World Bank Confronts Cambodia Corruption

October 18, 2007
The Wall Street Journal (USA)

Far from "Smiling Past Corruption" (Review & Outlook, Oct. 11) in Cambodia, the World Bank is confronting corruption head on in that country. In fact, it was bank staff in Cambodia who first raised concerns about corruption in projects there. Following World Bank investigations, in June 2006 the bank suspended the government's right to draw funds for three projects where we had identified problems.

In response, the Cambodian government agreed to new anti-corruption measures for each project, including intensified audits and the hiring of an international procurement agent. In February 2007, after the government completed all the anti-corruption measures and made substantial progress in hiring the agent (who has now been selected), former President Wolfowitz agreed to lift the suspension on the affected projects. The bank cancelled over $2.5 million in project funding, and the government subsequently repaid the World Bank $2.89 million and agreed to incorporate anti-corruption action plans into all existing and future bank legal agreements. The bank's Institutional Integrity office has initiated the process of debarring firms involved in the affected projects, working through the Sanctions Committee.

Cambodia, which suffered a genocide, needs help both to strengthen its capacity for good governance as well as to build the foundations for inclusive growth. Today, our projects are helping build roads, bring water to poor communities and enable poor people to secure ownership of their land and homes for the first time.

While in Cambodia in August, the new World Bank president, Robert Zoellick, coordinated with the donor community to make the case to the prime minister and other senior officials on the need to stay the course on governance, anti-corruption and strengthening the legal system. The Institutional Integrity office will visit Cambodia this month to follow up.

Marwan Muasher
Senior Vice President
External Affairs
World Bank
Washington

World Bank Runaround

October 18, 2007
The Wall Street Journal (USA)

The world's finance ministers descend on Washington this weekend for the annual meetings of the World Bank and the International Monetary Fund. And true to type, bank officials and their media Boswells are doing their best to sweep the issue of corruption under the carpet. A letter from the bank published today on the preceding page illustrates the point.

The letter from external affairs vice president Marwan Muasher responds to our October 11 editorial "Smiling Past Corruption," which reported the conclusions of seven internal investigations into bank projects in Cambodia. The investigations, conducted by the bank's anticorruption unit (INT), revealed stunning levels of fraud, extortion, bid-rigging, bribe-taking and what the bank euphemistically calls "misprocurement" in nearly every aspect of the examined projects. Yet far from acting decisively to recover its stolen assets, debar corrupt companies and penalize the Phnom Penh government, the bank did what it could to return quickly to business as usual.

Mr. Muasher nonetheless insists "the World Bank is confronting corruption head on" in Cambodia, and we really wish we could believe him. In 2007, Transparency International ranked Cambodia 162 on its corruption perception index, next to such all-stars as the Central African Republic. In 2005, Cambodia was ranked 130; whatever the bank is doing doesn't seem to be helping.

Mr. Muasher also says "it was bank staff in Cambodia who first raised concerns about corruption in projects there." That is true in some cases though not all, but the real issue is how the bank responds once the nasty details are laid before it. Also slippery is his remark that the bank suspended the Cambodian government's "right to draw funds for three projects where [the bank] had identified problems." But seven projects were identified by INT as rife with corruption, and it would be good to know why the other four fell from the bank's radar screen.

Similar questions hang over the funds Mr. Muasher says were either cancelled by the bank ($2.5 million) or refunded to it by the Cambodians ($2.89 million). In a February letter to the Cambodian Finance Minister, James Adams, the bank's vice president for the East Asia and Pacific region, tallies the contract values of just five of the troublesome projects. His numbers add up to $12.2 million in contracts, of which $8.2 million had already been disbursed.

That ought to mean that at least $4 million dollars, not $2.5 million, should have been cancelled -- a discrepancy presumably explained by the bank's decision to shut down only three projects instead of five or seven. It also ought to mean that the Cambodians should have refunded $8.2 million, and not $2.89 million. Here the discrepancy is explained by an arrangement worked out by Mr. Adams (and described in his letter) to demand the "accelerated" repayment of only a portion of the funds. So what happened to the remaining $5.3 million? Our sources say that whenever the matter is raised at the bank, "the topic is changed."

These sums may seem small compared to the bank's grand moral ambitions. However, total bank lending to Cambodia between 2003 and 2006 was $220 million, and the INT lacked the resources to investigate every project. What the INT found -- one project after another corrupted root-to-branch -- was almost certainly symptomatic of what happens across the board.

Not to worry, adds Mr. Muasher, because Cambodia's government has "agreed to incorporate anti-corruption action plans" in the future. Thus the bank is resuming business as usual first, on the hope that the government keeps its promises. We'd have thought the better way to reduce corruption would be to withhold money until the government proves it will in fact do something.

The bank is ignoring some of its own not-so-distant experience here. In July 2003, the bank cancelled a portion of funds for a "demobilization project" -- involving the distribution of cash, free motorbikes and other goodies to former soldiers -- after the Cambodian government inflated the list of those who were supposedly eligible for the handouts. Yet by February 2005 all was forgiven, with Cambodia country director Ian Porter telling Associated Press that "the government has taken significant steps toward resolving these issues." Perhaps they were even "action plans."

In his letter, Mr. Muasher reminds us that Cambodia is still recovering from its 1970s genocide. All the more reason, then, for the bank to ensure that the money it spends goes to benefit the people of Cambodia, not corrupt middlemen. Its smooth assurances notwithstanding, the bank's behavior in Cambodia looks like a classic example of downplaying corruption as rapidly as possible so the bank can get on with shoveling ever more money out the door, regardless of results.

Click here to read Marwan Muasher's Letter to the Editor
Click here to read INT's letter to Cambodia