Can the World Bank lend money without hurting?

The decision by the World Bank (WB) cancelling the $1.2 billion credit for building a bridge in Bangladesh has so far been successful in yielding its expected results.

The Government of Bangladesh has been visibly weak in its reaction and the WB’s decision caught them off guard. Reaction by the ministers proved it as well (The Communications Minister commented that the decision by the Bank was like a thunder without rain while the Finance Minister said that it was WB’s President Zoellick’s personal comment!). Moreover, the issue has become a political one. The decision was like a ‘Shock and Awe’ with a spectacular display of force by the Bank that has paralysed Bangladesh government’s perception and destroyed its will to fight. Latest, Bangladesh’s Finance Minister AMA Muhith termed the Bank’s decision on the Padma bridge project ‘unexpected’ and ‘disgraceful’ and has urged the global lender to review its decision.

But the Bank had been trying to position itself in a fashion so that its global image changes in course of time. And the decision on 30 June, 2012, by the Bank cancelling the credit for construction of Padma bridge saying it had “credible evidence” of a high-level corruption conspiracy among Bangladeshi government officials was not actually a sudden one. “In light of the inadequate response by the government of Bangladesh, the World Bank has decided to cancel its $1.2 billion … credit in support of the Padma multipurpose bridge project, effective immediately,” the World Bank said in a statement.

However, in spite of the growing number of conspiracy theories in Bangladesh’s public sphere, the World Bank’s spin is likely to get a punch globally as the Forbes’ Richard Behar writes, “With its $57 billion aid portfolio, muddled objectives and failure to contain corruption, a decade of reform efforts have done little to fix the World Bank.” (A detail is available on Forbes’ web site http://www.forbes.com/forbes/2012/0716/feature-world-bank-robert-zoellick-too-big-to-fail.html).

Not only the Forbes, the WB itself found out some interesting outcomes in one of its internal evaluation. The Bank’s own Independent Evaluation Group (IEG) in a report stated that the International Development Association (IDA), the arm of the Bank that makes grants and interest-free, long-term loans to poor countries across the world, ‘lacks effective safeguards against corruption’ (Full report is available on http://web.worldbank.org/external/default/main?noSURL=Y&theSitePK=1324361&pagePK=64253958&contentMDK=22142204&piPK=64252979 ).

The report released in mid-April of 2009 concluded that IDA that had been offering over $10 billion to governments in Africa, Asia, Latin America, and Eastern Europe in forms of lending or grants, did not protect its funds adequately from ‘theft and diversion’. I am presenting a synopsis from Bea Edwards’ article “World Bank Corruption” (Washington, DC: Foreign Policy In Focus, May 21, 2009; http://www.fpif.org/reports/world_bank_corruption ):

“The report was published at a time when the G20 had called on the Bank to step up its lending to cope with the global economic crisis. With such streamlining of loan and grant approval, there’s an even greater chance of corruption escaping detection. However, the IEG report was buried deep in the Bank’s website. The crucial section about failure on anti-corruption measures was buried deeper still in Volume II, Annex D. According to the IEG review, project designs of the Bank did not address the risk of fraud, nor did guidelines for project supervision, financial management or procurement. Although the Bank’s lending to bridge the gaps in national budgets requires assessments of fraud and corruption, real safeguards were lacking.

In short, the depth and breadth of the accountability weaknesses exposed at IDA were alarming and the report showed what precisely the management had not done:

  • Basic project and lending documents don’t include a requirement to assess the risks of fraud and corruption;
  • Safeguards against corruption don’t exist for budget support loans, perhaps the most vulnerable of IDA funds;
  • Staff members haven’t been adequately trained to recognize signs of corruption in projects; performance appraisals include incentives to report corruption;
  • Management routinely fails to take timely actions to follow up on audit, investigatory, and evaluation findings of impropriety.”

The World Bank knows very well about its global image in the public domain. In Bangladesh, the Bank is not viewed as mere a bank and its decision on the Padma Bridge will be a matter of close scrutiny in the days ahead in terms of its likelihood to alter public perception towards it. The Bank also knows that its decision to pull out of the bridge project would create image crisis for Bangladesh and might impact on foreign aid in future. But how far the government will be smart enough in dealing with international organisations like the World Bank? Bangladesh’s recent stance on fleeing Rohingya from neighbouring Myanmar has caused a major image crisis globally. And now the blow from the World Bank causes global image crisis as well as political ramifications for the government in power. Some critics of the Bank may question if it could lend money without hurting the people especially those who want to get rid of poverty and become self reliant. However, such criticism of the Bank may console some, but will not heal the scratch on the Bangladesh’s shattered image.  The point is very clear. It is a diplomatic debacle for Bangladesh. So, it will not bring anything good by blaming the Bank now even if the Bangladesh government cries for concrete evidences of corruption. Its rather Bangladesh’s image which has been tarnished and the lesson learned from such a huge experience should not be forgotten. Some may also argue that the Bank’s commitment to support Bangladesh’s development has been compromised by the decision which they could actually postpone instead of cancelling it. Such argument underpins that the approach of engagement of both the side demands further thought.

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