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World Bank Fired Wolfowitz to Hide Corruption: Former Official

By    |   Friday, 08 August 2008 11:40 AM

Senior officials at the World Bank have admitted that the firing of former Bush administration official Paul Wolfowitz as World Bank president was a scheme to block an unpopular anti-corruption campaign he had championed, a former World Bank official told Newsmax.

“The stuff about his girlfriend was all contrived,” former World Bank official Steve Berkman told Newsmax. “It was a mini-scandal people at the Bank used to nail him.”

Senior World Bank managers and board members “didn’t like this guy from the get-go,” Berkman said. “He was going counter-current to the World Bank bureaucracy.”

Berkman has just published an expose of corruption, “The World Bank and the Gods of Lending,” based on his 16-year experience auditing World Bank projects, particularly in Africa.

The “gods of lending” in the title is a reference to the international bureaucrats who run the Bank, and believe “they can do no wrong,” Berkman writes.

“They have created the myth that they are at the ‘cutting edge’ of development, while they hide the appalling number of failures within the Bank’s portfolio — failures that enrich the government elites of the Third World while creating mounds of debt that cannot be repaid.

“It is this single truth that exposes the hypocrisy of the whole business: the Bank pretends it is lending for noble purposes, while the borrowers pretend they will put the money to good use.”

Instead, Berkman writes, World Bank funds are regularly “placed in the hands of officials with a history of looting national treasuries.”

Corruption is so rampant, it swallows a minimum of 10 percent of the more than $20 billion the Bank disperses every year, and probably as much as 25 percent to 35 percent of total lending, according to internal Bank estimates, Berkman said.

Wolfowitz attempted to tackle corruption in World Bank projects virtually the day he took office as Bank president on June 1, 2005, accelerating the efforts begun by his predecessor, James Wolfensohn.

In July 2005, Wolfowitz suspended an $800 million loan to health sector projects in India because of allegations of corruption. “That was the beginning of his downfall,” Berkman told Newsmax.

Wolfowitz was responding to a 600-page internal World Bank report on the India loans, the product of a year-long effort by a 75-member team of investigators, many of whom interviewed suppliers and project managers in India.

“What they found was rampant corruption in all five projects they investigated,” Berkman told Newsmax.

The report found shell companies that were paid by the Bank for goods and services that were never delivered. They found tainted pharmaceuticals bought by the Bank and distributed to the public, as well as bribes and kickbacks being paid at the most senior levels of government.

But instead of attempting to rectify these problems, Bank management “went on the attack when somebody came to us with information,” a former World Bank official involved in the India corruption investigation told Newsmax in a separate interview.

“For example, there was a doctor who came to us because the AIDS testing kits the Bank was buying were faulty and producing bad results. Rather than address the issue, the Bank staff issued a fierce denunciation of the doctor’s personal credibility and went on the offense” against him, the source said.

In another egregious example, Bank officials certified that a hospital built with Bank funds had achieved all the benchmark results. But when the investigators went to visit the project, all they found was a hole in the ground.

At the time, India was the Bank’s largest customer. When Wolfowitz ordered the suspension of the health sector loans to India, senior Bank officials showed “no inclination to take appropriate steps to safeguard resources,” the former official who was involved with the India loan suspension told Newsmax.

Instead, they practiced “denial, denunciation, and eventually collusion in the effort to stop any investigation.”

The World Bank country director for India at the time, Michael Carter, told National Public Radio that the loan suspension took him by “complete surprise,” and that Wolfowitz’s approach to dealing with the corruption allegations in India was “seriously flawed.” (Mr. Carter has since retired from the Bank.)

“The India example is particularly interesting because it refutes many of the objections that were commonly raised against the anti-corruption efforts,” Wolfowitz told Newsmax in response to questions about the loan suspension.

Wolfowitz said that his critics claimed that by holding up a follow-on loan until problems in an earlier loan program had been fixed, he was “depriving the poor of needed health care.” They also accused him of basing the loan suspension on U.S. political considerations.

