I could do. This is not an economic crisis. We just don't have the tools. We don't have the instruments to help. This is a crisis of confidence in Suharto. It is deeply Javanese, deeply Indonesian, deeply historical, deeply cultural. My personal view is that there is nothing that we can do short of waiting for Mr. Suharto to leave that is going to end this crisis. But we are obligated by our institutional mandates to do something, and the best I can suggest is that we convince Suharto that he needs a serious reform package." Every reform package that the IMF had offered had failed to surprise the markets, and without that surprise, the decline of the rupiah continued. We needed a program that really shocked the market. I said, "Either Suharto has to signal that he gets it now and is prepared to change the way he does business, or he has to go.': ZIEGLER: And he hadn't gotten it up to that point. DE TRAY: No, not at all. So we put together a program that basically attacked all of the sacred cows in unison: the car factory, the clove monopoly that his son had, the airplane factory, a whole bunch of things. ZIEGLER: These were all run by Suharto's cronies or his family. DE TRAY: His cronies or his children. They were actually relatively unimportant in an economic sense, but in the form of signals they were critical. We helped put together this package with Stan and his staff. They led it, but we provided most of the inputs into it. And there was the famous signing ceremony in which [Michel] Camdessus was pictured with his arms folded, standing over Suharto, for which I blame Suharto's staff. Camdessus was completely innocent. He was just standing there, trying to helpful. He happens to be French. He happened to cross his arms. He happened not to have read Culture Shock!: Indonesia [1986] and didn't know that was a bad thing to do, and Suharto was below him, which is bad. Javanese kings always have to be above you. Indonesia is a country that is very spiritual, both very much the way it was five hundred years ago and very modem. So it is a wonderful mix. ZIEGLER: I remember the photograph, and it looks like the "strict schoolmaster and the erring student" pose. DE TRAY: The signing should have never been arranged that way. I mean, I heard from a number of sources that it was something that Camdessus really grew to almost detest because it Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 40 was such an innocent gesture on his part and so much was read into it. It really haunted him for many, many years. ZIEGLER: And he is a pretty smooth operator, too. He doesn't put a foot wrong very often. DE TRAY: That is why I think this was so frustrating because he didn't think he put a foot wrong. He had come out to add his weight to what was seen as the ultimate program for Indonesia. So that was a bad start. The signing took place, I think, on a Friday morning. We went back to the office. Of course, we were watching by the minute the rupiah. It appreciated several hundred rupiah, five or six hundred, quite quickly. We were ecstatic. We went out to celebrate and have a beer. By the time we got back to the office, it was already down below its morning start. So it hadn't even lasted an afternoon. Why? Because the Indonesian people knew what we didn't know, which was that Suharto had no intention of actually doing any of what the package promised. He apparently told his cabinet in a closed session that, "Don't worry about it; we will take care of this later." They didn't believe him because he wasn't believable. ZIEGLER: "They" meaning the Indonesian people. DE TRAY: The Indonesian people, particularly the ethnic Chinese. And without their belief, the crisis continued. By this time, international capital was either stuck in Jakarta or gone. Any subsequent declines in the rupiah were all domestically driven, with the Chinese rushing to get money out. And indeed, the crisis, as it worsened in late December through early January, was virtually all the Chinese taking their money to Singapore. They were the big money holders there. They knew how to work the system. They knew how to get money out of the central bank. There was a huge run on the central bank. And before the Fund got its act together and figured out that there was a run on the central bank, hundreds of millions, billions of dollars were taken out. The effect on the rupiah and on inflation is well known. When that package failed, it was really just a matter of a holding action until the politics played itself out. We went through a phase when the government was seriously considering Steve [H.] Hanke's currency board recommendation. Hanke was selling a bill of goods to the government, but for a couple of months, which was an eternity in this period, there was virtually no dialogue between ourselves, the IMF, and the government because we simply wouldn't accept that they were going to adopt this principle. A currency board would have been a disaster. None of the precursors to a successful currency board existed in Jakarta at the time, and most currency boards have failed over time anyway. So it wasn't a great idea. But, anyway, negotiations stopped again. There was another election. The "crony" cabinet came, which was another signal that the end game was moving forward. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 41 Suharto was pulling back into his history. He surrounded himself by people that he trusted. Bob [Mohamad] Hasan [The Kian Seng] became minister of trade. Bob Hasan was the plywood baron who had run the plywood industry and was a billionaire several times over, essentially Suharto's money man. He was ethnic Chinese, but very smart, very rich, very smooth, and very dependent on Suharto. Suharto's genius was to create balance between the ethnic Chinese, who had the wealth, the ethnic Indonesians, who had voting power, and the military. He was able to give all of them enough independence and power so that nobody rocked the boat. That was his genius in creating a stable and very successful economy over a period of 30 years. So, the crony cabinet came in, and things continued to deteriorate. There was an effort to begin to resolve the private debt issue, which was the core of the restructuring problem. The real economic flaw in Indonesia was not macroeconomic management but the fact that the private sector was borrowing offshore in dollars to invest in projects in Indonesia that generated revenues in rupiah-and often they were borrowing relatively short-term for the long-term investments. So there was a currency and time mismatch because they had never had any problem rolling over borrowing. They borrowed in dollars. They didn't hedge. Revenues were in rupiah. So a ten percent decline in the rupiah was like a ten percent increase in their dollar debt, and an 80 percent decline in the rupiah essentially bankrupted the country. So all rules were off. The banking system was illiquid and insolvent, but not because they were holding lots of offshore dollar debt. They were insolvent because they held rupiah debt that was held by corporations that were now bankrupt. The system was in complete paralysis. And one of the really difficult challenges, which we never really figured out how to do, was how to create a way out of this, how to create the equivalent of a functioning bankruptcy process in Indonesia that would allow debtors and creditors to negotiate the settlements needed to get the economy going again. It just turned out to be virtually impossible. In May the serious challenges to Suharto began, as did perhaps the most difficult professional time I have ever had. Things had been tough up to that point, in no small part because it was clear that a number of Bank staff felt that we shouldn't be in Indonesia at all. So in some ways, I was fighting on two fronts. ZIEGLER: Bank staff in Washington mostly? DE TRAY: In Washington. Mostly in Washington, but some ofthem in Jakarta. It was a lonely job. Indonesia was going to hell in a handbasket. The longstanding critics of Suharto, who had been waiting for 30 years to say this is all a sham, were now having their moment. The NGOs [nongovernmental organizations] were all over us. If we tried to help the poor during that period, it was seen as supporting the government. If we didn't, it was abrogating our responsibilities as a development institution. So it was a very tough position to defend. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 42 [James D.] Wolfensohn was extremely unhappy about the way Indonesia was being managed generally and, for a very long time, blamed me personally for what had happened. Not an economist, he simply couldn't believe we didn't know this was coming, that we were all incompetent, buddy-buddy with the government. It is not true, but it didn't help. I had a relatively weak vice president in Jean-Michel Severino, who was young and new and didn't get along with Wolfensohn. So I had no way of providing the defense I needed in Washington to what we were trying to do out there. Wolfensohn hated the Fund and was being pressured and pushed into large financing packages that ... ZIEGLER: Not only in Indonesia, but in Korea, for instance. DE TRAY: Yes. It was not a pleasant time. j::. ~ Cf.l ~ - ...:t- c :::) <"' '} <:i .._ = u ~ <"' c:::) 0 z f..' t:l o::l <( ._, 0 ~ ·a j;l, ~ ~ w May came. The riots in Jakarta came. One of the most astonishing times in my life. I remember standing at the window of my office in the stock exchange building. I couldn't see the crowds because it was too far away, probably five miles. But I could see puffs of smoke. It turned out the rioters were going gas station to gas station and lighting them on fire. And I could see these pillars of black smoke coming up and listening to my secretary, marvelous woman, talking to her husband on her cell phone, trying to save their kids, because their compound was-she was ethnic Chinese-was surrounded by the Pribumis, native Indonesians. He was on the roof, trying to protect their kids. She was still doing her job in the office at the same time that her husband was trying to sneak their kids out of their compound on the back of a motorcycle. ZIEGLER: Did they make it? DE TRAY: They made it. In fact, we didn't lose a single staff. That night, Van [Robert V.] Pulley, who was the assistant to Mr. Severino, called the person on my staff who was responsible for our security plan, and told him that he wanted everybody evacuated in three hours. And I got a call from this person, and he said, "What am I supposed to do?" I said, "Don't do anything," and called Van. I doubt that I have ever in my life spoken to Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 43 anybody as strongly as I spoke to Van. I said, "You are not to talk to anybody in this country but me. You are not to guess what is going on here without talking to me." I went on that "it would be suicidal to try to get people to the airport today. They are safe at home. I am making the judgment that they should stay there for now." Once the U.S. Embassy evacuated, it was clear the rest of us had to go. It is almost a legal requirement that when an important bilateral agency takes its people out, the Bank has to follow suit. So we put together an evacuation plan, and the next night Severino called me and said, "I want all the staff out as soon as you can get them out." And I said, "We are going to send most everybody out, but I would like to -keep a core group of people here with me." He said, "No. I want everybody out." And I said, "Sorry, I am not going. We have been in this country for 30 years. I have national staffthat are my responsibility. If you think for a moment I am leaving, you are simply wrong. You can fire me after this, but in any case I am staying." He said, "I will call you back." So he hung up, he was upset. And he called me back later and he said, "All right, Dennis. You can stay, although it is against my judgment." He had lost people who had stayed behind in West Africa in an evacuation. I told him, "This is not West Africa. I know what is going on here. I am not at risk. I am not a brave person. I am staying because my staff needs me, not because I want to put myself at risk." ZIEGLER: Did you feel in personal danger at any point? DE TRAY: No, but that may have been a bit naive on my part. The night that the riots took place, Bakti Sudaryono, the senior Indonesian in the office, came into my office and said, "Okay, Dennis ... " ZIEGLER: I think I met him. He was the senior administrative guy. Yes. DE TRAY: Fantastic guy. Came in and said, "Dennis, we have to get you out ofhere, because it is not clear how much more of a window we are going to get." And I said, "Okay, I will go, but I want everyone else to go to the Hilton [hotel]"-which was walking distance from our office-" get rooms, and stay there. Nobody is to try to get home tonight." So Sutano, my driver, took me home. I called back immediately when I got home. The staff had tried to walk across the bridge that spans the Sudirman, the big highway there, and had been shot at by the troops, thinking they were another part of the crowd. Bakti Sudaryono negotiated with the troops for safe passage, so he is a real hero. There were so many heroes there. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 44 But I went home. Ben [Howard Benjamin] Fisher and others helped me put together an evacuation plan that was, to this day, a model for the Bank. We didn't get ripped off by anybody. Nobody was ever in danger. We got everybody to Singapore without panic, without problem. We took them out Saturday morning. I was at the Hilton because that was our staging area. And I must say I can remember the incredible sinking feeling as I stood there alone and watched these two buses pull out with my entire staff. We took the UN [United Nations] out as well. There was absolutely no way they were going to get organized enough to do it themselves. Their security system didn't work. I never rely on it. We found the plane. We hired it. We got it in and out. It was a model of sensible crisis management, one I was really proud of. ZIEGLER: Was there any input later from that plan to the Bank? DE TRAY: Yes. Batki has actually been asked to advise others on what we did. It was not clear whether law and order was going to be restored. So we rented two apartments in the Hilton. ZIEGLER: Who was left now? You were left. DE TRAY: I was left with David [M.] Hawes, who was married to an Indonesian and couldn't be made to go, and that was about it, plus my Indonesian staff. We rented two apartments in the Hilton and brought all of the families and children of our ethnic Chinese in, and put them there for two, three nights, as long as they wanted. We offered to take our Indonesian staff to safe havens in either Sumatra or Bali. They had all rejected it, which is what I would have done in their position. We stayed behind and helped them look after themselves. Leadership at a time like that means somebody needs to be there who can give confidence to people and say, "Do it and do it now." That was my job. You need safe apartments-do it. We will pay for it later. You need a plane-get it, at $130,000, don't even think about it. We will do what is right, and we will figure out how to justify it later. You want to get the UN out-take them out. We will deal with the consequences later. You have some Americans who were left behind from the American evacuation, or whose brides or whatever weren't American and couldn't get out-take them out. You simply do not ask, "Is this right?" You know it is right, and you do what is right. That time was, for me, my proudest moment. I did what is right. I did it in the face of opposition from my management, and it is something that, to this day, I am immensely proud of. ZIEGLER: Did you face any adverse consequences as a result, after things had calmed down a bit? Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 45 DE TRAY: Right after everyone else left, I was really on the edge. Under a terrific mental strain. I think I was very close to a nervous breakdown. I can remember sitting-it might have been the day after everyone left, Friday or Saturday, in my living room-watching television, on the floor by myself, suddenly realizing I was crying. I was just a basket case. The next day, thank God, an Indonesian friend of mine said, "Dennis, you really need to get out of here." So he took me out to the tea estates near Jakarta, which are gorgeous, and we just walked around and I found some normalcy. It gave me time to get back into myself and take a deep breath of fresh air. Then I went back in, and then I began to focus on trying to make sure that Indonesia held together. That is when I got in trouble. [Bacharuddin Jusuf] Habibie was the vice president. When Suharto resigned, he became president. He put together a cabinet, the economic component of which was very good. It was full of people that we had worked with in the past, liked and respected. And I was, I think, the first person to say, "Look, I don't know about the rest of Mr. Habibie's cabinet, but the economic team is a good team, and we can work with them." Somebody had to say something, in my judgment, for the sake of the country. It might have been reputationally risky for the World Bank, but I wasn't then worrying about the World Bank's · reputation. Again, something I am not sorry about; I think I did the right thing for the country. I appeared on several BBC [British Broadcasting Corporation] and others' programs, supporting the economic team at a time when the Bank wanted a very low profile in Indonesia. Finally, I think the week after the evacuation, Severino called and ordered me back to Washington for "consultation." It was a very difficult time. We then moved through a period of rebuilding, where we were putting together these very large loans to try to bolster Indonesia's revenue side, and at the same time, help get people through the crises. Although it was really an urban crisis, not so much a poverty rural crisis, but there were some pockets of poverty outside of Jakarta. It was an emotional, traumatic, testing time, very difficult on my wife, incredibly hard. We were under enormous pressure. Through that whole period of 1998 we were under attack. I was under personal attack. There were allegations of corruption, all sorts of bad things, and it was a time when you just couldn't stop to think. You had to keep focusing on what was right, what had to be done. It was the business you were in, and everybody wishes they had an opportunity to do that. [End Tape 1, Side B] [End of session 2] Dennis N. de Tray February 15 and 21 and March 21, 2006- Final Edited 46 Session 3 March 22, 2006 Washington, D.C. [Begin Tape 1, Side A] ZIEGLER: Today is March 22, 2006. My name is Charles Ziegler, a consultant with the World Bank Group's Oral History Program. I have with me here in the World Bank Group Archives Mr. Dennis de Tray for the third session of his oral history interview. Well, Dennis, it's good to have you back again, and last time we left off we were talking about your fascinating experiences in Indonesia, and we'll continue with that, if we may. How would you characterize your relations with the Indonesian government, local NGOs and other Indonesian stakeholders? DE TRAY: Thanks, Chuck, and it's good to be back. One of the good or bad things about my experience in Indonesia is that I had been there three years before the crisis hit. If one wants to be useful at the time of a crisis, you have to have built the relationships on which you can draw. You can't build those in a crisis-it's a different relationship. So by the time the crisis hit, I had very close relationships with all the key decision-makers in the government and access to almost anybody I needed access to at that point. I also had what I would characterize as a good relationship of respect and a good working relationship with the NGO community. We had been quite active in our outreach to NGOs, and indeed not simply because it was the thing to do, but because it was a useful part of our development work there. So on that basis I felt that I was well positioned to lead the Bank's work as it evolved during the CflSlS. ZIEGLER: Okay. World Bank President James D. Wolfensohn made several trips to Indonesia during the time you were there. Can you relate some of the incidents during these visits that particularly stick in your mind? DE TRAY: Well, there are many. Mr. Wolfensohn came to Indonesia early in his tenure, I think in 1998. ZIEGLER: He came to the Bank in June '95. DE TRAY: No. It would have been '95-it would have been '96, early '96, because it was one of the first three or four trips he took. It was a very difficult trip. He was at the end of a long trip. He had been to Vietnam and Singapore before. He was very tired. He was coming down with a very bad cold, which eventually put him in bed, so he wasn't in the greatest of moods. It was in the days when Mr. Wolfensohn and Elaine, his wife, were still learning their way around the culture of the Bank. And their handlers were creating a sense of utter terror in those of us who had to prepare for these trips. