World Bank must face the corruption music

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.