Washington Post Editorial Gets it Wrong on the Volcker Report on Corruption and the World Bank; Financial Times Does Better

September 17, 2007

A Washington Post editorial today ( A Fight Over Corruption ) says that the new report by former Federal Reserve chairman Paul Volcker on the effectiveness of the World Bank's anti-corruption department, (the Institutional Integrity Department or INT)) "reserved its toughest language for the bank bureaucracy itself." The editorial then quotes from the report:

"For much of the Bank's history, the impact of corruption on development generally, and on the Bank's lending operations in particular, was not faced squarely . . . .There was then, and remains now, resistance among important parts of the Bank staff and some of its leadership to the work of INT."
Equating resistance to INT with alleged reluctance to combat corruption is an odd conflation of the present and the long-ago past, before Jim Wolfensohn raised the flag of anti-corruption in the early 1990s.The Financial Times had an entirely different and better-informed take on the situation in its editorial (Zoellick's Challenge (registration required)) on Thursday, September 13:
"What is clear is that the anti-corruption unit had a dysfunctional relationship with the rest of the Bank". .. and"Less sensible were Mr. Volcker's comments to the Financial Times, in which he seemed to endorse the line that World Bank staff were never serious about dealing with corruption."
So are World Bank bureaucrats serious about dealing with corruption, or do they see it "as a sideshow in the struggle to reduce poverty" to use Washington Post language? My guess is they are serious and more so today than ever. But they know all to well there is a tradeoff between a no-tolerance approach to anti-corruption, and "doing development"—a tradeoff that they feared Ms. Folsom, the controversial head of the department appointed there by Mr. Wolfowitz, refused to admit. This is NOT the kind of tradeoff that the Bush Administration saw for Iraq reconstruction, when it issued sole source contracts to Halliburton to get on with the job. This is the kind of tradeoff that Bank staff see when they are discussing a health project in India that will save children's lives—but fear there are untraceable and unverifiable patronage appointments that might infect the new effort. Or as the tradeoff they see when infrastructure companies become so afraid of ad hoc prosecution that they refuse to bid on much needed projects in Africa, as my colleague Vij Ramachandran has noted (Global Development: Views from the Center: Poverty Matters Most: A Comment on the Volcker Report).Moreover the real issue is not the less than 1 percent spent in most borrowing countries on World Bank- financed investments. It's the other 99 percent that countries spend of their own taxpayers' resources—and in the poorer countries of other creditors' and donors' resources. As Dennis de Tray has said: "Ring fencing a Bank project is like putting a burglar alarm in one among thousands of houses. The bad guys will just go elsewhere but they will still be bad.." In other words, ring-fencing Bank projects from corruption is not an anti-corruption strategy.Bob Zoellick has a chance to lead on this issue. He has been wise to try to satisfy the press that is hungry for a story, note that "stealing from the poor is not acceptable", endorse the reasonable recommendations of the Volcker report, and move on. Bank staff are likely to understand that approach. But now the real work begins: providing leadership inside the Bank on the bottom-line issue of dealing with the tradeoff—and protecting Bank staff from the useless and misguided accusations that they are not willing to face the corruption problem.When that task is accomplished, perhaps the next President of the U.S. will want Zoellick's help in dealing with corruption in Pentagon contracts for Iraq.


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