Odious Debts Online
September 15, 2006

World Bank president Paul Wolfowitz said he expects the Bank’s 184 member countries to approve his anti-corruption framework at the annual meeting of the World Bank and International Monetary Fund this September in Singapore.

Aimed at curbing corruption in developing countries and in Bank-funded projects, the World Bank campaign, entitled Strengthening Bank group engagement on governance and anti-corruption, is part of Mr. Wolfowitz’s ongoing drive to push the fight against graft to the center of the Bank’s global development work.

At the centerpiece of the Bank’s anti-corruption strategy is a new Voluntary Disclosure Program (VDP) [PDF] , announced last month.

Under the program, firms, NGOs or individuals who work as contractors on Bank projects are encouraged to perform their own internal investigations and report their corrupt acts regarding Bank projects for the last five years, as well as pledge to follow the rules on future projects. Although they are then subject to a three-year monitoring program managed by the Bank’s Department of Institutional Integrity, participants secure confidentiality in exchange and the right to continue bidding on bank-funded projects.

The pardon, however, is not available to anyone already under active investigation by the Bank and once firms come on board with the program, any deviation from the VDP’s non-negotiable contract renders them ineligible for Bank work for 10 years.

Concerns that the Bank’s framework would tie development aid to anti-corruption reforms were rejected by Mr. Wolfowitz, who argued that the two issues complemented one another.

“Our priority is development,” Mr. Wolfowitz said, adding that donor countries also needed reassurance that the Bank was looking after their money.

Meanwhile, reaction to the Bank’s new framework amongst civil society groups have varied widely, reports IFI watchdog, the Bretton Woods Project [PDF] :

Huguette Labelle, chair of NGO Transparency International, said that “the more tools we have like the VDP, the more we will be able to reduce corruption in a substantial way.”

Patricia Adams of NGO Probe International fears that the program “immunises bribers from debarment, allows the Bank to cover-up its own negligence or complicity, and undermines the administration of justice in countries where it is a criminal offence to bribe a foreign official.”

If the program protects the Bank from odious debt challenges: “This is bad for developing country citizens and taxpayers, and the rule of law.”

The Bretton Woods’ report highlights the Bank program’s conciliatory tone and notes the Bank’s admissions that there are “no one-size fits all reforms,” and that “modesty is warranted as we embark on a strengthened approach.”

Ms. Adams believes the new framework amounts to “a lot of rhetoric and arm-waving, perhaps to divert attention from the single most effective anti-corruption measure in its arsenal which is to audit all of its existing loans to determine which funds have been used corruptly, get the money back, and debar the guilty parties.”

Writing about the landmark Lesotho corruption trials in southern Africa, which resulted in the prosecution of corrupt officials and bribe-paying corporations involved in the World Bank-funded Lesotho Highlands Water Project – Africa’s largest infrastructure scheme – Hennie van Vuuren, the head of the corruption and governance program at the Institute for Security Studies in Cape Town, South Africa, points out that the World Bank has ‘consistently erred toward caution’ when it comes to graft:

“Despite promises as far back as a 1999 closed-door meeting that it would provide financial support to the Lesotho prosecutors – no assistance has been forthcoming leaving a poor state to foot the multi-million dollar legal bill. Equally the bank was slow in applying its policy to exclude corrupt companies from future World Bank contracts, eventually debarring the Canadian multinational Acres in March 2004 for three years.

This came over thirty months after an internal Bank probe concluded that Acres had paid for influence – reportedly allowing the company to commence big-ticket Bank funded projects in Uganda, Palestine and Sri Lanka in the interim.”

According to van Vuuren, it is ‘precisely’ the issues of prosecution and debarment that the Bank needs to pay more attention to in its new draft strategy. The Lesotho case, said van Vuuren, makes clear the need for support to be made available quickly in the form of both money and technical assistance to the investigation and prosecution of corruption in Bank related projects.

Van Vuuren also highlights the lack of specificity in the Bank’s strategy on how international financial institutions should co-ordinate their efforts regarding sanctions, as well as the need for fast-tracking the inclusion of corrupt corporations and individuals on the Bank’s debarment list:

“The World Bank, and the home countries of the corporations implicated in corruption in the Lesotho Highlands Water Scheme have many reasons to be shame-faced for the lack of support that Lesotho has been shown in its tenacious efforts to tackle corruption,” says Van Vuuren.

“At the very least the epitaph on the corruption and bribery trials needs to read that the conduct of international finance institutions and corporations in Lesotho must not be allowed to be repeated over and again elsewhere. It is time the world listens to Lesotho!”

Meanwhile, Steve Berkman, a former Bank investigator, who saw “all the big and small corruption” in World Bank-funded projects, argues that the often cited figure of Bank funds lost to graft – estimated at $100 billion over the past 60 years – is conservative.

After reviewing an educational project in Nigeria for the UN agency watchdog Global Policy Forum, Berkman reported that, “We paid $2,200 for 18 cups of tea. The bank did nothing.”

Berkman places the percentage of embezzled Bank funds at between five and 25 percent and calculates that between about $27.5 billion and $137.5 billion has been lost to corruption overall (the World Bank loans $20 billion a year).

In an opinion piece for Nigeria’s Daily Sun, Cudjoe Kpor notes that some of the Bank’s loans “were wasted as ‘odious debts'” to corrupt military dictators who embezzled funds, salted them away into foreign bank accounts or diverted them into buying military weapons “to suppress their restive populations.”

Cudjoe also acknowledges that civil servants’ low salaries also play a part in the theft of Bank funds by public officials struggling to make ends meet.

Glen Ware, a former investigator with Global Policy Forum, said the GPF’s internal investigation unit had found “a recurring pattern of bribery, kickbacks, front companies (and) shell companies” owned by public servants to which World Bank contracts were awarded fraudulently.

Adds Cudjoe, some dicators would “fall easily without the buffer of corrupt funds.” Cudjoe argues that “whether or not the loans are used judiciously or stolen,” taxpayers are left on the hook to repay debts with money they could put to more beneficial use.