What steps will the World Bank take to combat corruption?

5 October 2007

With the release of an action plan for tackling corruption and an independent review of the anti-corruption unit, the issue remains high on the World Bank’s agenda. Throughout September, the Bank was consulting on the implementation plan for the Governance and Anti-Corruption strategy (GAC). A heavily revised version of the strategy was passed by the Bank’s board in March following a year of bruising battles between the board and former president Wolfowitz (see Update 55, 53).

The implementation plan focuses on what steps the Bank will need to take at the project, country and global levels. Bank staff have been at pains to argue that there is not a conflict between lending and governance, that instead there will be lending with “an acute awareness of” governance.

At the project level, the emphasis of the Bank’s anti-corruption plan is on accountability mechanisms. Civil society oversight mechanisms are to be supported. Explicit governance and anti-corruption action plans may be used in some cases. Improving the functioning of the Bank’s anti-corruption unit, the Department of Institutional Integrity is key. After receiving comments that the role of the private sector had been overlooked in early drafts of the GAC strategy, the implementation plan makes welcome if vague commitments to “external verification mechanisms” for codes of corporate behaviour.

culture of the Bank that favours seeking out lending opportunities

At the country level, the thorny issue is how to deal with countries which have no interest in improving governance. The plan commits the Bank to “remaining engaged”, encouraging it to seek “creative ways of providing support” such as involving communities in delivery, or carrying out analytical activities which “raise the awareness” of the importance of anti-corruption efforts. Look for more judicial reform and media capacity building in country assistance strategies.

Helping to ‘raise the awareness’ was the latest round of Bank governance indicators, Governance matters 2007, authored by Kaufmann, Kraay and Mastruzzi. The indicators, drawn from data from over 30 different organisations, measure voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption. The authors find that the average quality of governance worldwide over the past decade has not improved much. Nine executive directors including those representing China, Russia, Mexico, and Argentina wrote to president Zoellick to challenge the Bank’s role in publishing the controversial indicators.

At the global level, the Bank has committed “not to act alone”, increasing support for transparency initiatives, donor coordination in investigative practices and sanctions mechanisms, and legal conventions against corruption.

The plan is estimated to add $15 million to the $167 million budgeted for governance activities in the next fiscal year. A steering committee with participation from all sectors of the Bank will oversee implementation, and an implementation progress report is to be prepared after one year with the involvement of the Independent Evaluation Group.

Volcker: Corruption “not faced squarely”

The panel created to review the work of the World Bank’s Department of Institutional Integrity (INT), led by former chairman of the US Federal Reserve Paul Volcker, released its report in mid-September. INT, headed by Wolfowitz-appointee Suzanne Rich Folsom, has been at the centre of controversy over its management, effectiveness and objectivity in tackling alleged cases of corruption (see Update 56). Due to concerns about Volcker’s impartiality (see Update 56), US NGO Government Accountability Project (GAP) conducted a parallel review.

The Volcker report contains some broad swipes at Bank staff attitudes towards tackling corruption. According to its authors, the Bank has “a tendency to shrink from confrontation with borrowing countries”, which is reinforced by a “culture of the Bank that favours seeking out lending opportunities” rather than responding to borrowing countries’ needs.

While the Volcker report shies away from addressing INT mismanagement or unevenness in its dealings with different countries, the following recommendations echo those of GAP:

  • The director of INT should not hold a parallel position as counsellor to the president;
  • INT should ensure more diversity in its staff and be subject to regular internal audit to evaluate its performance;
  • A climate of distrust, miscommunication and secrecy has badly strained relations between INT and operations personnel. Investigation of staff misconduct should therefore be reassigned outside INT; and
  • A lack of guidelines for reporting the findings of investigations has created unnecessary difficulties with some borrowing governments.

The Bank is seeking comments on the Volcker report until end October. President Zoellick will then decide on an action plan for implementing its recommendations.

The GAP report details INT mishandling of corruption allegations in India, Cambodia, the DRC and Armenia. In Armenia, a parliamentary commission concluded in 2004 that millions had been embezzled from a Bank-funded project to privatise water systems in the capital Yerevan. Three years after being informed of their findings, the only response from INT has been that the case has been rank ordered ‘medium’ priority.