India was indeed a close strategic partner of the U.S. and a great example of a successfully developing democracy, Wolfowitz said. “But that didn’t make it right to turn a blind eye to corruption in World Bank “health” loans that were actually making people sick.”

India was not the only country whose World Bank-funded projects were rife with corruption. “There was a pattern,” another former World Bank official told Newsmax. “It was Kenya, Uzbekistan, Chad, and others.”

During his tenure, Wolfowitz suspended loans to these countries, as well as other projects in Bangladesh, Yemen, Congo and Argentina, because of allegations of widespread corruption.

The appointment of Wolfowitz angered the NGO community as well as World Bank employees. Some 1650 non-governmental organizations voiced “strong opposition” to his nomination, while a survey of World Bank staff conducted in April 2005, shortly before the Board approved his nomination, found that nearly 90% were opposed to his appointment.

Wolfowitz was forced to resign as president of the World Bank last year after allegations that he had engineered a sweetheart deal at the Bank for a woman to whom he was romantically tied.

Wolfowitz argued that he had properly sought guidance on the woman’s employment contract from the Bank’s human resource department, and followed it to the letter.

The contract terms were spelled out in an agreement signed by the vice-president of human resources — who later claimed he had objected to the deal. “There were a thousand people at the Bank earning what Shaha [Aliriza] was going to make,” a former aide to Wolfowitz said.

But Berkman says his sources at the Bank told him unequivocally that senior Bank management and members of the board used the flap over Aliriza’s employment as a pretext to get rid of Wolfowitz.

“Nothing would surprise me,” Wolfowitz said, when Newsmax asked for his reaction to this latest accusation.

In his groundbreaking book on the World Bank, Berkman provides dozens of examples where high-minded development projects turn into a “feeding frenzy” for “rent-seeking” government officials and their cronies in the Third World.

In 1998, for example, he was sent to the tiny West African country of Gambia to investigate a $12.3 million project aimed at helping farmers.

Burning shoe leather in the capital, Banjul, he visited suppliers who had been paid hundreds of thousands of dollars for equipment they never sold, and confronted government officials who tacitly admitted to the kickback scheme.

Although the project was supposed to provide direct assistance to farmers, he found that World Bank project managers had approved the disbursement of “huge sums” on “frivolous and illegible procurement.”

The project billed the Bank for hundreds of thousands of dollars of office furniture, vehicles, lodging, fencing, air conditioners and household furnishings, for which there was little accounting and no direct use by those the project was intended to benefit.

In all, Berkman found $8 million of questionable purchases — 65 percent of the entire project total — while few farmers received much assistance.

He called the Gambia program “death by a thousand cuts” because of the sheer number of schemes used successfully to siphon funds from the Bank into the pockets of government officials and their cronies.

At the conclusion of this dizzying narrative of malfeasance, Berkman nevertheless argues that the World Bank should be kept alive, if it can be redirected to its original purpose of providing legitimate development aid.

One of the fixes he offers is to move the Bank’s investment portfolio away from the mega projects it likes to fund toward micro-credits, small projects run by individuals or at most small businesses.

Another is to hold countries — the Bank’s customers — accountable for embezzled funds, and require them to reimburse the Bank.

But the real problem, Berkman acknowledges, is the culture of the Bank, the aura of arrogance and self-contentment that has led managers to shovel money out the door with reckless disregard for how it is spent.

“It is management that has brought the Bank to its present state, and it is management that should be held accountable, not the institution,” Berkman writes.

He calls for the Bank to fire top managers and bring in “fresh blood that would not expend its efforts covering up past mistakes, but would focus upon the problems of the present — fresh blood that could truly revitalize the Bank.”

But Berkman’s own narrative and the saga of Paul Wolfowitz’s efforts to tame corruption suggest that fresh blood soon would become blood on the floor, as entrenched managers worked behind the scenes to destroy any effort to seriously reform the way the World Bank and “the gods” of lending do business.

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Senior officials at the World Bank have admitted that the firing of former Bush administration official Paul Wolfowitz as World Bank president was a scheme to block an unpopular anti-corruption campaign he had championed, a former World Bank official told Newsmax. “The...
Friday, 08 August 2008 11:40 AM
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