The World Bank Battles the Cancer of Corruption

By Sweeney, Paul | Global Finance, October 1999 | Go to article overview

The World Bank Battles the Cancer of Corruption


Sweeney, Paul, Global Finance


ance minis ters, central bankers, and policymakers from 181 countries gather in Washington for the annual meetings of the World Bank and the International Monetary Fund, corruption will take its place on the agenda as a thorn equal to the usual crises of debt, poverty, and environmental damage.

Corruption is not new, but there is increasing evidence that the level of embezzlement, gangsterism, money-laundering, graft, and crony capitalism is raging unchecked in the developing world.

The revelation that Russian gangsters allegedly laundered as much as $10 billion through the Bank of New York follows the claim that Bosnian mayors and leading party officials stole up to one-fifth of the $5 billion sent by international donors to rebuild the region. Meanwhile, Indonesian government officials, including President BJ. Habibie's brother, are alleged to have accepted bribes to transfer $80 billion lent to the government to Bank Bali, a private institution.

"Huge international capital flows have meant an absolute boom in the amount of money entering emerging countries," says Frank Vogl, vice chairman of Transparency International, a watchdog agency based in Europe. "There's no question that this phenomenon has fueled grand corruption in a major way.'

Since he declared corruption an intolerable cancer" in 1996, World Bank president James D. Wolfensohn has won plaudits for bringing the issue to the center of the international stage.

"For him to mainstream an anticorruption policy was very difficult; he had to use tough tools to get this organization on board," says Peter Eigen, chairman of Transparency International and a former vice president at the World Bank."He has taken a lot of risks.There are quite a number of people in the bank who may not want to change their approach to corruption."

This approach has at times entailed tolerating corruption as "the grease that turns the wheels of commerce" in emerging nations. Although the US Congress enacted the Foreign Corrupt Practices Act in 1977 to crack down on this sort of dishonest activity, the rest of the world has been slow to follow. It was not until this year that Germany stopped allowing corporate bribes as tax deduction. France is still to follow this move.

Corruption is now seen as capable of hindering economic growth and investment while exacerbating poverty, debt, and environmental degradation. In Africa many analysts blame corruption and nepotism for the lopsided distribution of wealth and civil wars.

The World Bank's corruption fighters point to evidence that removing corruption has improved a nation's economic well being. Russia sits at number 76 on Transparency International's Corruption Perceptions Index, with a score of 2.4 on a scale of 0 to 10. Daniel Kaufmann, senior manager of the World Bank's governance, finance, and regulatory reform group, says halving the level of corruption would see per capita income, at least double, perhaps quadruple.

Moreover, such a reduction in corruption would lead to "a comparable decrease in infant mortality and to about a 20% improvement in adult literacy."

This type of evidence on the benefits of good governance places governance at the center of the development agenda," Kaufmann says.

To fight corruption, the bank will spend $3 million on anticorruption measures under Wolfensohn's leadership. Much of this funding will promote corporate and civic governance. In a signal to other businesses, this year five companies have been debarred after the bank found that they had violated procurement guidelines.

The bank's Sanctions Committee, formed in 1998, recently blacklisted UK-based Case Technology and Dutch consultancy Nepostel, both of which had bid on a telecommunications network for the Central Bank of Turkmenistan. The bank has also targeted $5 billion of its record $29 billion in lending to finance civil service reforms, improve legal systems and tax administrations, and teach the journalists of developing nations how to expose corruption. …

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