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 47 ZIEGLER: Who were their handlers, Bank staff? DE TRAY: Bank staff. First, there was his own office, which was in a way a large part ofthe problem, or at least Mr. Wolfensohn thought they were a large part of the problem. But at that point he was using trip assistants-! forget what they were called-but they were essentially bright, relatively young Bank staff, Young Professional types, who had stood out, and then '.-f' would be plucked out for a period of three to four months to prepare his trips. ~ :_ This was an incredibly nerve-wracking Q!Zl lilil~ Eo<- - ..::t- c:::::» C".. nervous breakdown one of these u::t: ;(.) C".. f-o~ c::::> w.l fllc:J :z: s:: ....., lil;lc:Q "~ <( .fl. 0 The first time that Mr. W olfensohn and his wife landed, they went to Bali to rest up a bit. We () ;.: had dinner, all of us on the team, and then he sent the rest of them away, and he and I stayed Ul behind. I said to him, "Jim, I have to tell you I'm a very great believer in the things you're trying to do for the Bank, making it more responsive and more accountable and the other things, and that's why I'm going to tell you what I'm going to tell you. I have to tell you that in preparing for this trip, the impression that your staff leaves of you and Elaine with my staff was not good- extremely demanding, very status-conscious, and so forth. And I'm sure that's not you and I'm sure it's not Elaine. I've met you and you're decent people. But this is a problem. It's not good for you as the leader of a large development institution. I'm sure this doesn't sit well, but I felt it's important to tell you." And he said, "Yes, that's great. I really appreciate it. I've told my damn staff not to do this," et cetera, etcetera. But as time went on, I think all of us learned that it was as much Mr. Wolfensohn as it was his staff. It got better over time, but those were in the early days, and that trip was a really tough trip for everybody. It was not an experience any of us who were involved in look back on with much joy. When he came again, it was during a crisis. By that time, he had already, I think, decided Indonesia was not one of his favorite places. He just didn't connect with Indonesians and the people, didn't like Mr. Suharto at all. ZIEGLER: I was just going to ask you how he got on with Suharto. DE TRAY: He had several conversations with Mr. Suharto. Mr. Suharto had dealt with many, many powerful people around the world and Jim Wolfensohn was just another one. Jim was not all that good at delivering tough messages, and Mr. Suharto was very good at blocking them because he had the success of Indonesia over the past-that previous 30 years at his disposal as he made the arguments that while things were tough and there was certainly a lot of corruption around, he-Mr. Suharto---doubted very seriously that things could be quite as bad as Mr. Wolfensohn and others were saying. How did the country grow at 7 or 8 percent? How did poverty fall from 75 to 11 percent? How did exports grow so rapidly, not just yesterday, but over 30 years? And, to be honest, Mr. Wolfensohn didn't have an answer to those questions. So it was not a good relationship from the beginning. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 48 By the time the crisis was into 1998-he came, I think, in January or February, early in that year-he was really upset with Indonesia generally because of what it was doing to the Bank's reputation and his reputation as a fighter of corruption. I think he actually might have at one point thought I might be complicit or responsible for some of this, and that didn't create a good working relationship. So the second time he arrived it was a very tense relationship, and he was not at that point getting along with Jean-Michel Severino, the vice president in charge of East Asia. It was a tense, tense time. He was very focused on his legacy and his reputation. He didn't like the way the Bank interacted with the IMF and the difficult position he was in. ZIEGLER: With regard to Indonesia, in this case? DE TRAY: It was, I believe, one of his early, if not his first major global crisis where he began to understand the limits to what he could do and what the Bank could do. ZIEGLER: It has been said that prior to the 1997 economic crisis in Indonesia-which, of course, was part of the larger East Asia economic crisis-the World Bank was reluctant to confront the Indonesian government on the high level of corruption in the country and that its reports on Indonesia took a soft approach on corruption, thus feeding perceptions that the country's problems weren't undermining the economy. How did you address the corruption issue? DE TRAY: First, I think it's important to put that statement in context. It's hard to imagine, given what happened to Indonesia in 1997 to 1998, why an institution like the World Bank wouldn't put corruption and governance front and center. But the fact of the matter is, in the decade preceding the crisis Indonesia grew at over 8 percent a year, every year, on average. This growth was definitely trickling down. Real wages were actually growing faster than the overall per-capita growth rate. It was very, very hard to make an empirically-bas~d argument that there was something deeply wrong with the Indonesian economy. So it was fine to say it was corrupt environment. It was, and nobody, including the president or anyone else, denied it. But it was much harder to draw the conclusion that the corruption was actually debilitating, that it was slowing growth. There was no other large country that was doing better than Indonesia at that time. So-- and while we continuously pointed out that corruption in the banking sector, weaknesses in the banking sector, the civil service and the legal system were all systemic problems that Indonesia had to deal with if it was going to sustain its growth, it was simply intellectually dishonest to draw the conclusion that those things represented a current, immediate crisis. Many people took the crisis of 1997-the East Asia crisis and Indonesia's participation in it-as a reflection of a "house of cards," an economy built on corruption and bad governance, which is factually wrong. It was a political crisis. It was fueled, sparked, whatever the right metaphor, by the East Asia crisis. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 49 Had Mr. Suharto been five years or ten years younger, I doubt that Indonesia would have participated in the crisis at all. The contagion really occurred because Mr. Suharto had been weakened over that year, and it was clear to many Indonesians that his time was nearly up. ZIEGLER: Weakened physically, politically? DE TRAY: Everything. I reported in an earlier session that the Javanese are very spiritual, and there was a sense that Mr. Suharto had lost his spiritual right to rule. There were many signs that the gods had sent; at least many Indonesians believed so. By the way, it was not simply the cab drivers. This feeling could be found through the whole intellectual spectrum of Indonesia. It became a bit of a self-fulfilling prophecy. When people decided Mr. Suharto was on the last phase of his rule, the Chinese panicked and the money left, and the rest is history. It's where the crisis came from. A bit of an aside: before the crisis I had asked Steve [Stephen R.] Dice to do an anecdotal report on what our own colleagues and counterparts knew about corruption. None of it had to be documented or based on concrete evidence, just generally the hearsay. That report I took to Mr. Ginanjar Kartasasmita, who was then the coordinating minister for the economy, I believe, and said, "You know, this is what we're dealing with, this is what we need to do something about. We're not going to condition our assistance because there's no evidence here. But it is the perception that needs to be fixed or, in my judgment"-and I told Mr. Ginanjar at the time- "within three to five years it may be very difficult for the World Bank to lend to Indonesia." He agreed that it was important, that we needed to take it to Mr. Suharto. Unfortunately, the next day the crisis hit, and the Fund was in Jakarta within a few weeks, and that was the end of our work on the corruption issues until the crisis was over. ZIEGLER: Toward the end of your assignment in Indonesia, you delivered an address to the Indonesia Forum of Economists in Jakarta. In it you said, quote, "The final message of this experience for me is that culture matters. Now, of course, everyone knows this. We are taught to be sensitive to different cultures. We've all read Culture Shock: Indonesia, but I am convinced that we really do not understand the implication of cultural differences in designing interventions, especially in times of crisis. I am sure that culture will be part of the ultimate explanation of what happened in East Asia. Different cultures really do look on business relations differently. This is no more clearly illustrated than the area of conflict of interest. It is just not a concept that is in the people's vocabulary here in Indonesia. It is not understood. In fact, the opposite is true. It is my obligation to help you as a friend and colleague," unquote. You went on to say, quote, "In the negotiations that the international financial institutions have had here with the government, I have watched our technical people become extraordinarily frustrated because they can't impose their highly Western, aggressive, conflictual program that requires people to admit their errors and be very open and transparent. These are antithetical to the cultural foundation of much of this country. That's a fact. It's not good or bad, just a fact," unquote. These are interesting observations and I think it would be useful if you could elaborate on them. