IFI governance


Zoellick and corruption: A new approach?

1 February 2008

World Bank president Robert Zoellick’s handling of corruption in India and changes to the anti-corruption unit, signal a different approach to the problem from predecessor Paul Wolfowitz. Allegations of bias in favour of Kenya’s ruling party make it clear that the Bank’s battle against perceived involvement in corruption is far from over.

In January, the Bank’s anti-graft unit, the department of institutional integrity (INT), released a review of five Indian projects dating back to 1997, finding evidence of procurement fraud, corruption and shoddy auditing. The projects include: $114 million Malaria Control Project; $82 million Orissa Health Systems Development Project; $194 million Second National HIV/AIDS Control Project; $125 million Tuberculosis Control Project; and the $54 million Food and Drug Capacity Building Project. Only the latter project is ongoing. Agribusiness firm Syngenta, the world’s largest chemicals maker BASF, and Germany’s largest drugmaker Bayer, are all implicated in a price-fixing cartel spotted in the anti-malarial programme.

The review was prompted by a 2005 investigation into a reproductive and child health programme, which found evidence of corrupt practices by two Indian pharmaceutical firms. The firms have since been debarred by the Bank. The 2005 report was never made public, but was leaked to the Wall Street Journal in September 2007.

they were concerned to protect their budgets and projects

Unlike his predecessor, Zoellick has decided not to suspend financing as a result of the current investigation. The Bank’s health portfolio is to receive greater oversight in the form of comprehensive audits and performance reviews by independent agents. Zoellick has instructed INT “to make it a priority to investigate the findings of the implementation review to pursue the evidence for legal action.”

Shortly after the release of the report, the head of INT resigned. Suzanne Rich Folsom had been appointed by Wolfowitz, and was one of the key figures in the storm of controversy that surrounded his departure (see Update 56). Many Bank staff felt that Wolfowitz had used Folsom and INT to selectively target staff or programmes in countries where it suited US foreign policy interests. Bea Edwards of US NGO Government Accountability Project which carried out a review of INT, said: “The Bank and INT staff deserve a new director who is truly committed to an anti-corruption agenda and experienced in conducting investigations and protecting witnesses.”

After Folsom’s resignation, the Bank announced end January that it would implement all of the recommendations of the panel which reviewed the performance of INT. Named after the former US Federal Reserve chair Paul Volcker who acted as its head, the panel was critical of the Bank, finding that its “tendency to shrink from confrontation with borrowing countries” is reinforced by a culture “that favours seeking out lending opportunities” rather than responding to countries’ needs (see Update 57). It suggested the creation of an independent advisory board to ensure the accountability of INT. The Bank has said that INT will now work more closely with main operations and will need to be more transparent about its policies and practices.

“Duplicitous” dealings in Kenya

Accusations have been levelled at the Bank that it is too close to the corrupt ruling party of Mwai Kibaki in Kenya. Amidst widespread allegations of vote-rigging in the recent Kenyan elections which led to violence, Bank country director Colin Bruce appeared to side with Kibaki. A leaked memo from Bruce, citing “confidential oral briefings and documents” from UN officials, insisted that the announcement of a Kibaki win was correct. UN officials in Kenya and New York have denied that they had provided an assessment endorsing a Kibaki win. Bruce lives in a house owned by the Kibaki family.

Kenyan opposition candidate Raila Odinga’s party sent a formal letter of complaint to the World Bank, saying that Bruce “seems to believe that a quick fix in favour of Kibaki is a solution”. Sir Edward Clay, former British ambassador to Kenya, said that in his experience the World Bank was “duplicitous” in its dealings with Kenya. “It seemed clear they were concerned to protect their budgets and projects, irrespective of the bad management by the government of its own people’s resources,” he added. The Bank has stood by Bruce, insisting the memo was no more than one in a series of “snapshots” of the situation in Kenya.

IFI watchers will remember that this is not the first time that the IFIs have been criticised for taking sides in a political struggle. In 2002 the IMF’s external relations director welcomed the short-lived Venezuelan administration headed by Pedro Carmona, whose administration was installed as a result of a coup against elected leader Hugo Chavez (see Update 28).