World Bank anti-corruption: discourse versus practice

21 November 2005

A new report from corruption watchdog, Transparency International (TI) indicates that despite improved efforts by the World Bank on corruption ahead of other regional development banks, there is still a striking inconsistency between the Bank’s discourse and practice. A new US anti-corruption bill and an oil revenue agreement with Chad are the latest tests.

The downside of the Bank’s continued willingness to fund corrupt governments is exposed by Chadian government manoeuvres to get out of an anti-corruption agreement signed with the Bank.

The World Bank’s negligence in allowing corruption to happen in recipient countries was largely overlooked until former president James Wolfensohn introduced the “c-word” into Bank discourse. Anti-corruption efforts are now supposed to be a key focus of the Bank’s analysis and lending decisions, and diagnostic work on governance and corruption risks has been expanded. The trend has been picked up by Wolfowitz, who has referred to corruption as “a weed” and supported initiatives to return pilfered money from Switzerland to Nigeria as the basis on which to tackle the corruption which is crippling Africa’s development.

unholy trinity of oil, power and corruption

In 2004 witnesses testified to the US Senate Foreign Relations Committee under the chairmanship of Richard Lugar, that borrowing-nation bureaucracies and crooked contractors have stolen over $100 billion from the World Bank over the past five decades. Lugar also estimates that between 5-25 percent of the $525 billion lent by the Bank since 1946 may have been misused or lost to corruption, a figure contested by the Bank. Since then a meeting of multi-lateral development bank (MDB) officials took place in London in October to discuss common approaches to transparency and accountability. Most recently, a US anti-corruption bill was signed into law by President Bush. The provisions contained in the bill establish US policy towards the MDBs on several transparency and accountability issues. Patricia Adams of Probe International welcomed the legislation and said that ” the reforms in the bill would help reduce the endemic corruption that has plagued MDB projects, but only if implemented fully and effectively by the boards of the MDBs.

Susan Hawley, in TI’s Global Corruption Report 2005 summarises the Bank’s recent anti-corruption measures, including: the debarment of companies found guilty of fraud and corruption- the World Bank made its system publicly available in 1998; stricter procurement guidelines and improved financial management and oversight. However, Hawley points out that many of the large infrastructure projects round the world that have been plagued by corruption allegations, were backed either by an MDB or an export credit agency, such as the Bank-backed Lesotho Highlands Water, where Canadian company Acres International was debarred by the Bank but only two years after it was found guilty of corruption by Lesotho courts (see Update 41). The Bank’s recent re-prioritisation of infrastructure (from $5.4 billion in 2003, to $7 billion by 2005, see Update 48) presents a further challenge to corruption prevention.

Hawley attributes high levels of corruption in Bank-backed projects to: lack of due diligence; legal immunity and the absence of accountability mechanisms; inadequate economic, environmental and social risk assessment; weak internal controls at the Bank in the supervision and auditing of projects; lack of safe channels for whistleblowers; the lack of active oversight by most member countries; and a ‘no fail’ culture of internal and project evaluations. Many of Hawley’s findings are echoed by Bruce Rich, of US NGO Environmental Defense, who outlines how corruption is hampering international efforts to achieve environmentally sustainable development. He attributes much of the negligence by IFIs to the “pressure to lend” and the “culture of loan approval”.

Chad: between a rock and a pipeline?

The World Bank may be forced to withdraw from its investment in Chad’s high-profile oil pipeline following government threats to change the Bank-backed Petroleum Revenue Management Law, which safeguards oil profits for future generations.

The Bank’s decision last year to fund the $3.7 billion 1,000 km pipeline, developed by an Exxon Mobil-led consortium to take crude to market through Cameroon, was strongly criticised by civil society groups who warned that Chad was marred by corruption, political instability and human rights abuses (see Update 43, 47). TI ranks the country as one of the world’s most corrupt. At the time of approval, Friends of the Earth forewarned: “Once the money is flowing, the unholy trinity of oil, power and corruption will make corrective action difficult”.

This poses a major setback for the Bank’s biggest investment in Africa, which it touts as a test case to show that petro-dollars can benefit the poor. In an agreement between the Bank and the government, ten per cent of the oil revenues were being saved for future generations and 80 per cent of the remaining revenues were earmarked for poverty reduction programmes for today’s population. Chad now wants to scrap this agreement, claiming that the country is not reaping the rewards from the oil project and is struggling to pay salaries and pensions, and therefore needs access to the funds immediately. It also argues that the increased security costs related to the conflict in neighbouring Sudan’s Darfur region have placed heavy demands on the budget, and that it is unable to service its external and internal debt, President Déby’s officials assert that it would be better to spend revenue on improved healthcare and education for young people growing up now rather than put it away for the future.

The Bank has urged the government to address “grave weaknesses in public financial management” in order to protect the goals of the oil revenue management scheme. “With allocations already approved in road rehabilitation, health and education, among other areas, the citizens of Chad are beginning to see some benefits, despite the difficulties and weaknesses assessed in the execution of public spending,” said the Bank.

As an indication of Chad’s financial woes, on 5 September, The Union des Syndicats du Tchad (UST) trade union organisation organised a protest march over salary payments, in particular of former employees of Esso Tchad subsidiary Tchad Cameroun Construction (TCC). However, the unions’ demands have little hope of being met, following the government’s announcement of a package of austerity measures, which include a public sector pay freeze in order to enable the country to meet conditions to qualify for debt relief under the Heavily Indebted Poor Countries initiative. A loan program approved by the IMF earlier this year is also on hold because of the government’s failure to meet budget targets.