Still Waiting - World Bank failes to alleviate poverty

Ecologist, The, Sept, 2000 by Bruce Rich

In the summer of 1997, the consequences of years of Bank complicity in the corruption of its major borrowers finally began to surface in Russia and Indonesia. Business Week alleged that "at least $100 million" from a $500 million Russian coal sector loan was either misspent or could not even be accounted for. Noting that the Bank was preparing a new half-billion dollar loan for the Russian coal sector, Business Week observed that "World Bank officials seem surprisingly unperturbed by the misspending. They contend offering loans to spur change is better than micromanaging expenditures." A little over a year later the Financial Times estimated the amount stolen in the coal sector loan to be much higher, as much as $250 million.

In the case of Indonesia, Northwestern University professor Jeffrey Winters alleged in a Jakarta press conference in July 1997 that shoddy accounting practices by the World Bank had allowed corrupt Indonesian officials to steal as much as 30 per cent of Bank loans over the past 30 years -- a mind-boggling total of over $8 billion. At about the same time, the Bank's Jakarta Office commissioned an internal study of corruption in World Bank lending programmes to Indonesia. But the findings and recommendations of the study, which confirmed many of Winters' charges, were never acted on by World Bank senior management, and Wolfensohn learned of the existence of the report only in July 1998 a year after its completion. In the 15 months after the publication of the report, the Bank committed and disbursed over $1.3 billion more to Indonesia without any effective measures to contain the "leakage" detailed in the study. In October 1998, with plans to commit and disburse two billion dollars more over the next nine mont hs a second Bank mission, headed by Jane Loos, recorded the following:

Our mission confirms earlier reports on corruption in Indonesia: that it is pervasive, institutionalised, and a significant deterrent to overall growth of the economy and effectiveness of the Bank's assistance... there is significant leakage from Bank funds... Bank procedures/standards are not being applied uniformly... The [World Bank] auditing requirements have been allowed to deteriorate into a superficial exercise...

The full consequences for development effectiveness of the inability to root out the 'culture of approval' were spelled out in an unusually candid re-evaluation of the entire 30 year record of the Bank in Indonesia conducted by the OED and circulated internally (and leaked to the press) in February 1999. The Bank for years had touted Indonesia as one of its great success stories ("widely perceived within the Bank to be a miracle and a symbol of the Bank's success"), but the OED report concludes that reluctance to offend a major borrower, a refusal to address corruption, and a dysfunctional internal Bank culture that punishes staff for identifying problems that could slow down lending all contributed to the propagation of what the original draft of the OED report called the "myth of the Indonesian miracle". (The final report omitted this phrase in response to the objection of the Indonesian Government.) The OED report rates Bank and Indonesian government achievements as only "marginally satisfactory" for the past three decades, contradicting numerous previous evaluations of Bank involvement in Indonesia as a leading example, at least relatively, of development effectiveness.