When ministers in India declare themselves stoutly in favour of economic reform, the sub-text is their enthusiasm for hefty loans from multilateral development banks – conditionalities and all – which come in handy in greasing their political machines.

When ministers in India declare themselves stoutly in favour of economic reform, the sub-text is their enthusiasm for hefty loans from multilateral development banks – conditionalities and all – which come in handy in greasing their political machines. These worthies are probably crestfallen now with the US making a big fuss about corruption in these banks.

The US Senate Foreign Relations Committee, hearing on corruption in multilateral development banks with Senator Richard Lugar, an Indiana Republican, in the chair, has been advised by experts that a staggering $26-130 billion of World Bank lending since 1946 has been misused. The World Bank has, of course, rejected this figure and mounted a vigorous defence of its anti-corruption efforts.

However, the World Bank President, Mr Jim Wolfensohn, has declined to give evidence before the committee, citing the established practice of bank officials not testifying before the legislatures of their member countries.

According to a report by Bretton Woods Project, the committee has expressed particular interest in the Lesotho Highlands Water Project and the Yacyreta Dam on the Argentina-Paraguay border.

Sen. Lugar pointed out that ” . . . the Yacyreta Dam project was budgeted to cost $2 billion when it began in 1973, now has a debt of $10 billion – and is still not completed.” He went on to observe: ” . . . when developing countries lose development bank funds through corruption, the taxpayers in those poor countries are still obligated to repay the development banks. So, not only are the impoverished cheated out of development benefits, they are left to repay the resulting debts to the banks.”

Mr Wolfensohn’s refusal to give evidence before the committee notwithstanding, the Bank has submitted to the committee a briefing setting out a series of anti-corruption measures initiated in the last eight years.

For instance, according to Bretton Woods Project, the Bank recently introduced a rule which stipulates that all its senior managers must provide an annual statement listing their financial interests and those of their immediate family.

The Bank has further asserted that it has 50 staff members who have examined more than 2,100 cases of fraud and corruption since 1999. The cases examined include theft, bid-rigging, bribes, collusion or coercion by bidders, fraud and product substitutions.

According to the Bank, over 180 companies and individuals have been debarred from doing business with it, either temporarily or indefinitely.

However, the companies debarred have, for the most part, been small ones. According to Bretton Woods Project, larger companies have somehow escaped censure.

In fact, Sen. Lugar, dealing with the Lesotho Highlands Water Project, has remarked on the fact that although three international companies have been convicted of bribery, none has been placed on the World Bank’s list of reprimanded or disbarred firms and are thus in a position to continue tendering for work on Bank projects.

The Senator has a point. It may be recalled that, in April, the Bank’s sanctions committee had reopened the debarment case against Acres International, a Canadian firm whose conviction for bribing an official was upheld by the Lesotho appeals court last August. The numbingly slow pace at which the World Bank had conducted its investigation into the case had brought into question the rigour of Mr Wolfensohn’s much-publicised campaign to deal with “the cancer of corruption” when it involved northern companies as against southern governments.

An independent investigation into the Bank-funded Lesotho Highland Waters Project commissioned by the World Bank in 2001 had concluded that “the evidence is reasonably sufficient to establish that Acres was paying not for information, but for influence.”

The Bank’s sanctions committee, however, had postponed debarment, claiming insufficiency of evidence.

After the appeals court decision, the Bank had blandly held out the assurance that it would examine “the court records of the criminal case to determine if there is new evidence that should be brought to the attention of the Sanctions Committee.”

Meanwhile, Acres continued its work for the World Bank, winning over $300,000 in new contracts in Tanzania, and the West Bank and Gaza in 2003. The Bank has further stated that it advises developing country governments on anti-corruption statutes and that it is assisting 40 countries with enforcement.

In a testimony to the committee, Ms Carole Brookins, US Executive Director to the Bank, summarised: “The Bank has built a comprehensive structure that includes international advocacy, internal controls, analytical/diagnostic tools, education and training, and country operations.”

Mr Manish Bapna, Executive Director of the Bank Information Centre, has made an extremely interesting ‘contribution’ to committee, pointing out that the “pressure to lend and culture of loan approval” which have inhibited a culture of accountability in the Bank. He testified: “Corruption can undermine the development impact of these projects in countless ways. Examples include diluting the quality of cement in roads or irrigation canals; permitting illegal timber harvesting in restricted forest areas; and granting profitable public contracts to well-connected cronies of government officials.”

In addition, he stressed the dangers of privatisation deals in which “high-level government officials use borrowed funds to renovate public service enterprises and sell or concession them to ‘associates’ at prices well below their actual market values” and argued that the Bank should force companies that want to receive its support to adopt much broader corporate transparency and disclosure requirements.

He is of the view that multilateral development banks should ensure that the host country meets a minimum standard of governance, carry out due diligence to identify and mitigate corruption risks and help create an open environment conducive for civil society and media to monitor the project throughout implementation.

The points he has made are encouragingly different from those of various institutions which have been offering gratuitous advice to anybody who will listen on making the Bank’s anti-corruption campaign more effective.

Their advice, for the most part, has been based on the premise that, instead of trying to root out corruption altogether, LDCs should be persuaded to rework their regulatory structures and procedures to reduce the opportunities for corruption. Their suggestions, ranging from decision-making by committees rather than individuals to a “once-for-all” payment for the cooperation of a single corrupt decision-maker as against the payment of bribes to a multiplicity of officials and so on, have been uniformly foolish. The fact of the matter is that the governments of South countries are as anxious as North firms to perpetuate corruption. To illustrate: In 2000, the International Monetary Fund (IMF) tried to link external assistance to elimination of corruption. Addressing a press conference in Washington, the IMF Deputy Managing Director, Mr Stanley Fischer, and Advisor Ms Ratna Sahay made a strong case for developing governments to undertake political reform programmes, which would not merely improve governance but actively combat corruption. They argued that “external assistance can encourage transparency and strengthen institutions by making future assistance conditional on progress in these areas.”

India, which has a prominent presence in the corruption indexes prepared by Transparency International, clambered on to its high horse with admirable alacrity. A slew of stories was planted in the press, all dealing with the country’s in-principle opposition to development assistance ‘linkages’.

There were dire references in these stories to India’s opposition to the IMF proposal on grounds of technical definitions, the criteria for these technical definitions, the quantification of corrupt practices and, of course, national sovereignty.

And that, as they say, was that.

Pratap Ravindran, The Hindu Business Line, June 22, 2004