Although the World Bank's new president, Robert Zoellick, has pledged to make rooting out corruption a priority, the institution continues to flail over the issue.
The bank's governing board this month blocked a $232 million loan for road-building in the Philippines because it felt bank staff hadn't fully handled corruption issues in reviewing the loan -- and hadn't briefed Mr. Zoellick on the proposal. Investigators had uncovered evidence that China State Construction Engineering Co., a state-owned company, was involved in bid-rigging on an associated loan program, bank officials said.
While it isn't a formal requirement that every board recommendation be shown to the president, bank officials said that such consultation would have made sense, given the turmoil the bank has undergone trying to deal with graft.
The board rejection represents a slap at the staff and indicates continuing divisions within the bank. A September report by former Federal Reserve Chairman Paul Volcker said that the bank wasn't prepared to respond "promptly and effectively" to findings of corruption.
The Philippine loan is the first major project involving corruption issues to come to the board since Mr. Zoellick became president July 1, according to bank officials. The World Bank's board represents the institution's 185 member nations. The bank's president is chairman of the board, as well as CEO of the institution.
Dealing with corruption has been divisive within the bank for years. The previous president, Paul Wolfowitz, was known to block or delay loans to poor countries suspected of graft. But in doing so he alienated many of the bank's staff and board members, who complained he was penalizing impoverished nations for the sins of contractors. Staff protests helped spur Mr. Wolfowitz to resign earlier this year.
Mr. Zoellick has sought a less confrontational approach, looking to get bank investigators to work more closely with bank departments that make loans. The softer touch may have created problems. The World Bank's East Asia department didn't inform him of its plans to seek board approval of the Philippines loan, despite unresolved graft issues. During a board meeting held in his absence, a European representative asked the staff members why they had used an expedited-approval procedure "when the president was out of town," said a participant.
Staff member James Adams, the bank's vice president for East Asia, said in an interview that he wasn't trying to go behind Mr. Zoellick's back. Rather, he said his department had worked closely with fraud investigators, added a variety of anticorruption measures to the Philippine project and believed the loan was ready for board approval. "Far from obscuring issues, we dealt with them directly," he sai
Mr. Zoellick declined comment. The episode played out in two meetings around Nov. 1 while Mr. Zoellick was traveling in South Asia. He was notified about the rejected Philippines loan after the second meeting, said a World Bank spokesman. At that time, "he made clear that project won't go back to the board unless and until the questions raised are answered," said the spokesman.
The World Bank road-construction project was designed to build asphalt-paved routes between cities in the Philippines. Around 2000, the bank approved a $150 million road-construction loan, but the project moved slowly amid years of corruption scandals and the government's difficulty in establishing a national road authority.
China State Construction Engineering Co. won a $5.6 million contract under the program in 2002. In 2003, World Bank investigators began to suspect that the company had tried to rig bids with a cartel of construction firms in two other road contracts, valued at $33 million.
Officials in China State Construction's U.S. subsidiary said Friday that they had no information regarding the World Bank investigation. Company officials in Beijing couldn't be reached.
From 2003 to 2006 the World Bank rejected three successive rounds of bidding involving China State Construction because of "strong signs of collusion and excessive pricing," a bank official said.
China State went on to win about a dozen other road-building contracts in the Philippines by 2005 as part of a consortium with several other Chinese firms, according to Philippine government reports.
The World Bank's antifraud unit has long been at loggerheads with departments that make loans. But in the Philippine road-construction case, said a spokesman for the fraud unit, investigators worked closely with the East Asia department on the investigation of China State Construction's contracts and in designing new anticorruption measures, including a citizen watchdog group called "Road Watch," to monitor future projects.
Around 2006, the bank was putting together a second phase of the road project, which was to be partly financed by a $232 million World Bank loan, although corruption concerns hadn't eased. "Corruption is a major issue in the [road-construction] sector, ranking as one of the worst in the country," said a World Bank analysis of the second-phase project.
The fraud unit had completed its investigation of the contracts -- and concluded that China State was involved in bid-rigging -- by the time the East Asia department asked the board to approve the second-phase financing at the end of October.
The 24-member board refused to authorize the project, arguing that the corruption issues in the first phase of the project hadn't been resolved and that Mr. Zoellick hadn't been apprised of the loan request. Representatives of the U.S. and Canada took the lead in raising the objections, said World Bank officials.
Mr. Adams, the East Asia department chief, said the department will seek an analysis by officials from outside his department into how his unit handled the loan issue.
Fraud-unit officials were dispatched to Manila to brief Philippine officials of the completed investigation and gauge their response. The board's decision is likely to be an embarrassment to Philippines President Gloria Macapagal Arroyo, who has pushed for the project and who has been under fire over alleged government corruption...
New World Bank President Robert Zoellick has notoriously decided to continue his predecessor Paul Wolfowitz's emphasis on stamping out the scourge of graft and corruption. Zoellick played a role in nixing a $232 million road-building project in the Philippines by the China State Construction Engineering Company over evidence of bid-rigging. No one ought to be surprised by this tainted deal between the notoriously corrupt Philippines and China which isn't that far behind. Still, the matter is unlikely to improve relations between Zoellick and Bank staff who disliked Wolfowitz's emphasis on fighting corruption. Are developing countries indeed being punished by the sins of contractors which have engaged in corrupt practices? Bank staff believe that their input was simply disregarded on governance matters. The beat goes on. From the Wall Street Journal: