The Hindu Business Line : The Wolfowitz muddle

In September 2006, loans to the order of millions of dollars, to countries such as India, Kenya, and Bangladesh, were suspended by Mr Paul Wolfowitz, World Bank President, on evidence of corruption in the execution of the funded projects.

The Bank, over the years, has developed a reputation for being more interested in meeting its lending targets than checking what happens to the funded projects. Mr James Wolfensohn, the former Bank President, brought into the open the issue of corruption and poor governance in the borrowing countries that affect the projects being funded. The Department of Institutional Integrity, set up in 1999, investigates corruption in not only the funded projects , but also any misconduct by the Bank own staff.

Mr Wolfowitz was leading the charge to stop leakage of Bank funds and to ensure that the purpose for which funds were provided was actually achieved. Intrigued by news reports that funds were suspended, I asked for clarification from the Bank. I was told that the three projects suspended in India include a Reproductive and Child Health Project, a National Tuberculosis Project and the Karnataka Health Systems and Reform Project, adding up to $672 million (Rs 3,024 crore).

Strong Action

The Advisor, Communications, World Bank, replied to me that `serious deficiencies in procurement' were found in these projects (which means somebody was lining their pockets) and in response to the Bank's concern, the Government of India took `strong action' (which probably means that a few officials were transferred) and the projects were later approved.

Hurrah. Appearing among the top of the world's league tables on corruption had not galvanised New Delhi into action over the years, only the World Bank's threat to suspend funds had. The Bank even provides a hotline for people to report fraud. It has also initiated measures to recover funds that have been diverted. If more such multilateral agencies do this, a serious dent could be made on public corruption in the developing world. One estimate puts corruption costing Africa $150 billion (Rs 6,75,000 crore) a year.

Transparency, the Key

Research shows that transparency can do a lot of good in cleaning-up corruption. Under the glare of sunlight, the worms seem to crawl away and hide elsewhere.

When rules are made clear, documents made available for public scrutiny, budgets made public, bidding made open, and so on, officials find it difficult to take their cut, or favour those they want to. It is no surprise that the world's leading anti-corruption evangelist is called `Transparency International'. In the spirit of transparency, the World Bank even began providing photographic evidence on its Web site of projects that fell short of what was intended.

I recall seeing a picture of a road in a country built with the Bank's assistance that is in reality much smaller than what was reported on paper. The cost of the difference went into somebody's personal bank account. In a sense, the Bank was providing evidence of how its money was being misused.

`The Arrangement'

That same spirit of transparency has now come back to question the integrity of Mr Wolfowitz himself. In the scandal currently plaguing him, it turns out that he was influential in getting a lavish pay increase and promotion for an employee of the Bank with whom he was romantically involved.

The employee was working at the Bank even before 2005, when Mr Wolfowitz was appointed. In order to circumvent Bank rules on conflict of interest, it was agreed, with him as part of the terms on which he joined, that she would temporarily work in the US State Department. Her pay would however come from the Bank as she was moving at its behest. All nice and ethical and above board you may say.

However, the cushy terms he got her, significantly different from what others were entitled to, were kept under wraps till one Bank employee anonymously complained to the directors. (The bank's definition of corruption, namely, private gain from public office, applies here too.) The press got wind of it, and now the bank's chief corruption fighter is spending all his time denying his culpability. The Bank's directors are still trying to make up their mind about what to do.

While the US administration, with its head as usual buried in the sand, says it supports him strongly, everyone else wants him to go. Even if his infraction is relatively minor, it is difficult for an institution to push against corruption when its head is personally guilty of the same.

Mr Wolfowitz, who was a Deputy Secretary in the US Department of Defence, was widely credited to be one of the main architects of the administration's decision to go to war in Iraq.

When the war started going badly, he is said to have managed to exit by getting himself nominated as the Bank President, a right reserved for the US administration. In the same stubborn manner in which he pushed for war, he seems to have pushed his policies and views at the Bank, creating a thriving club of those who want him out anyway.

Wrong, yet again

This is not the first time the Bush administration got its objective right but chose the wrong person to lead the charge. Obsessed about the need for reform at the UN, Mr George Bush nominated John Bolton as the US Ambassador to the world body, in the hope that he would be able to do some cleaning-up.

Mr Bolton's abrasive style and personality ruffled so many feathers that he resigned in 2006, faced with the prospect of US Senate Committee not confirming his appointment. The net result was that reform at the UN has taken a back seat; nobody seems to have the will or the inclination to lead a fresh charge.

History has repeated itself with the appointment of Mr Wolfowitz . On the one hand, the Bank is admired for its research expertise and global reach in tackling poverty; its push on corruption is particularly noteworthy. On the other, it is accused of suffering from a bloated and well-entrenched bureaucracy, and employingarmies of consultants, almost doubling its staff strength, crying out for a fresh review of its objectives and methods to achieve them.

There is no denying that both the UN and the World Bank could do with some internal reform and shake-up of their systems and procedures. It would be a pity if that objective gets lost in the Mr Wolfowitz muddle.

(The author is a professor of international business and strategic management at Suffolk University, Boston, US. He can be reached at cgopinat@suffolk.edu)

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