The fight over Paul Wolfowitz had little to do with his girlfriend and everything to do with his anti-corruption efforts. That truth is now coming into sharper relief, as a showdown looms over a series of reports about, and by, the Bank’s anti-corruption unit. Senior World Bank officials are eager to discredit a forthcoming internal report on corruption in a major Bank-supported health-care project in India.
The India controversy began with a 2005 report by the Bank’s institutional integrity unit into pharmaceutical drug procurement as part of the Bank’s Reproductive and Child Health I Project (or RCH I).
Here’s the key quote from the executive summary: “Evidence summarized below indicates that RCH I was subject to systemic fraud and corruption through i) bribery of procurement support agencies (PSAs) and government officials; ii) falsification of performance certificates; iii) collusion among bidders; and iv) coercion of companies by cartel members and PSA officials.”
The details include drugs that were “substandard”, yet cost more than the Bank’s standards allow, and glass syringes that failed to meet international standards. The report discloses, “Multiple witnesses admitted to bribing government officials, including ministers, in an effort to secure the award of Bank-funded contracts.” All of this for a project that is supposed to help the poor. The report cites “substantial losses” into tens of millions of dollars or more, as well as evidence of corruption risk at other health-care projects in India “representing over $2 billion in Bank funding”. It concludes that the findings are “sufficiently grave” to merit sanctions against individuals and firms.
In a normal financial institution, such findings would lead to soul-searching and heads rolling. But at the World Bank, what really matters isn’t how much money reaches the poor, but how much keeps going out of the door. Corruption is seen as an inevitable cost of foreign aid, such as breakage in the glassware trade.
Wolfowitz was presented with a plan for the Bank to finance phase two of the RCH project without so much as a mention that there had been problems in RCH I. When he learnt of the corruption findings in mid-2005, however, Wolfowitz decided to suspend further Bank lending to that India project until the matter was cleared up.
In retrospect, this contributed to his demise as (Bank) president, because the RCH I report touched several Bank taboos. It was an affront to the Indian government, among the Bank’s biggest borrowers. It was also a humiliation to certain Bank officials who were supposed to be supervising the project, but clearly weren’t. And it threatened to embarrass Britain’s Labour government, which was providing money for the India project.
All of these forces reacted bitterly to Wolfowitz’s suspension of lending to the project. They lobbied hard for phase two to proceed, and on the easiest terms possible. After India’s government committed to cleaning things up, Wolfowitz lifted his suspension and, in August 2006, the Bank decided to fund phase two and other health projects, to the tune of $672 million. But only a year later, this past July, did the Bank get around to debarring two of the offending Indian companies, Nestor Pharmaceuticals Ltd and Pure Pharma Ltd, from Bank contracts—and only for three years and one year, respectively.
The good news is that Wolfowitz was able to ensure that the Bank’s anti-corruption unit continued its “detailed implementation review” of the India project. This second report is due in weeks, and this is the one that some Bank officials are trying to discredit. We haven’t seen this report, but we’re told a draft highlights corruption running into hundreds of millions of dollars.
(Edited excerpts from The Wall Street Journal. Comment at email@example.com)