Odious Debts

World Bank vetoes $232 million loan due to corruption fears

Wall Street Journal
November 20, 2007

The World Bank’s veto of a $232 million loan to the Philippines suggests a continued divide over corruption issues within the organization, The Wall Street Journal reported yesterday.

The loan, which was to be used for road-building, was blocked because the bank’s governing board was concerned that “staff hadn’t fully handled corruption issues in reviewing the loan — and hadn’t briefed Zoellick on the proposal.” World Bank investigators had suspected, and have now confirmed, that a state-owned Chinese company, known as the China State Construction Engineering Co., had been involved in bid-rigging with a cartel of construction firms on an earlier associated loan program.

Bank staff failed to resolve those past graft issues in designing the new project, then used an expedited-approval procedure to get the loan passed, all while President Zoellick was traveling in South Asia. The bank’s Board of Executive Directors refused to authorize the project which, according to the Journal, “represents a slap at the staff and indicates continuing divisions within the bank.”

The World Bank has had recent troubles aligning itself with a consistent anti-corruption policy. Former bank president, Paul Wolfowitz, took a hardline approach, blocking or delaying loans with corruption issues. “But in doing so he alienated many of the bank’s staff and board members, who complained he was penalizing impoverished nations for the sins of the contractors. Staff protests helped spur Mr. Wolfowitz to resign earlier this year.”

The Journal goes on to say that “the softer touch” of Wolfowitz’s successor, Robert Zoellick, could be creating problems as “the World Bank’s East Asia department didn’t inform him of its plans to seek board approval of the Philippines loan, despite unresolved graft issues.”

Now, says the Journal, “a remaining issue is whether to begin debarment proceedings against China State Construction and other firms accused of bid rigging, and recommend to their home countries that criminal charges be brought against them.”

Categories: Odious Debts

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