World Bank Disgrace

If governments around the world are rife with all sorts of corruption, doesn’t it logically follow that world organziations (the World Bank Group, IMF, United Nations)  — made up of appointees of those governments and citizens of those countries — are mere reflections of that corruption, the sum of their parts?

In any event, here are two recent articles from the Wall Street Journal on corruption at the World Bank:

World Bank Disgrace
January 14, 2008; Page A12

Credit Robert Zoellick for knowing how to put the best face on a profound embarrassment. On Friday, the World Bank president announced in a press release that the bank had “joined forces” with the government of India to “fight fraud and corruption” in that country’s health sector. This is happening at the same time that Mr. Zoellick’s colleagues are hounding bank anticorruption chief Suzanne Rich Folsom, the person primarily responsible for bringing the scandals to light.

Corruption is an endemic problem in bank projects, swallowing unknown but significant chunks from its $30 billion-plus annual portfolio. No less a problem has been the bank staff’s ferocious resistance to anything that might stand in the way of its lending ever more money to projects run by the same governments that tolerate this malfeasance.

Yet nothing we’ve seen so far can compare to what has now been uncovered about five health projects in India, involving $569 million in loans. The projects were the subject of a “Detailed Implementation Review,” a lengthy forensic examination undertaken by Ms. Folsom’s Department of Institutional Integrity, known within the bank as INT. As of this writing the bank has not publicly released the review, though it’s been shared with the bank’s board. But we’ve seen a copy and are posting its executive summary on wsj.com/opinion and OpinionJournal.com (click here to see it). We are also posting photographs that show the real price that corruption in bank projects exacts on the poor. Here are some of the lowlights:

• In the $54 million “Food and Drug Capacity Building Project,” for which money is still being disbursed, the INT found “questionable procurement practices, some of which indicate fraud and corruption, in contracts representing 87 percent of the number of pieces and 88 percent of the total value of equipment procured.” That is nearly $9 of every $10 in aid funds.

• For the $194 million “Second National AIDS Control Project,” the INT discovered that “some of the test kits supplied by particular companies often performed poorly by producing erroneous or invalid results, potentially resulting in the further spread of disease.”

• In the $114 million “Malaria Control Project,” the review found “numerous indicators of poor product quality in the bed nets supplied by the firms.” And in the $125 million “Tuberculosis Control Project,” the INT discovered “bidders sharing the same address and telephone numbers, unit prices showing a common formula, and indicators of intent to split contract awards among several bidders.”

• After visiting 55 hospitals connected to the bank’s $82 million “Orissa Health Systems Development Project” (Orissa is one of India’s poorest states), INT investigators found “uninitiated and uncompleted work, severely leaking roofs, crumbling ceilings, molding walls, and non-functional water, sewage, and/or electrical systems.” It also found “neonatal equipment that lacked adequate electrical grounding, potentially exposing babies and their medical staff to electrical shocks.”

All this would be bad enough if Indian companies or officials were making off with ill-gotten gains behind the backs of World Bank staff. Instead, the INT found evidence of the bank repeatedly looking the other way. In the case of Orissa’s 55 “hospitals,” the INT found that the “construction management consultants (CMCs) who supervised the work certified that 38 of these hospitals to be complete to project specifications.” In the AIDS Control Project, “the bank appeared to pay scant attention to the performance and quality of the goods supplied to the blood banks and testing centers, instead focusing on the number of such facilities being erected.”

The report goes on in this vein for hundreds of pages. With the exception of Paul Volcker’s investigation of the U.N. Oil for Food scandal, we can think of no comparable review of an international organization that has brought such damaging facts to light, certainly not one that was internally conducted.

Yet not only does Mr. Zoellick’s press release fail to praise INT’s dogged achievement, it ignores Ms. Folsom altogether. It does, however, give pride of place to bank managing director Ngozi Okonjo-Iweala, who was recently hired by Mr. Zoellick and is quoted as saying she is encouraged by the Indian government’s “strong resolve” to deal with corruption.

We’ll believe that resolve when we see it. Such promises would be more credible if Mr. Zoellick took meaningful steps to hold accountable those in the bank who acquiesce in this corruption. Former President Paul Wolfowitz showed real spine when he stopped lending to a related Indian health project after a previous INT investigation uncovered fraud. Yet lending to Indian health projects resumed the moment he departed last year. We wonder, for example, what this now-documented Indian corruption means for the career of Praful Patel, who has been running the bank’s South Asia operations since 2003, and for Managing Director Graeme Wheeler, who until recently oversaw Mr. Patel’s work. Instead of accountability for these supervisors, the bank offers up the Orwellian contrivance by which Ms. Folsom has been whited-out from this story, like the proverbial vanishing commissar.

