Wolfowitz's Corruption Agenda

By Sebastian Mallaby
Monday, February 20, 2006

Nine months into his tenure as president of the World Bank, Paul Wolfowitz has made headlines mainly by provoking a staff backlash. Neoconservative commissars are seizing control! (Actually, Wolfowitz has a grand total of four Republicans in his entourage.) The World Bank's agenda is being hijacked by a Bush man! (Actually, Wolfowitz has resisted the Bush administration's bad policies on debt relief and climate change.) The previous World Bank president, James Wolfensohn, made no secret of his intention to blow up the institution when he arrived in 1995. Wolfowitz's accession has been comparatively mild, but his reputation as the architect of the Iraq war colors the response to him.

Meanwhile, the staff backlash is obscuring something interesting. In the past few months, there have been hints of fresh thinking on corruption. Now the evidence has reached critical mass: The change appears to be genuine.

First, a bit of context. The World Bank used to avoid all mention of corruption, believing it should stay out of "politics." This was absurd: The bank had long been telling borrowers how to structure their budgets -- a clearly political subject -- and corruption can't be separated from the bank's development mission. Then, with the arrival of the bomb-throwing Wolfensohn, things began to change. Wolfensohn denounced the "cancer of corruption" in 1996; and the bank's even bomb-happier chief economist, the Nobel laureate Joe Stiglitz, gave speeches attacking the narrow economic understanding of development and proclaiming the centrality of politics.

Speeches are one thing, action quite another. The Wolfensohn bank developed state-of-the-art corruption indexes, which are now used by the U.S. government to identify which countries deserve extra foreign assistance; it created a department to investigate malfeasance in bank projects. But the anti-corruption unit was understaffed and ineffectual, and the bank did not build on Wolfensohn's cancer talk by cutting off corrupt borrowers consistently. Excuses were found. Lending frequently continued.

In a series of tough decisions, some of which have been widely reported and some of which have not, Wolfowitz has challenged this culture.

The bank has held up $800 million in lending to Indian health projects. This is a vast sum, and India is one of the bank's most formidable clients: It borrows a lot, has a good economic record and tells development organizations to get lost if they behave condescendingly. But Indian politicians were said to have their hands on the health funds, so Wolfowitz blocked the loans anyway.

The bank has frozen lending to Chad, whose government had reneged on a promise to spend its oil revenue on poverty reduction. Although Chad is a small country, the frozen loans were high-profile: They were an attempt to defy the "curse of oil" and make petrodollars serve development. It took some courage to admit that the curse of oil remained unbroken.

The bank has canceled 14 road contracts in Bangladesh because of corrupt bidding. Two government officials have since been fired, and Wolfowitz plans to ban the private firms involved from future World Bank contracts.

The bank has frozen five loans to Kenya because of corruption, though it did go ahead with a project to improve Kenya's financial management. On a recent stopover in London, Wolfowitz made a point of having dinner with John Githongo, a senior Kenyan official who left the country after issuing a report exposing cabinet ministers' corruption.

The bank has interrupted a project in Argentina that topped up the wages of poor workers. Some of the money seems to have greased the ruling Peronist Party's electoral machine before elections in 2003, and the government has brought charges against one senior official and fired 10 others. The bank's Argentina team responded by building in a few corruption safeguards and pressing to resume lending. But Wolfowitz has demanded that the safeguards be expanded further still. The project has yet to be reauthorized.

Finally, the bank has postponed debt relief for Congo. A team from the International Monetary Fund had certified that the country deserved relief, and the bank was supposed to fall in line last Thursday. But a newspaper report about the Congolese president's extravagant hotel bills was passed around by Wolfowitz's top staff, who noted that KPMG, the firm that audits Congo's state oil company, had refused for three years running to sign off on its financial statements. On Tuesday Wolfowitz called the IMF's boss and asked whether Congo really merited debt relief. On Thursday he refused to go ahead with it.

In sum, Wolfowitz's World Bank presidency, which had seemed to lack an organizing theme, has acquired one. The new boss is going to be tough on corruption, and he's going to push this campaign beyond the confines of the World Bank; on Saturday he persuaded the heads of several regional development banks to join his anti-corruption effort. It's amusing to see the Wolfensohn-Stiglitz left-liberal critique of narrowly economic development policy being championed by this neoconservative icon; and it's encouraging as well. After a decade of stagnant aid budgets in the 1990s, the rich world's development spending is finally expanding. Using the money effectively has become doubly important.

mallabys@washpost.com


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