The Senate Foreign Relations Committee has started to investigate allegations of corruption in projects funded by the World Bank and its affiliates.

Washington: The Senate Foreign Relations Committee has started to investigate allegations of corruption in projects funded by the World Bank and its affiliates, Senate sources said Tuesday.

Committee staff have been quietly looking into charges for some time and the first public hearing is set for May 13. Projects under review include the Yacyreta Dam on the Argentina-Paraguay border, the Lesotho Highlands Water Project and projects in Cambodia, according to letters obtained by Reuters.

The probe was initiated by committee chairman Richard Lugar, an Indiana Republican, whose panel has oversight responsibility for international financial institutions receiving more than $1 billion in U.S. funding.

“Senator Lugar strongly supports the goals and objectives of international development institutions, including eliminating poverty in the Third World and working to improve standards of living, such as providing clean water,” a committee staff member told Reuters.

“Having said that, the chairman has now undertaken an ongoing review of the international financial institutions as it relates to their success in combating corruption,” he said.

Lugar wants to “bring about accountability in the system and this review is an opportunity for the banks to tell their story, what they are doing to fight corruption,” the aide said.

The World Bank had no immediate comment.

Concerns raised

In a letter to World Bank President James Wolfensohn dated April 20, Lugar expressed concern that the bank may have overlooked key issues in a forthcoming report on the Yacyreta Dam project. “Reportedly, the Yacyreta Dam project was budgeted to cost $2 billion when it began in 1973 and now has a debt of $10 billion – and it is still not completed,” he said.

Lugar said the project could cost another $800 million. The debt affects the project’s financial viability and is an indirect burden on Argentina and Paraguay’s governments, he said.

Lugar asked if the bank had ordered a financial audit.

“Before work continues on this project and new programs are developed for the region, it is important that the international community learns how Yacyreta’s financial position deteriorated to this level,” he said.

In a letter on April 16, Lugar questioned the Lesotho Highlands Water Project and the fact that three contractors were found guilty of bribery.

The senator said none of these companies are on the World Bank’s list of reprimanded firms or on the list of disbarred firms that violated bank fraud and corruption provisions.

He asked Wolfensohn if the bank is investigating these companies and if it has acted to minimize corruption. The project, jointly developed by by Lesotho and South Africa, involves construction of roads, bridges and electricity transfer stations as well as dams.

According to news reports, a dozen more multinational firms could also face charges. In a third letter dated April 9, Lugar voiced concerns about the “potential for abuse of World Bank funds in Cambodia” and asked Wolfensohn to explain what the bank is doing to “minimize the misappropriation of funds.”

There are three projects in the pipeline for Cambodia, 19 active projects and three closed projects. An aide said the committee is also looking into World Bank affiliates such as the Asian Development Bank, the Inter-American Development Bank and the African Development Bank.

CNNMoney, by Reuters, April 27, 2004