Global Policy Forum

By Gabriela Bocagrande

On May 13 of this year, Richard Lugar, the Republican Chairman of the Senate Foreign Relations Committee, convened the first hearing on Combating Corruption at the Multilateral Development Banks (MDBs). Summoned to defend their respective institutions, Carol Brookins of the World Bank and Hector Morales of the Inter-American Development Bank (IDB) cordially thanked the Chairman for calling the meeting on such a troubling and important topic, while citing the plethora of bureaucratic steps the Banks had taken to fight theft, fraud, and malfeasance.

Brookins, the U.S. Executive Director at the World Bank and member in good standing of President Bush's Leadership Team, appeared first. A ghastly Washington type, with kabuki makeup and dead hair, she showed up in a tight, bright purple suit to explain the many ways in which the World Bank now works directly with poor people and their communities, making sure that your hard-earned U.S. tax dollars get to them instead of draining off into the pockets of klepocratic dictators with Swiss bank accounts. She told the Committee that she felt "quite passionate" about this, but she neglected to mention even general estimates of the percentage of World Bank funding that actually goes to the poor rather than to the official kleptos, for reasons we'll get to shortly.

Before landing at the World Bank, Ms. Brookins was the CEO of World Perspectives, Inc. a Washington-based consulting firm that advises corporate agricultural clients on how to influence U.S. policy and make as much money as possible on the trade of basic foods, such as wheat, corn, and soy beans, in the international market. Not exactly a humanitarian pursuit. Even so, she seemed seized by an inexplicable impulse to tell the truth about the World Bank when she quoted James Wolfensohn, its President: "Frankly, there is not enough bold and consistent action on corruption, particularly at the higher levels of influence."

This is undoubtedly correct, and we are not likely to get much action out of her or the rest of this crew, either. Morales, the U.S. Executive Director at the IDB, testified next. Mr. Morales, a jolly, stocky man, declared, "The IDB has made significant strides with respect to institutional anti-corruption issues. Progress is being made on creating an institutional culture that promotes transparency." At the recent annual meeting of the IDB in Lima, however, Mr. Morales and the U.S. Executive Director's office hosted a breakfast meeting with the Business Council on International Understanding (BCIU) to flog the Bush administration's efforts to foster a "more business-oriented approach to the Bank's activities." In the parlance of the MDBs, a business-oriented environment will include weakened labor standards (in those places where there are some), unfettered pollution capability, and no taxes. According to its website, "Membership in BCIU brings an impressive array of opportunities to brief-and to be briefed by-senior U.S. Government officials, Ambassadors, and leaders throughout the world. Through these partnerships and activities, BCIU helps to enhance the business success of members while improving U.S. Government assistance to international business." Inquiries to ascertain the cost of joining the Council on International Understanding or securing an invitation to the Lima breakfast briefing were fruitless, which is not very transparent, don't we agree?

Here's an idea. As part of the new anti-corruption and transparency crusade Mr. Morales is kicking off at the IDB, he himself might tell us who sat down to the BCIU breakfast in Lima, how much they paid for their muffins, and what the Latin American government representatives present agreed to do in order to help enhance business success in their immiserated and debt-ridden countries. But these chummy breakfast briefing arrangements are not what Ms. Brookins and Mr. Morales understand as corruption. These are "Public-Private Partnerships," or a new paradigm that seeks to "...improve the environment for the domestic private sector, and to build confidence and trust between all partners and the providers of finance for development." The partnerships are not graft, bribes, and shakedowns, for heaven's sake. If you ask Ms. Brookins or Mr. Morales, actual theft is much more clear-cut and you know it when you see it.

