Internal Attack

Patricia Adams
National Post
April 17, 2007

(Originally published in Canada’s National Post)

Since its creation in 1944, the World Bank has become the world’s leading architect of Third World corruption. In the Third World countries themselves, the World Bank has created hundreds of state-owned enterprises and then lavished them with money, requiring their officials to subject themselves neither to public oversight nor the bank’s own scrutiny. Among the Western suppliers to these corrupt state corporations, the bank awarded billions of dollars in contracts, again without public oversight or bank scrutiny, let alone market discipline. The result, understandably, has been corruption – and cover-ups – on an unprecedented scale, over the course of six decades.

How odd, then, that the World Bank’s president of less than two years, Paul Wolfowitz, should now face a chorus of outrage from the World Bank’s staff organization, which has seen ‚Äì and overseen ‚Äì this corruption during the tenure of his predecessors with hardly a peep. Why did the staff not go public over earlier ethical lapses? And why is this staff now so hell-bent on seeing to Mr. Wolfowitz’s ouster?

 In truth, many would consider Mr. Wolfowitz’s behaviour to have been exemplary. Before he became president in 2005, he disclosed that he was romantically involved with a bank employee, Shaha Riza, who held the post of acting manager for external affairs in its Middle East department. Although she worked four levels down the World Bank hierarchy, and although she did not want to leave her post, the World Bank’s ethics committee decided she must, to avoid a potential conflict of interest. It instructed Mr. Wolfowitz to see to her employment elsewhere, which he did, albeit with some discomfort. Now he is being accused of breaching ethical standards because he landed her a well-paying job in the U.S. State Department.

The real wonder is that it took so long for the World Bank staff to attack Mr. Wolfowitz. He is altogether unlike any of his predecessors, in that he takes corruption seriously. Last year, he cut off funds to Chad because the government had breached its agreement with the World Bank by changing a law that diverted oil profits away from social programs designed for the poor. He delayed loans to projects in Kenya out of concern that the government was not serious about tackling corruption, and is conducting a “forensic exercise” on the delayed projects before releasing the funds. He stopped funding to the Congo, despite an IMF decision that the country deserved debt relief, because of its financial irregularities. In India, in Bangladesh, in Uzbekistan, in Yemen and in Argentina, Mr. Wolfowitz is sending an undeniable message: Clean up your act or forfeit development assistance.

Mr. Wolfowitz’s administration is the first to ever staunch the flow of corrupt dollars, an amount of almost unimaginable proportions. According to testimony before the U.S. Senate committee on foreign relations in 2004 from Jeffrey A. Winters, Associate Professor of Political Economy at Northwestern University, roughly US$100-billion in World Bank development funds has been stolen. In Indonesia, for example, an estimated 20% to 30% of World Bank lending was stolen, and that’s according to leaked memos from the World Bank’s staff. According to Julian Schweitzer, a senior World Bank official, Indonesia’s experience is “a lot better than some places with only 10 cents on the dollar” appropriately used, he said, referring to certain African countries where nearly all of the loan funds are misallocated, diverted, unaccounted for, or simply stolen.

With this much World Bank money disappearing in the Third World, questions have arisen about why World Bank staff would have been so complacent in the money’s disappearance. Steve Berkman, a former World Bank investigator and author of an internal paper on fraud and corruption in World Bank projects, told the same Senate committee hearings that the World Bank has not “even the slightest clue” as to the full extent of money that has disappeared.

“It seems strangely odd,” he explained, “that an institution noted for its leadership in the field of economics would not consider the theft of its funds important enough to quantify the problem as accurately as it could. The bank spends millions of dollars of its operating budget to produce a plethora of arcane economic data. It can tell you exactly how much annual household earnings are in the middle of the African bush, but it cannot tell you how much may have been stolen from annual disbursements amounting to billions of dollars . . . One has to ask, if Wal-Mart can give an accounting of its losses to theft each year, why can’t the World Bank?”

Was the bank staff complacent all these years, or was it sometimes complicit? Mr. Wolfowitz has encouraged his investigators to fight corruption by World Bank staff more effectively than it has in the past, with some results: Last year saw disciplinary actions taken against World Bank staff and in his message from the president in his Annual Integrity Report, 2005-06, he noted the need to “ensure that bank staff continue to maintain high standards of conduct. The overwhelming majority of people working in the Bank Group are exceptionally dedicated professionals, but recent corporate scandals around the world have shown that the actions of even a very small number of individuals can tarnish the reputation of an entire organization.”

The World Bank has never had anyone with Mr. Wolfowitz’s corruption-fighting determination at the helm. While he is rightly criticized for going too slow and doing too little in fighting corruption, he has also accomplished more as a corruption fighter than any of his predecessors, and has, for the first time, given the institution he heads some ethical mettle. His critics are right to want him to do better. They are wrong to want him out.

Patricia Adams is an economist and executive director of Toronto-based Probe International and the author of Odious Debts: Loose Lending, Corruption, and the Third World’s Environmental Legacy.


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