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited so DE TRAY: Let me underscore the point with three illustrations. One is that the program that the IMF was attempting to develop in Indonesia was built on the correct presumption that a key element in Indonesia's crisis was Mr. Suharto's personal credibility as a leader and related to our earlier conversation about the fact that he was losing trust of the people for a variety of very Javanese reasons. The Fund felt that in order to move forward, Mr. Suharto and his colleagues needed to make a clean breast of it and say, "We're going to do things differently because we did them wrong in the past." This is something that no first great leader will do, period, and no Javanese leader could even imagine doing. Yet in the end, in the famous meeting with Mr. Carndessus, that's exactly what was required and was done. If one stops to think about it, you were literally asking Mr. Suharto to commit cultural suicide in front of his people. It is therefore no wonder that his people didn't believe him. They simply could not imagine that any Javanese leader would do that. So in a way the basic premise of the Fund's program, which was to admit fault and therefore signal that we've found religion and we're moving to this new paradigm, was a non-starter. A second example: If you're going to do business in Asian cultures, and particularly in Indonesia, you never confront the decision-maker and the power-holder directly. You never bring a problem to someone. Let me illustrate. When I was first in Indonesia, I had a meeting with the minister of trade, and I knew that there had been a letter delivered to the minister and to his staff that raised a serious problem in one of our projects. That was my first meeting with the minister. After pleasantries, I said, "Well, I understand, Mr. Minister, there is a problem." And he looked at me and he said, "A problem? We do not have a-I don't have a problem." I mentioned it, and he said, "No, no." And I said, "Sorry, my mistake." Mine was absolutely the wrong cultural approach. He knew that I knew that he knew, but you do not say this in a public meeting with other people around. Even in private, it's a difficult thing to do. So when the crisis erupted, one of my roles was to find back-door ways of getting to Mr. Suharto, which was not easy. One of the venues for that was Mr. Bob Hasan, who was considered to be the president's closest confidante. He played golf with him twice a week, and was his money man. ZIEGLER: He was Chinese, too, wasn't he? DE TRAY: He was ethnic Chinese. It was one ofSuharto's very carefully worked-out strategies to have a balance between the wealth-generating capacities of the ethnic Chinese, the civil society, ethnic Indonesians-the Priburni-and the military. His success in Indonesia carne from Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 51 creating a balance among those three forces. I remember one day a meeting took place in my office during the crisis. One of the key elements that was really at the core ofthe crisis was the president's own children. Perhaps the worst was the president's son, Tommy [Hutomo Mandala Putra] Suharto, who controlled the clove monopoly. Cloves were put into kretok cigarettes, which are the clove-based cigarettes that Indonesians love. Tommy had been systematically destroying the clove industry by taxing them and treating it as his own private bank account. One of the elements of the reform program was that this would no longer happen. The clove industry would be liberalized and the clove farmers could sell their cloves to anybody. At this meeting I was told by a very knowledgeable colleague in the private sector who was in banking that it was well-known in the government and in the private sector that Tommy Suharto was now getting his take by taking a percentage of the tax stamps that went on top of the kretok cigarettes. This was an example of how endemic and difficult this corruption was in this environment. I learned that Tommy was still on the take at about eight o'clock at night. I knew that if it became public it would destroy the reform program by destroying any credibility that the Fund and the Bank had in the agreements that we had struck with the government. I was by myself at this point. All the international staff had been evacuated. I drove to Mr. Hasan's house. Fortunately, I knew him well enough so that I could drive to his house to talk to him. I sat him down-or he sat me down-and I said, "I don't want you to react to what I'm going to tell you, just listen, and then I'm going to leave." And I told him what I had heard. At the end of it I said, "Bob, if I know this, I'm sure you know it. If you and I know it, I'm sure it's about to come out publicly. If you want this program to continue, if you want your country to be stabilized by these programs, fix this, and fix it tomorrow." I left, and it got fixed. And that's the kind of relationship you have to have in Indonesia. You're dealing with Mr. Hasan, who eventually went to jail for corruption. But you use those contacts for the greater good. It's not that you particularly like to do business with Mr. Hasan, but ... The third example of why culture matters so much was one of my quite close friends, Mr. Tangri Abeng, who was a very close associate of Habibie, then vice president and later president after Mr. Suharto stepped down. Tangri had been president of the major business interest of Mr. Habibie's. He was very nice, very urbane, very smart, Western-educated, a delightful man. He entered the government as the minister of privatization of state enterprises, or something like that. I can't remember the title, but it had to do with the privatization process. One day he called me up and said, "Dennis, can we have lunch, just the two of us?" I said, "Sure." So we went out, and he was chatting away, and suddenly he said, "You know, I really have a problem. I really don't understand what corruption is, and I'm afraid. I'm afraid that some of the things I'm doing are corruption, but I don't know." ZIEGLER: And he was genuine about this? Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 52 DE TRAY: One hundred percent. This was a very good friend. There was something called KKN [Corruption, Collusion, and Nepotism]. It was the acronym for all the bad things there, and Tangri said, "Please help me understand what these things mean and what qualifies and doesn't because I don't want to get in trouble." You just have to take my word for it. He was genuinely concerned. He was afraid of going to jail later. He was a smart man, and he didn't know what counted and what didn't count. That really just underscored how seriously the issue of culture enters this conversation. I'm sure he had done corrupt things that he knew were corrupt, but there was a broad gray area that he just didn't know how to deal with, that he didn't know what it was that he was going to get called on the carpet for. Fortunately, he did not, because he was one of the troops, but he wasn't one of the generals. But it really brought home to me how we go in with a pre-conceived Western notion-the Bank and the international community-of concepts that are completely antithetical to the culture of the people that we're dealing with, and then we wonder why things don't work. ZIEGLER: How would you characterize your relations with the IMF, Asian Development Bank and the NGOs during the Indonesian economic crisis? In particular, I understand that you were close with Stanley Fischer, the IMF's first deputy managing director at that time, who showed up in Jakarta during the crisis to craft a bail-out package for Indonesia. What was his take on the situation in Indonesia? DE TRAY: Stanley and I go back many, many years. He was a post-doc when I was getting my degree at Chicago, so we've known each other since the late '60s. He's one of my heroes. He's a terrific guy. My relationship with the IMF depended entirely on which phase of the crisis one speaks about. In the early phases it was extremely tense because the leader ofthe IMF mission was-we didn't go through all this last time? ZIEGLER: Some of it, to some extent. DE TRAY: I'll be quick then. The leader ofthe IMF mission was, ifl might say so, classically IMF. His view was, "It's none of your business; we'll call you when we need you." The IMF hadn't been active in Indonesia for several decades. The Bank had been there continuously. It was a ridiculous situation, and finally I sent a very strong private note to Stan saying, "My pride is not the issue. This is bad for Indonesia." And when the crisis really hit on January 8th, 1998, when the rupiah dropped by 50 percent and there was panic buying, they sent Stan out. Then relationships improved. But I do remember we went through all of this the last time because we talked a bit about my advice to Stan. ZIEGLER: In September 1999, you delivered a most interesting presentation to World Bank Dennis N. de Tray February 15 and 21 and March 21, 2006- Final Edited 53 staff in the H Building auditorium, now the Eugene R. Black Auditorium, entitled "Why Did Things Go Wrong: Lessons from the Trenches oflndonesia." In the course of that presentation you stated, quote, "The Bank is not a crisis organization. It was slow to adapt to the pace of crisis decision-making. There was too much of a gap between decision-making in Washington and the pace of crisis, as Jakarta was in flames. We're not going to be allowed to withdraw from this arena of managed crisis situations, so we need to adapt the way we manage them, if it means dividing operations between development lending and crisis management." DE TRAY: The contrast between the way the Fund operates and the Bank operates is really very telling on that front. The Fund is hierarchical, militaristic in the way it's managed, very secretive, very centralized. All of those characteristics are good for managing a crisis and bad for doing development. So the Fund is a bad development institution and a good crisis institution. The Bank is exactly the opposite. It's a good development institution and a bad crisis institution. My point to my management and colleagues in that talk was, "Look, you can't expect the mechanisms you've set up to do development to be effective during a crisis. You have to have a separate process-and you better think about that now. It's like evacuations. Don't think about them when you need them; think about them beforehand." The support structure that I had in Indonesia was simply not coherent. It wasn't consistent. There was no way of offsetting the weight of the Fund if we had wanted to do so. I couldn't do it alone. I had a manager in Jean-Michel Severino who, under the guise of strong decentralization and devolution of responsibilities, said, in effect, "It's your crisis, you deal with it." But I said, "Jean-Michel, I'm sorry, it's not my crisis. This is the World Bank's crisis, and it needs many others' attention." The role that Mr. Severino played, the role that Joe [Joseph E.] Stiglitz played were just not constructive. In a way, nobody seemed to get their feet planted, and partly that was Mr. Wolfensohn's