JP/7/MILLER

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.