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Stealing from the poor

Murray Hiebert and John McBeth
Far Eastern Economic Review
June 29, 2004

Of the billions of dollars the World Bank lends, the corrupt always seem to get their share. The bank says it’s making progress; critics, given new voice in the U.S. Congress, say more could be done.

With billions of dollars pouring forth from the World Bank’s Washington headquarters every year, anyone could be forgiven for wanting a share. The money trail of every bank-supported project is paved with opportunities to profit.

The trouble for the World Bank and the countries that provide it with funds in its pro-development, anti-poverty lending mission: Not all those opportunities are legal. Local government officials skim money off the top as they distribute funds and award contracts; business owners pay them bribes, win contracts, inflate project costs and pocket the difference; and, though it happens to a much lesser degree, some
bank officials themselves find ways to make a dishonest buck.

“In its starkest terms, corruption has cost the lives of uncounted individuals contending with poverty and disease,” United States Sen. Richard Lugar told a congressional hearing on May 13. “Not only are the impoverished cheated out of development benefits, they are left to repay the resulting debt to the banks.”

The World Bank has been fighting fraud since the mid-1990s. Bank officials tout the counter-corruption measures they have taken and the accomplishments they have made in suspending lending to projects found to be racked with sleaze and in blacklisting hundreds of crooked companies and individuals.

But the World Bank’s critics, given new voice in a series of U.S. congressional hearings going on now, are arguing that the institution should be doing much more in the battle against corruption. While conceding that the bank has made gains against widespread practices, they also offer specific suggestions on how they think the bank can do
a better job of preventing and investigating corruption.

It is the poor who are hurt most when money is siphoned out of World Bank-funded projects designed to alleviate poverty. They also suffer when the bank, in its most extreme anti-corruption technique, withholds funding. The 184-nation bank was established at the end of World War II to serve as the pivotal institution to lend to developing nations at
discounted interest rates in support of projects that over the years have dealt with health, education, nutrition, environmental protection, HIV/Aids and more. The bank has been credited with playing a role in the success of Asian countries like Indonesia, where as many as 100 million people were pulled out of destitution prior to the 1997 Asian
financial crisis.

But critics have long charged that the bank has achieved less than it could have in countries such as Bangladesh, Cambodia, China, the Philippines and Vietnam because it too often turned a blind eye to corruption. Corruption is estimated to have drained anywhere from 5% to 30% of the roughly $525 billion that the bank has lent over the past
six decades.

Lugar, chairman of the Senate Foreign Relations Committee, made his comments at a hearing that focused on the cost of graft in programmes funded by the multilateral development banks to help the world’s poor.

The U.S. government’s last three-year pledge to the International Development Association, the part of the World Bank that provides interest-free loans and grants to the poorest countries, was $2.9 billion, or 20% of the IDA’s donor funding. In the financial year ending June 30, the World Bank gave out $20.5 billion in loans. (The U.S. isn’t the biggest IDA donor overall. It has given the IDA $25.8 billion over the past 44 years, but has been overtaken recently by Japan, which has given a total of $26.2 billion.)

Lugar’s role is, in part, to make sure the U.S. government’s money is put to good use. The Republican senator lauded the World Bank for taking steps to tackle corruption. He also set off a firestorm of protest when he cited estimates by academics that the abuse of the
bank’s funds may have topped $100 billion over the past 60 years.

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