discomfort with Indonesia. We never decided just which side of the fence we were on, and that made for an interesting time. I was the fence. ZIEGLER: What was your perception of the situation in Indonesia when you left for a different assignment in March 1999? DE TRAY: I thought it had come through the crisis. I thought that people were being extremely naive at how quickly the political situation would settle down, and I think history proved me right with Habibie as the first president and then [Sukamoputri] Megawati. During that whole period, it was very hard to argue that there was much progress on· corruption or economic performance or anything else. It was just a period of stabilized chaos, if you will. One of the things that I tried to make to my colleagues as I left was that if you think that the election which eventually brought Megawati in is going to somehow create an environment in which it's going to be easy for you to do business here, you are wrong. I was right about that. But it was also true that the country had come through a crisis with much less pain than it carne Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 54 through the 1965-66 transition of power, when half a million people died. In some small way I believe I contributed to that, so I was pleased. It was a very painful departure. Indonesia was my life. If somebody had offered me a job outside of the Bank that would have kept me comfortable there I would have stayed in a minute. My wife loved it there, I loved it there. You know, in a time of crisis like that, you make very close Indonesian friends in ways that you can't do otherwise. I didn't want to leave. I would have stayed another year. But it was the right thing to do for the Bank. It was time for me to go. It took me two months to really sort of sleep again. It had been a very long year. ZIEGLER: In an article in the Wall Street Journal on July 14, 1998, you were quoted as saying, quote, "I will admit to having a very strong sense of not fully understanding why things are so bad in Indonesia. Believe me, I've spent night after night thinking what could we have done to avoid having so many millions suffer. I will probably think about it for the rest of my life," unquote. With the benefit of the passage of years, are you closer to an answer to that question? DE TRAY: Yes. I honestly don't think that the external community could have done more because this was not an economic crisis. It was a political crisis. It was a crisis of transition of leadership. It was a deep civil crisis that had to do with Indonesia's stumbling step toward democracy. It was a huge transition. It happened to take place during the time of an economic crisis. And a lot of people suffered during it; mainly, it turns out, the middle class. Indonesia's income distribution today is more equal than it was before the crisis because the main people hurt were middle and upper-income people, urban people. The poor recovered. Rural communities recovered very quickly, and many of them didn't get hurt at all. Were there things that I would have done differently? Yes, but overall, in terms of things that would have made any difference in the outcome of the crisis? The answer is no. That is basically my bottom line. There's an arrogance in the international community about just what we can and cannot do in countries. We don't vote. We're not part of the electorate. We're not part of the civil society. There are some things, by the way, including corruption, that can only be dealt with at that level. We can help where there is commitment, but we can't make it happen, and that is the main lesson. ZIEGLER: From September 1999 to August 2001, you were the IMF senior resident representative in Hanoi, Vietnam. What occasioned your switch from the Bank to the Fund? DE TRAY: When I came back from Indonesia in, I guess, June of 2001, I was, I confess, a little bitter about the way Bank senior management had treated me. I felt I had been scapegoated a bit. I, to this day, think I did a fantastic job. I'm incredibly proud of what I did in Indonesia and of the tough decisions I took, of standing up for what I thought was right, of not doing the easy things. And I sleep very comfortably on that at night. I was very upset that nobody at the Bank Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 55 seemed to recognize that. It wasn't that I didn't get promoted to vice president. It was that nobody cared. That was what really bothered me. The second thing was nobody seemed to see that Indonesia represents for the Bank one of the truly great development experiences, bad and good. Nobody seemed to care about trying to learn everything they could from me when it was still fresh. They ignored me. I just found that unacceptable and pathetic. So it became clear to me that I needed to go on and do something else. I looked far and wide and decided I was going to leave development banking. Then I got a call from the Fund saying they had this position in Hanoi. It was right at the time of the introduction of the Poverty Reduction Strategy Facility and Paper. I talked to Stan and I talked to management at the Fund, and we agreed it might be a useful thing to have a non-traditional Fund person in that environment. I knew Andrew [D.] Steer very well. It would make a nice partnership, which is not always the case between the Fund and the Bank. So that was why I decided to do it. I had been to Hanoi, and my wife and I both thought it would be an interesting assignment. ZIEGLER: How did you find working for the Fund different from working for the Bank? DE TRAY: The problem in answering that question is that there are two aspects to it. One is that the role that the Fund accords resident missions is so vastly different than the role that the Bank gives its resident staff. Resident missions for the Fund are still essentially mail drops. The people there aren't even formally a part ofthe country team or the management that runs the programs. Res reps [resident representatives] are actually managed out of another part of the Fund. It's an archaic situation. I learned very quickly, to my dismay, that my management wasn't, in fact, at all interested in changing the way they did business. The Fund is a very calcified organization. It's not going to change. It doesn't want to change. It doesn't see any reason to change. Stan and I discussed this through private e-mails a bit, but in the end he wasn't going to use his personal power to push anything. So my time at the Fund was not a good marriage. There was a Washington-based mission leader, as the Fund always has, a woman from Thailand named Chainpen Pukatikom, and Chainpen had a reputation in the Fund for being difficult. There are lots of "difficult people" in the Fund, so the fact that she stood out meant that she was a really tough person to work with and for. I loved working with the Vietnamese. I think in part the Fund eventually had a program there because of my relationships with Vietnamese counterparts. They learned to trust me, which is something I value enormously. Because of that they were willing to at least try a relationship with the Fund. It didn't in the end work because of the cultural differences I was talking about, and I don't think Vietnam ever drew on the facility that was set up. So even though we loved Vietnam, I decided' that the Fund was not a place that I was going to be Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 56 comfortable with in the long term, that they were not serious about exploring different ways of doing business. I still think they probably shouldn't be in the poverty-reducing business. They shouldn't be doing business in places like Vietnam which have no macroeconomic problem. Great experience in Hanoi, a learning experience for me in terms of what I care about. I learned I wanted to be in a development institution. I did have a strong reentry guarantee to the Bank because there were a number of people, including Richard [D.] Stem, who was at that point the vice president for human resources, who felt I had not been well treated by the Bank and gave me a very strong reentry guarantee to the Bank. But I didn't really have to use it, but we can get to that when we get to Central Asia. ZIEGLER: You touched on some ofthe difficulties in Vietnam. What were the major issues that you confronted during your time there, a quick summary? DE TRAY: Well, first, there was a tremendous sense of distrust between governments and the Fund. ZIEGLER: The governments generally? DE TRAY: Generally, yes, and there was particularly strong distrust between the Vietnamese government and the Fund. They didn't fully understand what the Fund was trying to do, and the Fund's style really grated on a country that was and is extremely proud of its independence and its heritage. Many of the issues in Vietnam were structural and long-term, and the Fund is not good at these issues, so there was conflict there. There doesn't have to be, but depending on the personalities, there can be a very high degree of distrust between the Fund and the Bank. I saw that in Vietnam. I was right in the middle of it. Quite remarkable, truly amazing levels of distrust, to the point of insult. ZIEGLER: This is in Vietnam? DE TRAY: Yes. I mean distrust to the point that there were suggestions that the Bank was making up the numbers. Really left me open-mouthed. The Bank lead economist and Chainpen had a visceral and personal dislike of each other. It was hard to be in the same room with them. And at one point they were yelling at each other, and I said, "I'm sorry, I'm leaving. This is unprofessional and a waste of my time. I'm not going to sit here and listen. When you're done and you want to talk substance, call me." And they shut up, but it was really pathetic. Both parties were guilty, but I have to say in this case Chainpen, she just really disliked the Bank. ZIEGLER: Were your relations with the Vietnamese complicated by any residual ill feeling concerning the American engagement in Vietnam that ended in 1975? DE TRAY: The American War, as the Vietnamese call it. One of the most remarkable surprises and great pleasures to my wife and me was the fact that not only was there no residual animosity Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 57 from the war between the United States and Vietnam, but being an American was actually a plus in Hanoi. With one exception in the entire two years we were there, I can't think of anyone who didn't reach out more strongly to us than they