World Bank must face the corruption music
By Jeffrey A. Winters
CHICAGO, Illinois (JP): At the end of July 1997, the World Bank's country director, Dennis de Tray, and the vice president for East Asia and the Pacific region, Jean-Michel Severino, issued an angry press release denying that a large portion of the bank's loan funds routinely leaked into the hands of corrupt officials in the Indonesian government.
They were responding directly to a media conference in Jakarta which revealed that several World Bank officials estimated in interviews that roughly a third of the money provided by the bank was stolen.
In his zeal to defend the World Bank and his own role as Indonesian country director, de Tray characterized the media conference as dishonest, saying it had "misrepresented" the bank's work on behalf of the Indonesian people. Severino said the bank had checked the accusations and had "found nothing to support such an estimate". This in itself was odd because it was the bank's officials themselves who did the estimates.
The denial from these two top World Bank officials was a calculated effort to mislead the public about the bank's collusive relationship with the Soeharto government. It was full of claims that were not only false, but carefully worded to deflect criticism and accountability away from the bank.
The bank's press release said it was "demonstrably untrue" that so much money was being stolen and bank staff "know exactly" where loan money went.
The truth is that the bank could not "demonstrate" anything because its staff never bothered, in their decades of work in the country, to collect the sort of information that would be needed to show exactly where the money was going. It was part of a global pattern of "don't ask, don't tell" of the bank.
The release also made the following false claim: "We do not tolerate corruption in our programs. On this principle there is no compromise." The fact is precisely the opposite, which is why Wolfensohn has felt pressured to hire a team of forensic accountants to find out how much corruption has been tolerated in the past.
In the release, Severino was so eager to silence any criticism of the bank's role in facilitating corruption by doing nothing about it that he even praised the Soeharto government as a model partner in development.
"We have had a small number of projects rated unsatisfactory," he allowed, "but Indonesia retains one of the best records of successful project implementation of any of our client countries across the developing world."
The release from these two high-ranking bank officials was like a giant squid squirting ink into the water. They felt there was danger, and they did not want anyone to be able to see clearly.
Slightly more than a year has passed since these misleading statements were made, and it is no longer possible for de Tray and Severino to credibly spout such empty praise. Thanks to a secret document leaked by a conscientious staff member of the bank, we now know the accusations in the 1997 media conference did not "misrepresent" the bank's operations in Indonesia.
As top officials of the bank in Washington, D.C. and Jakarta were issuing false denials in their media releases and public statements, others inside the system were drafting confidential memoranda supporting the estimates of staggering corruption of bank funds.
Most recently in the pages of The Jakarta Post, de Tray and Severino spoke up again on the topic of corruption. But this time the tone was different. Instead of outrage over accusations that bank funds were being stolen, they sheepishly said the whole issue of corruption raised "awkward questions".
These included how could so much bank money disappear into private pockets? According to Severino and de Tray, finding this out is not "what really matters", but instead everyone should focus on what a big problem corruption is in Indonesia and start working to solve it.
De Tray and Severino offer the same old World Bank response -- solve it through yet another structural adjustment loan. When I showed this to a former World Bank official who spent most of his career witnessing systematic corruption in the bank's projects, his response was to call the move "pathetic".
"It's evident we still have a way to go", he added, in getting World Bank officials to confront corruption seriously and honestly.
A structural adjustment loan to Indonesia from the bank gives the false impression that the problem of corruption lies with Indonesia and with other client countries.
In fact, the problem is also inside the bank itself, in its procedures, culture, arrogance and unwillingness to take responsibility for protecting the money it lends, especially in places where the population receiving the debt has virtually no hope of protecting it from military-backed dictators.
The bank can try to structurally adjust Indonesia, but who is going to structurally adjust the bank?
It is irresponsible and disingenuous of the bank's officials to cover up past practices by urging everyone to be forward- looking and solution-oriented.
For the ordinary citizens of Indonesia who will have to pay back the country's debt for decades to come, it is understandable if they might want to slow down and determine first whether the amount stolen was 20 percent, or 30 percent, or even higher.
As the ones who must repay the debt from the sweat of their labor, the Indonesian people have a right to know how much the bank's staff knew about leakage into the bureaucracy and how long they knew it.
Total World Bank loans to Indonesia as of the fall of Soeharto in May were nearly $30 billion. If one-third of this money did not go to Indonesian projects but was instead diverted into private pockets and private bank accounts, and if World Bank officials knew this was occurring, then the Indonesian people should have their debt burden reduced by almost $10 billion.
Put another way, if the World Bank allowed corrupt officials to steal roughly $10 billion in sovereign loan funds and even praised the country as a model client, then it should be up to the World Bank to track down and recover the corrupted funds.
The bank let them take the money, so it should be the bank's responsibility and burden to get it back. If the Indonesian people only received 70 percent of each development dollar from the World Bank, then why should they have to pay back 100 percent plus interest? Who had the power to stop the stealing and corruption?
Citizens who criticized government officials faced intimidation or worse, and thus their silence and inaction was understandable. But what excuse does the World Bank have for its silence and inaction?
It is time for the bank's officials in Jakarta and Washington, D.C. to stop grandstanding, issuing misleading statements and trying to change the subject to avoid culpability.
The fight against corruption should start at home for the bank, and it means recognizing that for decades the leadership at the World Bank actively cooperated with the Soeharto regime even though they knew a significant portion of the money delivered for development was being stolen.
The initiative to forgive $10 billion in World Bank debt for Indonesia should come from the bank itself.
But if the bank tries to shirk its responsibilities and does not take the lead, then the Indonesian people would be completely justified if they refused to honor the $10 billion in debt they never received.
The writer is a professor in political economy at Northwestern University in Chicago.
Window: As the ones who must repay the debt from the sweat of their labor, the Indonesian people have a right to know how much the bank's staff knew about leakage into the bureaucracy and how long they knew it.