World Bank Cuts Off Aid To Chad in Oil Dispute

By Paul Blustein
Washington Post Staff Writer
Saturday, January 7, 2006

World Bank President Paul D. Wolfowitz announced yesterday that he is suspending all of the bank's aid to Chad, taking a hard line in the first major test of his pledge to fight corruption.

The move followed a serious setback in a controversial oil pipeline project for Chad that the bank had trumpeted to show how it could help African nations use their natural resource wealth honestly and effectively. In numerous previous instances, such wealth has been squandered or stolen.

The bank agreed in 1999 to help finance the 650-mile pipeline, which enables landlocked Chad to export its oil, on the condition that most of the revenue go into a special fund in London to be used for projects such as schools and health clinics benefiting Chad's poor. But the Chadian government recently insisted on taking more of the money for its own purposes, including strengthening its security forces, despite the bank's objections.

Wolfowitz said he acted after speaking by phone with Chad's president, Idriss Deby, for 45 minutes Tuesday and two hours Thursday. "There did not seem to be any movement in their decision to amend the law that was the basis of the 1999 agreement, and until we can come to a better understanding, we have to suspend disbursements on World Bank loans to Chad," Wolfowitz said.

Wolfowitz emphasized that "this is not the end of dialogue or the end of negotiations," and that "our actions can be reversed anytime we reach an agreement with Chad." He voiced sympathy for Deby's complaints that the country has serious security problems from the inflow of refugees from neighboring Sudan, which is riven by civil strife. But especially since the government has yet to satisfactorily explain how it has spent the money thus far, Wolfowitz said, he was obliged to counter Chad's "breach" of the pipeline deal.

The situation in Chad has presented Wolfowitz with an acute dilemma six months after taking the bank's helm and pledging to put a high priority on the bank's anti-corruption initiatives. Chad tied with Bangladesh for the worst corruption rating among nations in a 2005 survey by Transparency International, an organization that monitors corruption worldwide. Allowing the Deby government more access to unmonitored oil revenue, bank officials fear, would simply lead to more waste.

But the bank usually refrains from cutting off loans to countries except in extreme circumstances because the poor in those countries would presumably bear the brunt of the pain. Moreover, Chad presents serious geopolitical concerns; a collapse of the government could cause the country to join some of its neighbors as a failed state and haven for terrorists, a matter about which Wolfowitz, a former deputy secretary of defense, is keenly aware.

Under the actions announced yesterday, the bank will freeze about $124 million that was due to be disbursed on projects in Chad over several years, and it will also halt new loans and grants. The bank also had the right to demand accelerated repayment of $41 million that Chad still owes on the pipeline loan, but Wolfowitz did not invoke that penalty.

The bank is one of Chad's major sources of support, but the government has received about $300 million annually in recent years in various forms of aid from donors including the U.S. and French governments, the European Union, the African Development Bank and the International Monetary Fund. Wolfowitz declined to speculate on how other donors may react.

"We're not offering them any recommendations one way or another," he said, although he is asking them to prod the Chadian government to take the situation seriously and engage in negotiations.

Given the situation on the Sudanese border, he added, "it may in fact be an argument for, in the right circumstances, some donors considering additional assistance."

Wolfowitz's decision was praised by Ian Gary, a policy adviser for Oxfam America who is a longtime critic of the pipeline. "The World Bank did what it needed to do," he said.

He asserted, however, that the debacle shows that the bank should refrain from funding similar projects in the future.

"This has been rightly seen as a major test case of whether World Bank involvement in a project like this could achieve the poverty reduction that we all want to see," Gary said.

In Chad's capital of N'Djamena, Oil Minister Nasser Mohammed Hassan said the government plans to issue a statement today , the Associated Press reported.

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