did, for example, to Europeans. The French were not terribly welcome. Somehow, the Vietnamese liked Americans. Bill [William J.] Clinton came during our visit, and people just fell in love with him. And of course, he's great with people anyway. But we had a marvelous time there, and we were treated with affection and respect, and made friends with Vietnamese families in ways that we could never have imagined. During Tet [Vietnamese New Year], there's this wonderful tradition where all the Vietnamese open up their houses to friends and family. During Tet there were no cars in the streets. It was completely dead, and you just went around from house to house to house, meeting friends, strangers. It was just marvelous. It was truly a great experience. We will, both of us, always have a very soft place in our heart for the Vietnamese. [End Tape 1, Side A] [Begin Tape 1, Side Bl ZIEGLER: In 2001 you returned to the World Bank, and the following month you were appointed the Bank's regional director for Central Asia in the Europe and Central Asia Region, based in Almaty, Kazakhstan. What occasioned this re-transfer, ifl can call it that? DE TRAY: I had signaled, as I said earlier, to my colleagues in Washington that I wanted to come back to the Bank, and I wanted to come back as a country director. Being a decentralized country director for the World Bank is the greatest development position in the world. That took some doing because Mr. Wolfensohn, while he told Shengman Zhang that I was certainly welcome back, wasn't so sure he wanted me back as a country director. Fortunately, Shengman was a supporter. Mark Baird, Johannes Linn, people I knew well I like to think respected me and accepted that I would do a decent job. Johannes told me that he was looking for somebody to run Central Asia. Would I be interested? I went to the website and did some research, and decided this was actually quite an interesting part of the world. ZIEGLER: It takes you back to [J. Rudyard] Kipling's "great game," almost. DE TRAY: My wife, Mary, and I are very interested in history and culture, Mary, especially. Central Asia is a wonderful part of the world for that. It also struck me as a very interesting part of the world from the standpoint of development challenges, which we will get to in a minute. But, anyway, Almaty seemed like an acceptable place to work. And by the way, my predecessor, Kiyoshi Kodera, had been in Washington. So the first part of this assignment was actually in Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 58 Washington for six to eight months because I had to arrange for the decentralization of the program, my office, and the staffthat goes with it. Kiyoshi is a wonderful man and a good friend, but was not the world's best country director. He has many other strengths. we·had to do a little rebuilding of staff and program in those early days. It took Johannes and Shengman about three or four months to get Jim Wolfensohn comfortable with the idea that I might be okay, and for Johannes to find the right time 'to say to Jim, in effect, "Look, Jim, this is my decision, and I'll take the responsibility for it. If it turns out to be a bad decision, you hold me accountable." I owe Johannes a lot for that. I personally didn't think it was a big risk, but Jim can be hard to handle. So we came back to Washington in August 2001 and then went out to Almaty in June 2002. ZIEGLER: What were some of the activities you had to undertake to set up this office, because it was kind of a pioneering effort there, I mean, being a regional director? DE TRAY: First, we had to think through the whole structure ofthe program. The challenge that I put before my management colleagues in ECA was that I knew and supported and was comfortable with the benefits of decentralization to a large country like Indonesia. I knew the strengths that decentralization brought to the program and why it worked there. But the overhead associated with decentralizing was not something that a small country could bear. So, how could one bring the benefits of large-country decentralization to small countries? And out of that came the idea of having a regional hub in Almaty, so you would, in effect, treat Central Asia as a country, even though they were five separate countries. You would be serving 56 million people and 40-45 projects, which was not Indonesia, but it was a substantial program Unfortunately, ECA was one of the least decentralized Regions in the Bank, and my management colleagues there were not terribly behind the decentralization mantra. It took a long time to convince them. While we didn't get as far as I wanted to get in terms of the nature of the program-ECA came under lots of budget pressure, and because of that the whole decentralization process was brought into question-we did make substantial progress. I think we did demonstrate-and we can get into that a bit later-that a well-managed, decentralized team can change the nature of the program on the ground, and improve qualitative and quantitative measures of success. ZIEGLER: Now the World Bank, as I understand it, has country offices in the capitals of each of the countries under your purview. Were there any particular challenges in coordinating the work of five different offices? DE TRAY: The Central Asia job is like being vice president to a small group of countries, and, as all Regional vice presidents in the Bank do, I spent a great deal of time traveling. It was the travel aspects of the job that I miscalculated. The first year I was there, I traveled 217 days, or something like that. And the next year it was like 210. Half of that, my wife was with me, so it wasn't quite as bad as it sounds because she usually traveled whenever I traveled in Central Asia unless they were very short trips, and some of it was back to the States on longer trips, on which Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 59 she also accompanied me. One essential element of running a country program like that was to have very good senior-level country managers in each of these capitals because you simply shouldn'tand cannot manage five separate country programs on your own. I was very proud of the quality and the character of the people that I brought in. Within the first six months, four of the country managers turned over the-Turkmenista n actually had a local liaison officer who was running our very small program there, but the other four turned over, and the people that I hand-picked were all first-rate people that ... ZIEGLER: Oh, so you selected your immediate subordinates there in the country offices? DE TRAY: Not one ofthem came through the Bank's standard personnel system because nobody showed up, nobody wanted to go work in Central Asia. Chris [James Christopher] Lovelace had been the director ofHD [Human Development] Network in the center and a very highly-respected HD person in the Bank, the Bank's most senior HD. He had signaled to Annette Dixon that he was interested in doing something different, and at that point I was looking for a very senior HD person in my Almaty office. Annette suggested I talk to Chris. I had never met Chris before, but when I called him, I really liked his enthusiasm. He came highly recommended, and Annette really backed him. So I said, "Great, Chris, why don't you come out to Almaty and be my HD person?" to which he agreed. I wasn't sure, but I thought maybe I'd better move sooner rather than later. I had signaled to everybody that I wanted a . turnover. We needed new blood ... r:rJ ZIEGLER: So there were people out there already? ~~ E-<- u::r: DE TRAY: Yes. There were country managers everywhere. So I called Chris back up and told ~ ~ him, "If you really want to do something different, if you really want to understand development,~g be my country manager for the Kyrgyz Republic." Chris was an !-level staff, as I was, so it was et: ~ an unusual situation. And to his credit-and I really mean that-Chris thought about it for a few days and called me back and said, "You know, it might be interesting." He was outstanding, just outstanding. I eventually talked to Lou [Loup J.] Brefort, who was the senior H-level infrastructure and energy person in my Almaty office, about moving to Astana. This was a bit of stealing from Peter to pay Paul because I lost a very good infrastructure guy, but I found somebody good who was prepared to go to Astana and work in very difficult conditions with the new government. He did a great job. Uzbekistan is a really difficult country to deal with. I was in Osh, in the Kyrgyz Republic, and Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 60 Martin Raiser, who was at that point the second or third most senior economist at the European Bank for Reconstruction and Development [EBRD], an absolutely outstanding intellect, somebody that I had worked with, and was recognized as an absolute star, very highly thought of in EBRD, came up to me and said, "Dennis, I hear that David Pearce is leaving." David had to retire. And I said, "It's true." He said, "I'm sure that there's no point in it, but I'm thinking of a field assignment, and Uzbekistan sounded interesting." And I said, "Martin, you apply for this job, and if I have to kill somebody, you're going to get it." I almost did have to kill somebody, but he did get the job, and he was fantastic. He's now leaving to move to Kiev. He was at that point 32 or 33 years old. I thought he was 42. He looks it and he acts it. One of the two or three most outstanding people I've worked with in 25 years, and I got him to work on Uzbekistan. That's what good managers do. That's what I'm proudest of-the team I put together, a great team of people. We turned that program around in three-and-a-half years, and the numbers show it. So that was a good ... ZIEGLER: I was just going to ask you about that because in the statement to the Board in December 2004 you noted, quote, "Before September 11, 2001, the Bank's Central Asia program had plateaued. We were facing a declining program in Kazakhstan, serious dialogue problems in Uzbekistan, project implementation problems in Tajikistan and Uzbekistan, and a need to reenergize our Kyrgyz program." How did you proceed to address these issues? Well, clearly, part of it was getting a good team in place. DE TRAY: A major part of it was getting a good team in place, and part of it was instilling in that team a sense that the challenges of Central Asia were the challenges of the Bank. If we could provide innovative leadership, we could really make a difference, not