Bank anti-corruption framework: “A lot of rhetoric and arm-waving”?

11 September 2006

versión en español

Amidst a storm of controversy about the causes and solutions to corruption, the World Bank has announced a corruption amnesty and released an anti-corruption framework. The issue is high on the global development agenda, as the Bank halts project finance in Indonesia and Cambodia, and the fiasco continues over oil revenues in Chad.

Amnesty or “cover-up”?

In early August, the Bank announced the Voluntary Disclosure Program (VDP). Under the programme, firms, NGOs and individuals must reveal any misconduct in their involvement in Bank projects over the last five years (those under active investigation by the Bank will not be eligible to enter the programme). Participants will then be subject to a three-year monitoring programme managed by the Bank’s department for institutional integrity, during which time they may continue to bid for work.

This is bad for developing country citizens and taxpayers, and the rule of law.

Reactions to the announcement amongst civil society groups have varied widely. Huguette Labelle, chair of NGO Transparency International, said that “the more tools we have like the VDP, the more we will be able to reduce corruption in a substantial way.” In contrast, Patricia Adams of NGO Probe International fears that the programme “immunises bribers from debarment, allows the Bank to cover-up its own negligence or complicity, and undermines the administration of justice in countries where it is a criminal offence to bribe a foreign official”. If the programme protects the Bank from odious debt challenges: “This is bad for developing country citizens and taxpayers, and the rule of law.”

Damned if you do…

  • In late June, the Bank cancelled three loans for infrastructure in Indonesia, halting disbursement of $1.5 million and requesting the return of $4.6 million that had already been disbursed.
  • In the same month, 43 contracts worth $11.9 million were cancelled in Cambodia after evidence of graft. Prime Minister Hun Sen has accused the Bank of hiring corrupt foreign consultants, mismanagement and miscommunication.
  • In an accord signed in mid-July, the Bank tried to extricate itself from the debacle in Chad where the government had threatened to spend oil revenues on arms rather than the poor (see Update 49). Under the new agreement, Chad will commit 70 per cent of its budget spending to “priority poverty reduction programmes”, and set aside money in a stabilization fund to cushion the impact of fluctuations in the price of oil on the economy. Chadian civil society networks have said that “the accord gives no guarantees that revenue management will be improved given the impunity of those who stand to benefit”. They question why the new memorandum of understanding was signed without first evaluating if previous commitments to better transparency and accountability had led to any improvements. Complicating matters further, end August Chad’s president threatened to throw consortium partners Chevron and Petronas out of the country, allegedly for not having paid taxes. While the legal basis for this was unclear, it is clear that Déby wants a new national Chadian oil company to become a key shareholder in the project. The new confidence may have resulted from an August cooperation agreement signed with China.

The Bank’s new anti-corruption framework, entitled Strengthening Bank group engagement on governance and anti-corruption, strikes a conciliatory tone, professing that there are “no one-size fits all reforms”, and that “modesty is warranted as we embark on a strengthened approach”. The Bank concedes that it does not have the “required staffing, skills and incentives in governance to effect results-oriented changes at the front lines of Bank operations”.

Despite the more “modest” approach, Adams believes the new framework amounts to “a lot of rhetoric and arm-waving, perhaps to divert attention from the single most effective anti-corruption measure in its arsenal which is to audit all of its existing loans to determine which funds have been used corruptly, get the money back, and debar the guilty parties.”

In countries with “sound governance”, “flexibility and customisation” will be the Bank’s watchwords according to the framework.

Where “corruption poses a major obstacle to reducing poverty” but the government is committed to solving the problem, the Bank’s country assistance strategy will feature governance as a main theme, and will use “anti-corruption action plans and teams” and “governance advisors”. The framework’s authors caution that this may result in a slowdown in the pace of Bank lending and progress on other Bank priorities such as infrastructure development. What they do not say is that this will also result in serious mission creep – the Bank has proposed to “systematically scale up governance work”, providing capacity building for civil society, the judiciary and media.

Most attention however will focus on countries with widespread corruption and little or no government commitment to solving the problem. Here the Bank says it would identify specific conditions which would trigger a shift to “tightly restricted financing”. This raises alarm bells about significantly increased governance conditionality. “Very unusually”, financing for problematic countries could be completely cut off. In any such cases, focus would shift to non-financing activities such as technical assistance with parliaments, judiciaries, CSOs and the media. This is an area of contention with recipient governments and European donors who see a risk that the Bank will abandon those countries which most need assistance.

Steps to be considered at the project level include: establishing anticorruption teams in the field to review project design and anti-corruption action plans; strengthening the department of institutional integrity which investigates corruption in Bank-funded projects; and supporting country efforts to investigate and prosecute corruption.

One of the key points of contention at the project level will be the ramifications of the new anti-corruption framework for the shift to ‘country systems’. Those who prioritise the fight against corruption will demand that the Bank ‘ring-fence’ risky projects by using the Bank’s own fiduciary standards, while others will argue for the capacity development benefits of a country using – and improving – its own standards. The latter will argue that ring-fencing Bank projects may be counter-productive if it reduces the incentive to improve domestic systems which are used on projects funded by other donors.

The framework recommends a harmonisation of donor action on corruption, including rules to recognise each other’s sanctions of companies found guilty of corruption; working with the private sector, civil society and the media to promote change; and supporting implementation of key international anti-corruption conventions. Suggestions for greater donor harmonisation raise red flags for some civil society groups which fear that this means donors lining up behind the Bank and a subsequent narrowing of policy space available to recipient governments.

In a 31 July letter to Bank president Wolfowitz, NGOs expressed “deep concern at the extremely untransparent and non-participatory manner in which [the anti-corruption framework] is being elaborated.” The letter was authored by CIDSE and the African, Latin American and European networks on debt and development. In response, management has proposed follow-up consultations at the country, regional and global levels, importantly on both the “strategic directions” and the implementation of the framework.

The NGO networks conducted a survey of opinion with civil society organisations in 24 southern countries, finding that the Bank “lacks credibility in terms of its intentions and capacity to address governance and anti-corruption”. The Bank is feared to take a “narrow approach to governance, focusing on the economic policy environment”, and to be concerned about macro-economic stability, private sector investment and public financial management, rather than accountability of the state to citizens. Those surveyed agreed the need for contractual obligations in relation to the transparent use of aid, but made a key distinction between this and policy conditions attached to loans or grants.

The World Bank board met to discuss the draft framework end August. The cost of implementation of the framework has been estimated at $20 million, with half of the bill funded by reallocating existing resources. After a final round of revisions to the framework, the paper goes to the board of governors at the annual meetings. There are rumours that opposition from key northern donor countries may mean the paper gets sent back for further re-drafting.