Take for example, the case of Arnoldo Aleman, the now-incarcerated ex-President of Nicaragua. Mr. Alemn has gone to jail for corruption because, among other things, he appropriated food donated to the destitute victims of Hurricane Mitch and sold it at market prices in local stores. This was an extremely stupid thing to do. There was no feasible way to present that deal as a public-private partnership, not even for the World Bank's seasoned PR people. Then there was Ernesto Samper, ex-President of Colombia, whose political campaigns were financed by narcos. The tapes about the funding sources surfaced at newspaper offices in Bogota. Also very bad and not subtle. The World Bank and the IDB now tell us that they have "zero-tolerance" for this sort of malfeasance. Of course they can afford to say this now because neither Aleman nor Samper happens to be president of anything any longer.

This is a small detail, but we can't help noticing that neither the World Bank nor the IDB had any particular difficulties dealing with Aleman or Samper when they were in positions to sign and accept loans. On the contrary, they were treated so royally they could hardly squeeze in the breakfast briefings, working lunches, cocktail receptions, and awards dinners planned for them by the likes of the BCIU.

Well, thank God that's over. The MDBs have really tidied up. If you don't believe me, you can look at the World Bank's new anti-corruption Web page, where you will find instructions on what to do if you confront fraud and corruption in WB projects. You can call, fax, or e-mail the Department of Institutional Integrity. You can call collect or anonymously to the World Bank Alertline at Corporate Place in Charlotte, North Carolina (I don't know about you, but I personally don't feel comfortable phoning in a corruption complaint to something called "Corporate Place"). Your complaint, however, should include: Specifically what wrongdoing you are reporting; specific dates and time; specific location where wrongdoing occurred; how the individual or firm completed the alleged wrongdoing; why the individual or firm perpetrated the offense; why you believe the alleged activity was misconduct; what physical evidence or documentation exists to corroborate your allegations; other witnesses to the alleged wrongdoing; how you can be reached for further information.

But wait. This sounds like our old friend Catch-22. You're going to need a lot of info to file a complaint about corruption, but neither the World Bank nor the IDB is going to give it to you. At the IDB, the public has not been privy to project evaluations for the past 45 years. Nor were project status reports public. Nor technical reports in many cases. An evaluation of a decade of IDB projects in Argentina, when boatloads of public money simply disappeared, has been in the drafting for the past year, but no one outside the Bank has had a peek. Those inside have promised that the report will never see the light of day. While the IDB has a new and slightly more enlightened disclosure policy this year, it is not retroactive. According to External Relations there, reports written on the "presumption of non-disclosure" cannot be released now. That would not be fair. Also it would be embarrassing and probably incriminating. And in many cases, the policy of non-disclosure is still in effect. One $500 million loan to Argentina, for instance, made a year or so before the great collapse in December 2001, is described on the IDB Web site in two paragraphs. That's it. No contact person, no responsible government agency, no goals, no timeline, and no budget.

At the World Bank, things are not much better. Let's take a specific case, shall we? How about the World Bank loan for about $2.5 billion to the government of Argentina in 1998? Under the terms of this loan, the World Bank would deposit $2.5 billion in the Central Bank of Argentina, essentially to prop up the Argentine peso, convertible to dollars on a one-to-one exchange, by showing that the country had the reserves necessary to cover its dollar obligations. Once the borrowed World Bank dollars were deposited, large investors and private banks could quietly withdraw their pesos from national banks, convert them to dollars one-to-one, and spirit the capital out of the country before the exchange rate imploded. In order to keep up its end of the deal, the crooks and cronies running Argentina had to guarantee that certain social programs for the extremely poor would be protected from the budget cuts they were about to enact in order to repay this and countless other bogus "loans." Citing this requirement for social program protection, the World Bank frequently claims that it's shielding the poor from economic crisis, even while imposing fiscal austerity and bailing out the rich. But the relative amounts for the rich and poor are telling.

