Odious Debts Online

May 26, 2005

U.S. Senate Foreign Relations Committee Chairman Dick Lugar today introduced legislation calling for reforms to bring greater transparency and accountability at the five multilateral development banks.

A United States Senate committee has released a groundbreaking package of proposed reforms aimed at curbing corruption in multilateral development bank (MDB) projects. The package is the outcome of an investigation by the US Senate Foreign Relations Committee, headed by Senator Richard Lugar, into allegations of corruption in development projects funded by MDBs. According to the committee’s findings:
“Officials of the World Bank have identified corruption as the single greatest obstacle to economic and social development. Corruption undermines development by distorting the rule of law and weakening the institutional foundation on which economic growth depends.” In hearings before the Foreign Relations Committee, it was demonstrated that:
“significant multilateral development bank funding has been lost to corruption and it is difficult to ascertain [the] amount precisely, in part because the multilateral development banks have not implemented procedures to calculate such amounts; in some cases, the countries bearing the cost of prosecuting corruption related to the [MDBs] are the countries that can least afford such costs, for example, the Government of Lesotho incurred considerable expense, despite competing priorities, such as those arising from an HIV/AIDS rate of more than 25 percent in that country, to investigate and prosecute
fraud and corruption related to [the Lesotho Highlands Water Project] that received funding from the World Bank and the World Bank did not contribute money towards the prosecution or investigation.” Lugar’s committee also noted that the International Financial Institutions Advisory Commission (also known as the “Meltzer Commission”) concluded in 2000, among other things, that: “pressure to lend for lending’s sake is built into the structure of the multilateral development banks; although several of the [MDBs] recognize this problem and have called attention to the need for change, there is, at
most, weak counterbalance to the pressure to lend; and the [MDBs’] systems for project evaluation, performance evaluation, and project selection should be a repetitive process spread over time, including many years after final disbursement of funds.”

Lugar’s proposed legislation to reform the MDBs includes measures to help poor countries combat corruption on their own; to impede development bank employees
from misusing their positions for personal gain; to improve the quality and oversight of development bank loans; to support the integrity of the development banks and  strengthen whistleblower policies; to support the independence and efficacy of the
audit functions; and to ensure that revenues from extractive industries projects are not stolen. Lugar’s legislation authorizes US contributions as requested by the George W. Bush administration in the following amounts: $2.85 billion to the World Bank, $407 million to the African Development Bank and $461 million to the Asian Development Bank.

Below is the press release issued by Senator Lugar’s office: U.S. Senate Foreign Relations Committee Chairman Dick Lugar today introduced legislation, S. 1129, calling for reforms
to bring greater transparency and accountability at the five multilateral development banks: the World Bank, the African Development Bank, the Asian Bank, the Inter-American Bank, and the European Bank for Reconstruction and Development. This legislation also authorizes replenishment of $3.7 billion of funds to three of the five
multilateral development banks.

The World Bank, was the first MDB to be established in 1944, followed by the African Development Bank, 1964 and the Asian Development Bank, 1966. The shared original purpose of the three banks was to encourage economic development and reduce poverty.

“Far too often, projects intended to boost economic development are derailed by corruption, and the poor suffer, unable to realize projected benefits in quality health care, clean water and education,” said Lugar (R-IN). “The Congress has an obligation to our own citizens, as well as the intended beneficiaries of MDB projects, to press for transparency and accountability in the banks’ operations.” “Through adoption of the package of reforms I propose, I hope this encourages other donor countries to also press for transparency and accountability,” Lugar continued.

In 2003, Lugar received information from credible sources with the MDBs alleging corruption on various fronts. To date, he has chaired four hearings to examine ways that the U.S. can contribute to anti-corruption and anti-fraud efforts at multilateral development banks and sent letters of inquiry regarding individual projects to the
bank presidents. Committee staff have interviewed scores of NGO representatives, bank insiders, academics and others, and have visited problem projects in six countries.

Lugar’s review has led top government officials from Italy, Spain and other countries to contact the Committee and ask for more information and to compare strategies on ways of improving bank transparency. Incremental improvements of greater transparency among the banks as a result of the Committee’s ongoing work have been witnessed.

Specifically, Lugar’s bill includes reform measures to help poor countries combat corruption on their own; to impede development bank employees from misusing their positions for personal gain; to improve the quality and oversight of development bank loans; to support the integrity of the development banks and strengthen whistleblower
policies; to support the independence and efficacy of the audit functions; and to ensure that revenues from extractive industries projects are not stolen. The legislation authorizes U.S. contributions as requested by the administration in the following amounts: $2.85
billion to the World Bank, $407 million to the African Development Bank and $461 million to the Asian Development Bank. In order to evaluate the overall effectiveness of the MDBs, the extent to which their practices are consistent with U.S. policy, and to track
the implementation of the proposed reforms, Lugar’s bill requires GAO and Treasury reports.