just to Central Asia, but to the entire Bank. We really needed to step back and look for different ways to do business because the Bank's standard ways of doing business in these countries weren't working. We spent three years building a relationship in Kazakhstan that went from negative when I first arrived, to the Bank as the single closest adviser to the government. The government didn't do anything without talking to us first. They turned to Loup Brefort and Pedro [L.] Rodriguez, the lead economist, immediately upon wanting anything. We introduced a joint economic research program, in which they paid half and we paid half, which is one of the most innovative ESW [economic and sector work] programs in the Bank. We transformed literally 180 degrees the relationship in Kazakhstan. We went from a program in Uzbekistan that was entirely confrontational, based on a CAS [Country Assistance Strategy] that the Uzbeks disowned at the time it was presented to the Board, to a program in which we could demonstrate progress and the influence we were having on health and education and local public services. We disagreed on many important things, but Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 61 we had a dialogue that was working. Tajikistan moved from a program that was disbursing at 8 or 9 percent a year to at one point being the highest-disbursing program in ECA, at around 33 percent, a complete turnaround in the quality of the portfolio. Why? We brought in good people. We had Will em Zijp as an operations manager. We had good people on the ground who supported the country managers. We had Martin Raiser in Uzbekistan and Cevdet A. Denizer in Tajikistan-young macroeconomist countiy managers who were great at the dialogue but needed help on the portfolio. It was exactly this ability to provide something that you couldn't provide country by country but you could provide out of the hub in Almaty that led to a sea change in the way we did business there. I'm completely convinced that the successes we had there could not have happened if the program had not been decentralized. ZIEGLER: The countries for which you had responsibility all tended to be more or less strongly authoritarian countries with rankings well into the lower half of Transparency International's 2005 Corruption Perception Index, thus making them similar to Indonesia in at least those respects. DE TRAY: Right. ZIEGLER: How did your experiences in Indonesia inform your work in these countries? DE TRAY: Having worked five years in Indonesia and two years in Vietnam was actually a very good training ground for coming to Central Asia. Indonesia demonstrated that the impact of corruption on development, growth, sustainability, poverty reduction was much more complicated than the kind of zero and one image that it was painted in many-by Transparency International, for example. You could, if you were good, find ways to get countries to grow and alleviate poverty even as corruption remained a problem. Vietnam taught me that you had to go beyond, if you will, the rhetoric about state-driven mandates and look at the reality on the ground. Vietnam was growing very well then, with lots of private investment in a communist regime. Vietnam also taught me that location, as in housing, is everything. Vietnam and Indonesia are located in one of the hotspots of the world in terms of growth and exports. Vietnam has 1,200 kilometers of coastline. Central Asia is one of the most locationally-disadvantaged places you can imagine, and that really does change the development challenge. What it did not do for me was to improve my credibility in the dialogue with the Central Asians. They didn't believe they could learn anything from Vietnam or Indonesia, which was dead wrong. Central Asians are a very arrogant group of people, who see themselves as middle- income people who have fallen on hard times. Don't even mention Africa. Latin America-not really, but we'll listen a little. Basically, Eastern Europe and Europe is what they look to as their standards. And yet my lessons all came from countries to the east. It was an interesting challenge, dialogue-wise. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 62 ZIEGLER: The World Bank news release announcing the completion of your tenure in Central Asia states, quote, "Under Mr. de Tray's leadership, the World Bank in Central Asia has moved to a more flexible, innovative and responsive partnership approach in line with the rapid economic and political changes taking place in the region and growing pressure from governments to provide quicker and better-targeted development assistance." Could you just elaborate a little bit on the various aspects of this flexible, innovative and responsive partnership approach? DE TRAY: You know, Chuck, the Bank, it has a wonderful record of saying the right things. If they would just do what they said, they would, I think, make significantly greater progress on the development front. We talk a lot about partnerships with countries, about country ownership, and about the need to respect the views of countries. We don't walk that talk. It started with Kazakhstan, because Kazakhstan is at the front end of a huge oil boom. It not only doesn't need our money, it doesn't want the World Bank's money. It already has a sterilization problem, and doesn't want more dollars flowing in. Its parliament and its president kept asking why the country should be borrowing with one hand when it's parking, I think it's now up to $8 or $9 billion of reserves offshore, with the other hand, just to keep them out of the Kazakhstan economy. Yet it's a country with Third World infrastructure and systems. So how do you operate in that kind of setting? The first thing you have to do is to convince the government (a) that you respect them, (b) that you're on their side, and (c) you listen, and (d) you have something of value to bring to the table. The first meeting I had with our principal counterpart would have been early 2002. Kirat Kelimbetov, who was minister of economy, is a young guy; he was very aggressive, really dressed me down for lots of things the Bank had done. Completely unexpected. I was absolutely open-mouthed and could have gotten quite angry, but decided it probably wasn't worth it. Mr. Kelimbetov is now one of my best friends in Kazakhstan. That took three years, and it took a tremendous team and great work on the part of Loup Brefort, the country manager, and particularly Pedro Rodriguez, who was the economist in charge. Pedro had the perfect combination of economic skills and schmoozing skills to get inside the door, and he delivered, and that's what they wanted. It completely transformed the relationship. We took key government ministers to Geneva for two days of talks before our last CAS process. It was a really open set of discussions. We got lectured, and we got told what was right and wrong, and we told them what was right and wrong. The payoff was intangible but huge. We'd started a real conversation, and they now knew we were prepared to listen to them. We developed the single most flexible country assistance strategy, country partnership strategy-we were among the first to use the phrase-ever to get through the Board. Mr. [Alexey] Kvasov, the Russian ED [Executive Director], called it "revolutionary" in the Board. It was 14 pages long. It had no lending table, no ESW table. It was built on the government's own annual business plan. That's responsive and real flexibility. Even the Thailands, the Brazils, the Mexicos of the world, haven't achieved that level of country- driven, demand-driven program. Did we give up our principles? Absolutely not. If we don't agree Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 63 with, we don't do it. The core of that program was the Joint Economic Research Program, which was financed by both the Bank and the government. ZIEGLER: That was going to be my next question, about the 2004 country partnership strategy in Kazakhstan that was built around a unique Joint Economic Research Program. DE TRAY: That program is, I believe, unique. There are other reimbursable technical assistance programs in the Bank for Saudi Arabia, for Chile, for others. But this program was not reimbursable technical assistance. What made this program valuable was that both parties, the Bank and Kazakhstan, put money on the table, and both parties were accountable for the use of that money. My colleagues now negotiate each year a work program built around this mutual accountability that has several aspects. Its main focus was on economic and sector work, with some technical support in those areas where the government's programs and interests coincide with ours. That work often led to project ideas that then would eventually spin off into projects, and it forced an honest level of engagement, a real discussion. You knew at the end of the conversations that we had about this program that we agreed on where we could add value. The government was sufficiently interested to put their own money on the table. This was some of the most carefully monitored money that the government spent. The government had to report to the parliament on this money. It was only about $1 million, but it was very visible in the government's budget. They reported to the parliament, they reported to the president's administration, and to. the president himself. So they had to have a good story, and they had to tell what difference it was making. A fantastic program. To this day, I don't understand why it is not standard in every middle- income country. Every country above the $1500, $2000 per capita income mark has money in their budget to put $1 million or $1.5 million in a joint program. It is the dynamics that the program creates, the relationship it creates, that is so special. It is the core of our program in Kazakhstan, and completely turned the relationship around. ZIEGLER: Does it owe anything to your time spent earlier in the Bank's research complex, or did this evolve subsequently? DE TRAY: It does, in a way. One ofthe criticisms that I remember discussing earlier was the lack of connection between the ESW work that the Bank staff do, which is often too supply- driven, and government needs. And governments don't own most ofESW, they don't understand it, and they certainly very seldom read it. So I wanted a program that was demand based and in which we could demonstrate that the government really wanted it. It was the co-financing that really made it work. So I think, yes, I did inherit the notion