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While useful proposals to reform International Financial Institutions (IFIs) have been widely discussed, the lack of meaningful financial accountability has received little attention. Considering the substantial damage done by IFIs, this is surprising both from an ethical and an economist's point of view. In a market economy anyone must face the economic consequences of their actions and decisions. If consultants give advice negligently or without obeying minimal professional standards, they have to pay compensation for the damage they have caused. National liability and tort laws serve the purpose of compensating those suffering unlawful damages and of deterring such behavior. By contrast, tortious damage caused by IFIs must be paid by IFIs' borrowers, including many of the world's poorest people. IFIs may even gain financially from their own negligence by extending new loans necessary to repair damages done by their prior loans. One failed adjustment program calls for the next. This mechanism makes IFI-flops generate IFI-jobs and additional income. This perverted incentive system rewarding errors, negligence, and even violations of the very constitutions of IFIs is absolutely at odds with the principles on which Western market economies rest. It must be brought to an end. This essay presents the idea of financial accountability, showing how easily reforms making IFIs financially accountable could be implemented. Moreover, embracing financial accountability would bring IFI operations closer to the intentions of their founders, who wanted IFIs subject to the basic legal and economic concepts of financial accountability not exempt from it. The market mechanism and its beneficial incentive system must finally be brought to IFIs.

Financial development & financial institution building are important prerequisites for economic growth. However, both the potential & the problems of institution building are still vastly underestimated by those who design & fund institution-building projects. The paper first underlines the importance of financial development for economic growth, then describes the main elements of "serious" institution building: the lending technology, the methodological approaches, & the question of internal structure & corporate governance. Finally, it discusses three problems that institution-building efforts have to cope with: inappropriate expectations on the part of donor & partner institutions regarding the problems & effects of institution-building efforts, the lack of awareness of the importance of governance & ownership issues, & financial regulation that is too restrictive for microfinance operations. All three problems together explain why there are so few successful micro & small business institutions operating worldwide. 2 Tables, 47 References. Adapted from the source document.