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Poorest Pay for World Bank Corruption - US Senator
Published on Friday, May 14, 2004 by Inter Press Service
Poorest Pay for World Bank Corruption - US Senator
by Emad Mekay
 

WASHINGTON - The World Bank has lost about 100 billion dollars slated for development in the world's poorest nations to corruption since 1946, nearly 20 percent of its total lending portfolio, according to a U.S.. Senate committee.

”It is critical that every development bank dollar reaches its intended recipient,” said Sen Dick Lugar, chairman of the Senate Foreign Relations Committee, on Thursday. ”Unfortunately, that is not happening - corruption remains a serious problem.”

Lugar cited one of the panelists as the source for the massive figure. Jeffrey Winters of Northwestern University, who testified before the hearing, estimated the World Bank ”has participated mostly passively in the corruption of roughly 100 billion dollars of its loan funds intended for development.”

Other experts estimate that between five and 25 percent of the 525 billion dollars the Bank has lent since 1946 has been misused. This amounts to 26-130 billion dollars.

”Even if corruption is at the low end of estimates, millions of people living in poverty may have lost opportunities to improve their health, education and economic condition,” Lugar said.

A World Bank spokesman vehemently disputed the estimate. ”We completely reject the figure offered by one of the panelists,” said Damian Milverton. ”It has no basis in fact.”

Corruption has become a global issue as developing countries, watchdog groups and some economists complain that poor nations lose huge funds from multilateral development banks (MDBs) like the World Bank because of misuse of money. Yet taxpayers in those borrowing countries have to still to repay the banks.

”So, not only are the impoverished cheated out of development benefits, they are left to repay the resulting debts to the banks,” Lugar added.

The estimates emerged at the first in a series of oversight hearings into the anti-corruption efforts of the World Bank and other multilateral development banks (MDBs), which include the Inter-American Development Bank (IDB) the Asian Development Bank, the African Development Bank, and the European Bank for Reconstruction and Development.

Testifying at Thursday's hearing were the U.S. representatives to the World Bank and the IDB, as well as four outside experts.

Manish Bapna, executive director of the Washington-based watchdog group Bank Information Center (BIC), said corruption threatens the core mission of those banks: poverty alleviation.

”While MDBs profess 'zero tolerance' for corruption in their projects and programs, this rhetorical commitment has not always been meaningfully implemented,” Bapna said.

Corruption can also undermine the development impact of the banks' projects, for example, if contractors use diluted cement in civil works like road-building, officials permit illegal timber harvesting in restricted forest areas, or grant profitable public contracts to well-connected cronies of government officials.

Another example mentioned at the hearing is a project in Lesotho, Africa. Last year a court in that country convicted the director of the Lesotho Highland Water Authority, as well as two international contractors who had paid bribes, of corruption in the awarding of contracts. The World Bank financed part of the project.

Professor Jerome I Levinson of the Washington College of Law at the American University referred to that particular case, and suggested there is a remedy for such actions.

”The World Bank, potentially, has an effective, if draconian, remedy,” he said. ”It could place the international contractors on a proscribed list barring them from bidding on any future World Bank financed projects anywhere in the world.”

The bank says its list of barred companies and individuals now includes 90 names.

Levinson also noted that such projects are usually financed or administered through an auxiliary of a parent company, which is created just to carry out a particular project and then dissolved once the work is completed. That parent should be held responsible for any corrupt activities, he added.

”If we are serious about addressing the cancer of corruption in projects even partially financed with public international funding, I think that it is reasonable to insist upon the entire project being subject to procurement guidelines that assure transparency in the award of international contracts and thus minimize the risk of corrupt payments in connection with such contracts,” he added.

Some of the witnesses also urged multilateral banks to ensure that funds released for non-specific purposes are not subject to corruption, and suggested audits of how that money was eventually spent, admitting that last step could prove difficult.

”Realistically, however, this is the weakest link in the system,” Levinson said. ”Money is fungible. It is extremely difficult, if not impossible to trace the ... disbursed funds.”

Winters, on the other hand, suggested that the MDBs be supervised by an independent auditing body.

”The MDBs must do a much better job supervising and auditing projects and loans,” he said. ”But the only effective way to protect against corruption of development funds is to establish an international auditing body that is independent of the MDBs and of private sector auditing firms -- nearly all of which have deep conflicts of interest.”

Milverton said the World Bank already has multiple layers of oversight mechanisms, including audits, an inspection panel that reviews complaints against Bank projects, and the institution's governing board, among others.

Carole Brookins, the U.S. executive director to the World Bank, told the hearing that combating corruption and building good governance have been major priorities of the Washington-based institution since 1996.

”The World Bank continues to be the leader among international development institutions in a broad range of country-based initiatives to strengthen governance, build effective local institutions and increase transparency,” she said.

In the last fiscal year, the MDBs financed projects worth more than 35 billion dollars in the areas of public administration, transportation, health and education, among others.

The United States contributes more than one billion dollars a year to the banks, with a large majority of that money going to the World Bank's International Development Association, which lends to the very poorest countries at subsidized rates.

Copyright © 2004 IPS-Inter Press Service

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