that I wanted a mechanism that created the right incentives on both sides of the table in the ESW program. I want to get to Tajikistan in a minute. The interesting thing for me is that we used this same Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 64 model of relationship-building in our poorest country, Tajikistan. Kazakhstan is $3000 per capita, Tajikistan is $300 per capita. We had an okay program in Tajikistan, but the government was a long ways down the capacity scale, and they were really not taking seriously their role. So we took the key ministers to Warsaw, and we spent two days convincing them that they had to make the decisions on the allocation of our IDA resources, not us. We couldn't say yes to everything. There was a fixed pool of money, and if they wanted $5 million more for this, they had to tell us where they wanted to take the $5 million from. We weren't going to make that decision. We had a broad framework of activities, all of which we agreed were important. And we laid out a strategy going forward. At one point in the discussion in Warsaw, the head of the delegation, Mr. Kolboboyev said, "Dennis, this is all well and good, but this is really not what we're interested in. We're interested in" this, this and this. And I said, "Okay, Mr. Kolboboyev, I'm going to call a coffee break right now, and you go caucus with your people. When you're ready to tell us what strategy you do want, you come back." And he said, "No, no, no, no." I said, "No, it's coffee time, and you just let us know when you're ready to come back in." Fifteen, twenty minutes later, we reconvened. They said, "Okay." And, of course, it was part of what we had, and a couple of new things. I said, "Fine, terrific." They as a government had to make the decision. We had another meeting in Dushanbe, and there was a particular pet project that the government and the central bank wanted-$5 million for a credit line, which I thought was completely useless. But I said, "Mr. Alimardanov, if you want that project, fine, but we have to take it out of the infrastructure project." The infrastructure people went berserk. I said, "Fine, I'm not making this decision. You're the government. It's your IDA money. You tell me how to do it." Alimardanov said, "All right, you win, Dennis, we'll put it back in infrastructure." Of course, I told them my views, but I did not make the decision. The challenge was getting them to take responsibility for the program. That was part of this relationship-building, and very critical. It's just as important in the poor IDA countries that have to have us there as in the rich middle-income countries. Success is a relationship issue. ZIEGLER: In the Kyrgyz Republic I understand that you took an innovative approach to poverty reduction called the Village Investment Project, which is based on a model developed in Indonesia. . Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 65 DE TRAY: Right. ZIEGLER: Could you please relate how this initiative evolved from your experiences in Indonesia? DE TRAY: There was a village infrastructure project in Indonesia, the VIP [Village Infrastructure Project] project, the first of its kind. Scott [H.] Guggenheim developed it. Then it moved to something called the Kecimatin Development Project, which was at a slightly higher level of government. Both projects had the same general characteristic, which is that in order to try to bring more accountability into the system and hopefully less leakage and less corruption. Decision making took place at village or Kecimatin level. Local people decided how to spend the money, within some bounds. They were supported by village engineers who could advise them on whether the bridge was going to stay up or not, if they wanted a bridge. They had to account for the money. These were fairly large projects, in the $70,000 to $100,000 range. The Kyrgyz village infrastructure project was a much more community-based project, same concept, but smaller amounts of money, built on the same principles. A very successful project, disbursed rapidly, did what it was supposed to do. Every survey that we were able to do said the accountability that we tried to build into the system worked, that the civil society, the citizens of these villages were holding their representatives accountable for this money, were actually saying no when they thought it wasn't being used well, demanding it back when it was going in the wrong direction. A very successful project. It was a good but all-too-infrequent example of cross-fertilization of ideas from one country to another. ZIEGLER: How did the military campaigns in Afghanistan and Iraq affect your work in Central Asia? DE TRAY: In a very interesting sense. When I took the job in the summer of.2002, Central Asia was a back-water, and I was interested in trying to bring some attention to it. September 11th changed that dramatically. Indeed, my first visit to Central Asia-or my second visit, I guess-was to the Fergama Valley. My first visit was with Johannes Linn in mid-October. It was the only trip I ever took that my father called me and asked me not to take. ZIEGLER: This was 2001? DE TRAY: Right. It was a month after September 11th. It was silly for people to worry. You were safer in Uzbekistan than in Washington, D.C. I assure you, I don't take risks; I don't like them. We were down about 10 kilometers from the air base that the U.S. was setting up near Karshi. It was an interesting trip. I took another trip later that year through the Fergama Valley, which is the heartland of Islam in Central Asia, in December of 2001. The coldest trip I've ever in my life taken. A trip that was designed to give me credibility when I argued that things were not falling apart in Central Asia. There wasn't an uprising in the making, which was good because I didn't have any great game plan for one. A phenomenal trip. Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 66 There was a kind of moment in the sun for Central Asia following September the 11th, then the effect of the U.S. military investments in the Kyrgyz Republic and Uzbekistan to support the Afghanistan campaign, and subsequently the relationship that [Islom Abdug' aniyevich] Karimov and Uzbekistan had with the U.S., which made him a little over-confident in terms of what he thought he could get away with. The "Dutch Disease" resources problem driven by expected assistance from the United States, which didn't materialize. This really upset Mr. Karimov. ZIEGLER: In November 2004 Mr. Wolfensohn visited Almaty. What were some of the significant events of that visit? And I hope it was a little more upbeat than his visit to Jakarta. DE TRAY: It was actually a visit to all of Central Asia. ZIEGLER: I've seen photos. I had to process some photos of that trip and it looked quite interesting. DE TRAY: Mr. Wolfensohn came back from the trip, went to the Board and said it was the most interesting trip he had ever taken in his time at the Bank. Now he may say that about every trip he comes back from, but he loved Central Asia. He loved the culture of it. He was fascinated by the leadership. He was interested, as many people are, in how different it is from what you think it's going to be. Johannes Linn was along. I kept my mouth shut, which helped, I'm sure, make it a great success. We all flew back with Jim to Paris, and then I went on to Washington. On Jim's plane we had one of the most interesting debriefing sessions, where Jim went through his notes from the trip, and we took it all down. Mr. Wolfensohn will never be the easiest travel companion. But he liked that trip. He behaved well, and came back very enthusiastic. ZIEGLER: Did relations with headquarters in this posting differ in any significant respect from those in your posting in Indonesia? DE TRAY: The problem with answering that question is the context. I became country director in Indonesia. When I was director of the resident staff in Indonesia during the first three years of the stay, Marianne Haug was the country director. That was pre-1997; it was an entirely different system ofrelationships. A great job. It was almost like being a country director but different. Then in mid-1997 I became country director, and within a month and a half the crisis hit. That dominated my time as Central Asia was a more standard relationship, but it did bring home to me one truth, which is if you're decentralized and working on a large, attractive country like Indonesia, the Bank comes to you. If you're working on five not-so-attractive countries in the middle of nowhere, you have to go to the Bank. It was a much greater challenge for me to manage the Washington part of the matrix while I was in Central Asia than when I was in Indonesia. If I ignored the Washington half of the matrix in Indonesia, it took care of itself. It had to-there was just too much business and too many people not to be engaged. If I wanted good people to work on Central Asia, I had to find them, one by one. I could work with my country managers, had recruited them, could make them enthusiastic. Harder for Washington staff. Until the crisis hit, I spent very little time back in Washington when I was in Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited 67 Indonesia, probably a couple weeks a year. I would be back here four or five times a year from Kazakhstan, and it's a long, difficult trip. I even got to the point where I would come back for three weeks or so with no schedule, just so I could spend time with my D.C. colleagues and really manage the Washington side of the program. That was the big difference in the process. ZIEGLER: Well, Dennis, I've come to the end of my questions, and is there anything that we have not covered that you would like to raise or add to this? DE TRAY: First, Chuck, I'd like to thank you for the opportunity and I'd like to thank you for your patience and hard work in putting together this material. It has been enormously helpful in JOggmg my memory. The only bottom line for me is that it was a fantastic 23 years, not without its bumps, but if you didn't have bumps, you wouldn't know the good times. I had a wonderful run at the Bank, and as I said in my goodbye speech, I really thank everyone who contributed to that run. It was a privilege to work here. During the good times and the bad times. Again, thank you for doing this. ZIEGLER: And thank you for participating in the Bank's Oral History Program. [End Tape 1, Side B] [End of interview] Dennis N. de Tray February 15 and 21 and March 21,2006- Final Edited