Emad Mekay

The World Bank has lost about 100 billion dollars slated for development in the world’s poorest nations to corruption since 1946, nearly 20 per cent of its total lending portfolio, according to a US Senate committee. “It is critical that every development bank dollar reaches its intended recipient,” said Sen Dick Lugar, chairman of the Senate Foreign Relations Committee, on Thursday. “Unfortunately, that is not happening as corruption remains a serious problem.” A World Bank spokesman vehemently disputed the estimate. “We completely reject the figure offered by one of the panellists,” said Damian Milverton.

Corruption has become a global issue as developing countries, watchdog groups and some economists complain that poor nations lose huge funds from multilateral development banks (MDBs) like the World Bank because of misuse of money. Yet taxpayers in those borrowing countries have to still to repay the banks. The estimates emerged at the first in a series of oversight hearings into the anti-corruption efforts of the World Bank and other MDBs, which include the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, and the European Bank for Reconstruction and Development. Manish Bapna, executive director of the Washington-based watchdog group Bank Information Centre (BIC), said corruption threatens the core mission of those banks: poverty alleviation.

Corruption can undermine the development impact of the banks’ projects, for example, if contractors use diluted cement in civil works like road-building, officials permit illegal timber harvesting in restricted forest areas, or grant profitable public contracts to well-connected cronies of government officials.

Another example mentioned at the hearing is a project in Lesotho, Africa. Last year a court there convicted the director of the Lesotho Highland Water Authority, as well as two international contractors who had paid bribes, of corruption in the awarding of contracts. The World Bank financed part of the project. Professor Jerome I Levinson of the Washington College of Law at the American University suggested there is a remedy for such actions. The bank says its list of barred companies and individuals now includes 90 names. He noted that such projects are usually financed or administered through an auxiliary of a parent company, which is created just to carry out a particular project and then dissolved once the work is completed. That parent should be held responsible for any corrupt activities, he added.

Some of the witnesses also urged multilateral banks to ensure that funds released for non-specific purposes are not subject to corruption, and suggested audits of how that money was eventually spent, admitting that last step could prove difficult.

Carole Brookins, the US executive director to the World Bank, told the hearing that combating corruption and building good governance have been major priorities of the Washington-based institution since 1996. The US contributes more than one billion dollars a year to the banks, with a large majority of that money going to the World Bank’s International Development Association, which lends to the very poorest countries at subsidised rates. — IPS