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World Bank reform signed into law

Odious Debts Online

November 18, 2005

U.S. President George Bush has signed into law legislation urging greater transparency and accountability at the five international multilateral development banks (MDBs), which include the World Bank, the African Development Bank, the Asian Development Bank (ADB), the European Bank for Reconstruction and Development and the Inter-American Development Bank.

The reforms are contained in the 2006 Foreign Operations Appropriations Bill and include measures contained in Senator Richard Lugar’s amendment that passed the U.S. Senate by unanimous consent. Sen. Lugar, chairman of the U.S. Senate Foreign Relations Committee, led a two-year probe into allegations of corruption in projects funded by the developments banks. As a result, he urged mandating stricter anti-corruption controls in the MDBs. President Bush signed the bill into law on Monday.

“These measures are an important step toward leveling the playing field so that honest companies and innocent individuals are not disadvantaged by the corrupt. When projects intended to boost economic development are derailed by corruption, the poorest suffer and are cheated of projected benefits in quality health care, clean water and education,” said Sen. Lugar.

The reforms include measures to seek financial disclosure by development bank employees similar to that required for U.S. government officials and members of Congress; to improve the quality and oversight of development bank loans; to strengthen whistleblower policies; and to support the independence and efficacy of the audit functions. It also wants the MDBs to prohibit funding for extractive industries (oil, gas, coal, timber, or other natural resources) unless the borrowing government provides independent public audits of revenues and expenditures associated with the natural resource extraction. It also requires that the Treasury Department make publicly available the positions taken by the U.S. executive directors on policies and significant projects.

A Senate Foreign Relations Committee aide, speaking to the Reuters news agency, said the financial disclosure requirements cover all bank employees. But in reality it will be up to each bank to determine which employees must comply and exactly how much of their personal financial histories they must make public, the aide said.

According to the aide, the U.S. Congress cannot mandate the banks to act, because they are multinational institutions. But the new law does require U.S. executive directors on the banks’ governing boards to raise these specific reform issues and to seek adoption by the boards, he said.

Patricia Adams, author of Odious Debts: Loose Lending, Corruption, and the Third World’s Environmental Legacy and the publisher of Odious Debts Online, welcomed the legislation and said “the reforms in the bill would help reduce the endemic corruption that has plagued MDB projects, but only if implemented fully and effectively by the boards of the MDBs”.

“The key words here are ‘if implemented,'” she said. “The U.S. Congress has a long history of directing their executive directors (EDs) to push for reforms in the MDBs, only to see their ED’s isolated and deserted by their counterparts from other rich countries. Too many EDs from other rich countries would rather turn a blind eye to the governance flaws that cripple MDB development efforts, but win MDB contracts for their country’s firms. I hope the U.S. Congress’s worthy efforts aren’t once again crippled by the other OECD countries.”

The reforms proposed by the U.S. legislation this week would help provide ‘sunshine’ on MDB lending operations and prohibit extractive industry lending to countries that don’t have adequate disclosure and auditing procedures, Ms. Adams said, adding that the reforms would also “empower the public in borrowing countries with the financial information they need to hold their governments accountable”.

Text for the Multilateral Development Bank Law available in Odious Debts: Loose Lending, Corruption, and the Third World’s Environmental Legacy

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