JP/7/MILLER

World Bank's integrity in combating corruption

John M. Miller Team Leader (April 1998 - April 2002) Project Coordination Office Sulawesi II Urban Development Project Jakarta

In his desire to tell everyone how diligent the World Bank is in combating corruption in Indonesia, Country Director Mark Baird (The Jakarta Post, Sept. 12) forgot a few facts. As a consultant who has worked in Indonesia for almost 20 years, including four years on the Sulawesi Urban Development Project which he cites, I would like to add the following.

The World Bank has long been a willing partner in the corrupt system which Baird somewhat hypocritically decries. The Bank's mantra has always been "push money", and projects have been rated on how effectively they do this pushing. Never mind that Sulawesi II may have been poorly designed and prepared.

Add a few other complications like the monetary crisis, newly decentralized local governments, three reorganizations of the Executing Agency (EA, which was formerly the Ministry of Public Works; now the Ministry of Settlements and Regional Infrastructure) and 18 teams of consultants in four provinces and 40 cities. There were also numerous staff changes at all levels of government, three loan cancellations requiring re-programming of the remaining loan amount, overall financial chaos with investment lists (DIPs) available in October and only two months left for implementation, etc.

Clearly, this was a setting in which many mistakes were made, and at one point the Bank threatened to close the loan if disbursement were not accelerated.

Not that these problems, common to many projects I'm sure, excuse the dismayingly high incidence of outright corruption and shoddy work. Baird didn't mention, however, that the Bank has known this for years. In about 1995 an internal Bank report estimated that about 30 percent of the loan-assisted urban development budget was siphoned off through various means.

The Bank assured the EA that its review was not targeting Sulawesi II, but selected it as a large project with a full range of situations representative of projects throughout the country. There would be no actions taken concerning Sulawesi II, as this was a study only.

This was Big Lie No. 1, conveyed through Baird's letter of March 13, in which he said "I suggest that the Government of Indonesia consider halting disbursement for expenditures until remedial actions have been agreed."

This vacuous pronouncement completely baffled the EA. Indeed they considered that they wanted to implement the program as newly planned, and considerable effort was expended in identifying and instituting "remedial measures". But then the EA was hit with Big Lie No. 2.

The Bank didn't care about the remedial measures, and wanted the entire program halted except for a handful of physical works needed to complete several unfinished projects. Only about $900,000 of the remaining loan funds would be used, with the rest canceled.

The Bank's Fiduciary Review team found indications of an alarming number of unacceptable (or probably unacceptable, as their report frequently states) occurrences of malfeasance. Their draft report, issued on April 22, summarized these findings, but provided no details as to which particular problems were found in which particular contracts, so that the EA could not check them on their own, as they certainly wanted to do.

With characteristic arrogance and obfuscation, the Bank's officers declared that these findings were confidential, and the EA would just have to trust that these findings were accurate. The EA was dumbfounded, believing that they would surely be given the opportunity to know the full details.

The FR report also criticized the EA and consultants for not reporting on problems and issues. In fact, the project was audited by the Supreme Audit Agency every year, providing detailed information on findings similar to the FR's.

However, the FR ignored these audits, which should have been its beginning point. The Aides Memoire (reports) of the Bank's supervisory missions (twice a year) were chock full of problems and issues, and detailed Action Plans were made to resolve these.

In 1998, the Bank conducted a Topical Review which included Central Sulawesi and also identified contracting problems and irregularities. The FR ignored all of this data as well, apparently wanting to be seen as the group "uncovering" project malfeasance.

The original loan closing was Dec. 31, 2001, but with about $9 million left and good progress in the previous two years, the Bank's Task Manager assisted in preparing an implementation program for an extension to Dec. 31.

In addition to the usual program of physical works, to fulfill project goals concerning management, cost recovery and environmental enhancement, two special teams were formed. One would provide management and technical assistance to local water firms (PDAM), based on the Bank's successful PDAM Recovery Program.

A second team would address the problem of inadequate management of solid waste disposal sites and sludge treatment facilities. Both areas were major goals of Sulawesi II UDP. Other activities concerning environmental improvement and community development were also planned.

My attempts to discuss the importance of the non-physical works with Baird and Ani Gupta were stonewalled. I only hope that the Institutional Integrity Department has indeed made its name out of the ashes of Sulawesi II.

Clearly the Bank felt that it wasn't really so important to improve the management of PDAMs, solid waste disposal sites and sludge treatment facilities. After years of not having the integrity to even admit the problem publicly, the Bank now has integrity! Now if only they could improve their transparency and be a little less arrogant.

It looks like the Bank's department of institutional integrity could use a few checks and balances also, so in their zeal to establish themselves they don't desiccate another project.