Foreign Aid

Massive influx of aid to Pakistan carries massive risk of corruption

Jameson Berkow
Probe International Editorial
May 8, 2009

The World Bank’s International Development Association (IDA), which provides billions of dollars in long-term interest-free grants and loans to the world’s 78 poorest countries, is apparently not too concerned about the fraudulent or corrupt use of its loans.

Within days of the Bank’s authorization of a $500 million USD loan to Pakistan, a country known to suffer from “widespread and systemic” corruption, the Bank quietly released a damning internal report [PDF] that said the IDA’s ability to prevent, detect and respond to cases of fraud and/or corruption suffered from “material weaknesses”.

The Wall Street Journal correctly translated “material weakness” as bank-speak for an “F” [PDF] .

The report, prepared by the Bank’s Independent Evaluation Group (a misnomer, to be sure, considering it is staffed by World Bank employees on secondment from their regular positions), says the Journal “is almost purposely written to be read by as few people as possible.”

Buried in the report’s nearly 700 pages of self praise for Bank efforts to combat fraud and corruption, laced with impenetrable jargon and acronyms, is the admission that despite various initiatives to combat fraud and corruption, “the internal controls to make these effective are not yet in place.”

In other words, after transferring a loan to a recipient country, the Bank has virtually no way of preventing those funds from ending up in private pockets.

Back to Pakistan, where the interest free IDA loan was granted with the ambiguous purpose of helping to stabilize the country’s volatile economy.

The World Bank isn’t alone. Last November, the IMF granted Pakistan a jaw-dropping $7.6 billion, standby facility of which $3.9 billion has already been disbursed. The purpose of the IMF economic-stabilization package support is also to help instil confidence among foreign investors who have been scared away by the country’s breakdown of law and order, terror strikes, political chaos and weakening economy.

But rather than instilling confidence, moving such large sums of money to a country with a well-documented history of using such funds corruptly [PDF] — according to the U.K.’s Guardian newspaper, up to 70% of all U.S. military aid to Pakistan since 2002 may have been “misspent” [PDF] — looks like tacit approval for that corruption to continue.

That the Bank and its soft loan window [PDF] , IDA, have no functional mechanism to catch cases of fraud and corruption is hardly surprising. It has long been a part of the unwritten code of conduct at the World Bank to accept a certain level of fraud and corruption as simply a part of doing business with poorer countries.

“The bank’s traditional control systems were designed for efficiency and equity – the cheapest possible price,” one of the report’s authors, Ian Hume, told the Wall Street Journal [PDF] .

“That increases the risk that corruption could occur in the use of IDA grants.”

Thanks to 65 years of this thinking – that corruption is the cost of their good works [PDF] – there is now growing evidence that at least one third of all World Bank loans (or about $100 billion USD), have been used corruptly [PDF] .

It remains to be seen whether the World Bank will stanch the bleeding from its own operations.

Should the Bank choose to simply maintain the status quo, the publication of this report will only advertise its long-standing apathy towards Bank-sponsored malfeasance.

Read more as the story progresses,

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Categories: Foreign Aid, Odious Debts

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