Shape up or lose funding

Emad Mekay

The US Congress is considering a new bill that would condition its funding of the world’s multilateral development banks on reforms, transparency, anti-corruption measures and future oversight. Introduced by U.S. Senate Foreign Relations Committee Chairman Dick Lugar, the bill calls for changes in how business is conducted at the five multilateral development banks: the World Bank, the African Development Bank (AfDB), the Asian Development Bank (ADB), the Inter-American Bank (IDB), and the European Bank for Reconstruction and Development (EBRD). It includes several important policy reforms and comes amid a growing chorus of accusations of corruption and mishandling of funds administrated by the public lenders. Civil society groups that monitor the banks have been struggling for years to win approval for more rigorous oversight. The legislation would authorise 3.7 billion dollars of funds to three of the five MDBs: 2.85 billion dollars to the World Bank’s International Development Association (IDA), an arm that lends to the very poorest countries at subsidised rates, 407 million dollars to the AfDB, and 461 million dollars to the ADB.

“Far too often, projects intended to boost economic development are derailed by corruption, and the poor suffer, unable to realise projected benefits in quality health care, clean water and education,” said Lugar, who has been leading efforts at the US Congress aimed at ending corruption at the banks. The proposed law requires that the U.S. Treasury Department and the investigative arm of the U.S. Congress, the Government Accountability Office (GAO), take broader measures, including issuing regular reports that gauge the MDBs transparency and track the implementation of the proposed reforms. Watchdog groups welcomed the bill and said it was a step in the right direction. The bill calls for a host of transparency measures, including publishing transcripts of meetings of the banks’ boards of directors, as well as grant documents, country assistance strategies, and sector policies plans prepared by the banks’ staff.

If passed, the law would force the institutions to ensure that employees do not abuse their positions for personal gain, to improve the quality and oversight of development bank loans, and to strengthen whistleblower protections. It requests better audits, especially in projects connected to the extractive industries, like oil, gas and mining. “Bribes can influence important bank decisions on projects and contractors and misuse of funds can inflate project costs, cause projects to fail, and undermine development effectiveness.” Corruption has become a global issue as developing countries, watchdog groups and some economists complain that multilateral development banks are mishandling vast sums of money intended to alleviate poverty, yet taxpayers in the borrowing countries still have to repay the banks.

The US, the world’s largest economy, contributes more than one billion dollars a year to the banks, with a majority of that money going to the World Bank. Since 1960, the United States has provided more than 42 billion dollars in direct contributions to the MDBs. — IPS