One of the protected social programs was called "Pro-Huerta" (Pro-Garden). It graciously provided "... nutritional support to those poor who are classified statistically as having unsatisfied basic needs [Bankspeak for "hungry"] by assisting them to maintain small vegetable gardens to produce food for their own consumption." Presumably, if they are caught selling the vegetables, their gardens are plowed under and their hoes are confiscated. The project had a 1998 budget of $11 million with which to finance gardens for 2.5 million of the "absolutely poor"-less than $5 a year per person. This amount was subsequently cut to $4 million in 1999 and then eliminated, in violation of the loan condition. So let's see-$2.5 billion are for the banks and $11 million are for the gardens. Whoops, make that $4... oh, well, looks like zero.

A group of the hungry pulled themselves together and blew the whistle when the World Bank wrote the billion-dollar checks to the government even though Pro-Huerta was paved over. When questioned about the complaint, Management at the Bank said that although Pro-Huerta had suffered a budget reduction, the government was making efforts to sustain the program and that the Bank was therefore obliged to deposit its billions in Buenos Aires. The Bank also wished to know the identities of the complainants because if they remained anonymous, it would not be possible to ascertain whether they had been harmed by the Pro-Huerta cuts. Curious. Although the World Bank houses a team of crack international economists, the specialists are apparently unable to determine whether or not someone who lives on less than one dollar a day has been harmed by the loss of her vegetable garden.

When investigators from the World Bank looked into the matter and a hold-up on loan funds loomed, they found that the government of Argentina suddenly scraped up an extra $1.5 million for Pro-Huerta that it located in "lottery revenues." Plus, they got $3 million from somewhere else, which, according to the investigation, "Bank Management was not aware of." So in the matter of the gardens, the program continued with $8.5 million in financing for about 2.8 million people, a cut of about $2.5 million. The ignorant complainants in the case had not been aware that extra money had been located for their gardens. They noted that "...Management has not made available to them relevant information on the execution of the Program."

All they seemed to know was that their vegetable plots no longer existed.

Thus, the government of Argentina met the conditions for the $2.5 billion loan, private banks and investors, got their pesos out of the country as dollars before the great crash, and the World Bank could continue to promote itself as a Pro-Huerta institution that fights poverty "with passion and professionalism." A year later, of course, the currency did collapse, the Central Bank could not cover its dollar obligations because all of the dollars were now gone, private banks shut their doors, and when they reopened, the peso was exchangeable at a rate of more than three-to-one. Through this gross national transaction, small-scale depositors lost about 70 percent of their savings between 2001 and 2002. Also, as taxpayers, they found themselves on the hook to repay the $2.5 billion loan with interest.

And here is the real bite. All of this was perfectly legal, although someone should probably try to find out where the $1.5 million in lottery revenues really came from. Our guess is that it came out of the Pro-First Grade project, or the Pro-Vaccinations for Babies program.

There's more. The IDB made a similar loan to Argentina for $500 million. Except that in this case, the country never even got the dollars. When Mario Cafiero, an Argentine Congressman, met with the Office of Institutional Integrity at the IDB to discuss filing a complaint, he asked the Integrity Officer on duty if he could see the documentation on the loan.

The Officer said that he didn't think so, but he wasn't sure. The Chief Integrity officer wasn't around; he had been detailed to the U.N. for a month. Cafiero pressed further: What kind of documentation was a complainant entitled to see about the project or loan in question? The Integrity Officer didn't know this either. Apparently no rules have been established yet. Under the current operating principle, no additional documents on a loan can be released without the consent of the borrowing government, even to a member of the government, such as a Congressman.

After Senator Lugar's hearing on corruption at the development banks, his office issued a press release stating that over $100 billion in World Bank funds may have been diverted through corruption. That's a lot of money. Why, you could almost pay for a frivolous American war with that. The MDBs dispute the figure. Their tactic is to try to position themselves as "fighting corruption" rather than funding it. They want to be seen as part of the solution, rather than part of the problem. Ms. Brookins and Mr. Morales declared publicly at the hearing that anyone with a suspicion about fraud or corruption in their banks' operations should report it immediately. These two are going to get to the bottom of it. And this is certainly true. They are surely not going to get to the top.