Friday, July 25, 2008

World Bank Shots on Corruption

THE WORLD Bank is nothing if not persistent. In recent weeks, the bank has announced low-interest loans of $320 million apiece to Bangladesh and Vietnam, despite their awful corruption records.

Since May, Bangladesh's military-backed government has arrested an estimated 12,000 people without charge and confined them to overcrowded prisons. Human Rights Watch reports "well-documented patterns of torture and mistreatment of detainees." The government has cancelled plans for a December election over the objections of the two main political parties, whose leaders have also been in and out of jail.

None of this has deterred the bank from going forward with a $200 million "transitional support credit," which it says the government needs to deal with rising commodity prices and last year's Cyclone Sidr. There is also a $120 million "power sector development policy credit" that will "support the government's overall power sector reform program." The bank justifies these loans partly on account of the "impressive economic and social gains" it claims Bangladesh has made, and partly because it thinks more money would actually help address the corruption problems.

For a reality check, the bank might have consulted its own experts. According to the bank's internal data on "governance indicators" in Bangladesh, measures of government effectiveness, political stability, "voice and accountability," regulatory quality and control of corruption all declined between 1998 and 2007. A report from Transparency International reaches similar judgments.

Under former President Paul Wolfowitz, the bank cancelled 14 road contracts in Bangladesh after evidence came to light of corrupt bidding. But with Mr. Wolfowitz gone, bank lending to the country under President Robert Zoellick has doubled in the past year alone, to $753 million.

Vietnam, too, has seen its cut of World Bank funds rise by more than $1 billion since 2004, to $4.1 billion this year. Mr. Zoellick is a particular fan of the country, having made Hanoi his first foreign port of call after coming to the bank last year. The bank's latest bequest consists of a $150 million budgetary support credit similar to the transitional credit given to Bangladesh. Another $170 million will go to something called the Northern Delta Transport Development Project.

This new cash is flowing despite a confidential 2007 report by the bank's anticorruption unit (INT) about two corrupt roads projects in Vietnam. In the $232 million Road Network Improvement Project -- which remains active today -- bank investigators found that "over one-half of the contracts reviewed were confirmed to have indicators of irregularities in contract procurement."

Bid-rigging, collusion and fraud also marked Vietnam's $110 million Second Rural Transport Project. This case is particularly striking because the precursor project, known as RTP1, had already been investigated by INT, which found the usual indicators of corruption. No matter. The bank is now moving ahead with RTP3, for an additional $106 million.

This corruption might be less objectionable if the projects had at least resulted in better roads for the poor. The INT found otherwise. "Inferior materials and little or no compaction gave the embankments little chance of surviving flood conditions," it reported about a road in Long An Province. In hilly Quang Binh province, "instances of poorly implemented drainage indicated poor supervision and testing regimes and/or possible corruption."

A bank spokesman says the latest Bangladesh loans will be "heavily focused on tackling critical and long-festering weaknesses in core governance functions," and there are the usual anticorruption bells and whistles in the Vietnam projects. That is what the bank always says. The problem is that it also always resumes lending, regardless of the track record, so the borrowing countries know there is no penalty for misusing bank money.

A year into his tenure, Mr. Zoellick has yet to suspend a single loan on account of corruption. #

First published in The Wall Street Journal, July 23, 2008; Page A16

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