The foreign aid lobby sometimes says that corruption is the inevitable price of “doing good” in the developing world. Our online readers should look at the photographs of hazardous laboratories and sewage overflowing in hospitals, and wonder how anyone can make that case with a clear conscience.

World Bank Purge
January 18, 2008; Page A12

The World Bank on Wednesday announced the resignation of Suzanne Rich Folsom as director of its anticorruption unit, or INT. “She was not forced out, she was not asked to leave,” said external relations chief Marwan Muasher. That’s one way of putting it.

Ms. Folsom is, in fact, leaving the bank of her own accord for a private-sector job, having recently completed a devastating report on $569 million worth of corrupted bank projects in India. But this is a story of a resignation by a thousand cuts. Along with her top deputies, Glenn Ware and Allison Brigati, Ms. Folsom departs having survived years of relentless vilification by a bank staff and even senior leadership determined to undermine her anticorruption efforts.

In recent months alone, bank bureaucrats sought to put Ms. Folsom on administrative leave and curtail the INT’s mandate. Failing that, they colluded with an unofficial “review” of the INT, intended to force Ms. Folsom out, by a left-wing shakedown operation called the Government Accountability Project. That failed too. Then in December, they seized on an anonymous email against Ms. Folsom to launch an inquiry into whether, for example, her department was too severe in its performance reviews of junior employees and similar “managerial” transgressions.

All of this might seem farcical were the stakes not so high. If the India report and others we’ve disclosed are anything to go by, at least some of these loans will go to projects in which nine of 10 dollars are either squandered or stolen by corrupt officials and middlemen, and where filthy, half-built hospitals are certified as completed to project specifications. That ought to matter to a “bank” that purports to have the interests of the world’s poor at heart and whose annual lending portfolio tops $30 billion.

Yet rather than seek to better monitor their own projects for signs of fraud, bank officials have repeatedly colluded with aid recipients to hush up corruption findings and continue to lend to miscreant governments. An official review of the INT last year by former Federal Reserve Chairman Paul Volcker explained the dynamic: “There is a natural discomfort among some line staff, who are generally encouraged by the pay and performance evaluation system to make loans for promising projects, to have those projects investigated ex post, exposed as rife with corruption, creating an awkward problem in relations with borrowing clients.”

In his review, Mr. Volcker gave “high marks” to Ms. Folsom and her team and urged that INT be “nurtured and maintained as an exemplary investigative organization.” Instead, the INT has now been gutted with the departure of Ms. Folsom and her top aides. President Robert Zoellick has appointed an interim chief and the bank promises a search for a capable successor. But that search will be all the harder because Mr. Zoellick failed to provide Ms. Folsom with covering fire in recent months, refusing even to acknowledge her by name in last Friday’s self-congratulatory press release on the India report.

That press release promised a list of actions to fight corruption in India, including “enhanced transparency” and “community score cards.” These are essentially the same promises the bank always makes when its projects are exposed as corrupt, usually to zero effect. Speaking of transparency, we’re pleased the bank has finally seen fit to release the India report, albeit in a link buried in its Web site. Some in the press reported yesterday that the bank had released it last Friday. That’s false. The India report became public only after we obtained a copy and posted the executive summary on our Web site on Monday.

Mr. Zoellick has also pledged that the Volcker report on INT “points the way towards what has to be done.” He would have more credibility on this score had he not permitted his own bureaucracy to blow up the INT, thereby sending the message that whoever seeks to lead the anticorruption office will be treated like an alien invader who must be purged if he does his job.

Mr. Zoellick would also have more credibility if bank employees see that the officials responsible for the Indian and other corruption debacles are held accountable. That includes Praful Patel, who has been running the bank’s South Asia operations since 2003; Managing Director Graeme Wheeler, who until recently oversaw Mr. Patel’s work; and James Adams, the vice president for East Asia who gave a pass to corrupted projects in Cambodia and the Philippines.

At least Ms. Folsom, Ms. Brigati and Mr. Ware leave the World Bank with their honor intact.