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Clean up the Development Banks before New Bailout

Bea Edwards, December 09, 2011

So, the big banks are back in Congress with their multiple hands out looking for donations from US taxpayers. But we're not talking about the Goldmans and the Sachs again – the current banks begging are the "development" banks – the World Bank and its regional clones in Africa, Eastern Europe, Asia and Latin America. Like the Chases, Morgans and Citi's, though, they're looking for a pantload of money, quietly promised them by our selectively generous Secretary of the Treasury

The development banks need money because, as Treasury Secretary Timothy Geithner told the U.S. Global Leadership Coalition in September, they are defending our national security interests and making sure that China doesn't get ahead in the world of international "aid." Also, it seems, they're fighting poverty. Earlier this year, when Mr. Geithner was disposed to answer Congressional questions on this topic (minutes 29 – 32), one concerned representative of the people asked (I'm paraphrasing here): "But aren't these banks corrupt?"

Good question.

With winning candor, Mr. Geithner responded that they aren't as corrupt as they used to be, and they're not as corrupt as other "aid' agencies, an endorsement that's not especially reassuring. According to Jeffrey Winters, when he testified in 2004 Senate hearings, the World Bank had lost about $100 billion over the lifetime of the institution to corruption. When Mr. Winters added the malfeasance at the regional development banks, the figure rose to about $200 billion. This would explain why, after more than 50 poverty-fighting years by development banks, the score is still pretty lopsided in favor of poverty, which, incidentally, is restrictively defined as living on less than $1.25 a day. Nonetheless, in "fighting" poverty, the World Bank and its Latin American cousin, the Inter-American Development Bank (IDB) spent and lent over $920 billion in public money since they opened their cash windows in 1945 and 1959, respectively.

At the development banks, there are a number of corruption problems, but one of the most obvious ones is what accountants call "the tone at the top." Let's take the Inter-American Investment Corporation (IIC), the private sector lending arms of the IDB. Heading up the IIC is Jacques Rogozinski, a Mexican national dubiously associated with the staggeringly large personal fortune of Carlos Slim. Back in the day, when Carlos Salinas de Gotari ran the Mexican economy so magnificently into the ground, Rogozinski headed the privatization program in Mexico. These deals were notoriously corrupt. Evidence was so compelling that a Salinas brother went to jail, and the Salinas president fled the country, just before the peso collapsed, along with the banking system in 1995. Mr. Rogozinski stayed on under a new president for a year, before moving on to the IDB and then the IIC, right here in Washington, where he could continue to use his considerable expertise in "private sector development."

And there he remains. These days, we understand, he's been quite active in Haiti, which would partly explain why the rubble remains un-cleared and millions still live in tents eating mealy-meal that they foraged for themselves. Still, let's look on the bright side: Mr. Rogozinski has promised to leave in December.

Down the street from the IIC, at the World Bank, the tone at the top is about the same. There, Mahmoud Mohieldin, Hosni Mubarak's former Minister of Investment is a Managing Director, reporting directly to World Bank President Robert Zoellick. Mr. Mohieldin's former boss, Mr. Mubarak, is, unfortunately, in jail, when he is healthy enough to bear it. He's in good company however: his two sons Gamal and Alaa are also in the slammer, as well as, occasionally, his wife, Suzanne. It turns out, of course, that Mr. Mohieldin should be there too, but he's not. He's at "the Bank!"

With great presence of mind, six months before the Mubarak regime fell, Mr. Mohieldin found himself a cushy sinecure at the top of the World Bank, where he's responsible for fighting poverty, of course, and promoting knowledge about something. He's been lauded by Mr. Zoellick for his: "outstanding track-record of results in reform, modernization, and knowledge-generation."

Really?

Back home in Cairo, prosecutors are using hydraulic lifts to file the metric ton of corruption allegations against Mr. Mohieldin. This is quite cumbersome. Mr. Mohieldin was one of Gamal Mubarak's favored three, known as "Gamal's Trio," who ran the Ministries of Finance, Trade and Investment. Gamal and his brother shipped an estimated $340 million to Swiss bank accounts, according to the Egyptian Justice Ministry, and apparently, they squirreled away additional loot in Cypress.

Gamal's trio also tirelessly stole rather a lot, causing excessive job loss and immiseration, by handing the industries of the Egyptian state over to cronies at larcenously low prices, who stripped their assets, cashed out and you know the rest.

Despite this performance, Mr. Geithner had the ingenuity to tell the Congress that US taxpayers must hand over billions more to the World Bank because it's safeguarding our interests in the Arab world.

But wait. If the Mubarak regime collapsed because an angry populace was fed up with official theft and threw the bums out – destabilizing the Middle East – and one of the bums escaped to the World Bank, how is the World Bank, in protecting the bum, safeguarding anyone's interests but the bum's?

Enough is enough. Managing Director Mohieldin cannot go home because there's a good chance he'd be arrested, just like his cronies were. We're not asking Congress to arrest him, but US taxpayers shouldn't be expected to support him, his bank or his buddies.

Editor's note: This blog was updated on November 18, 2013.

 

Bea Edwards is Executive Director and International Director for the Government Accountability Project, the nation's leading whistleblower protection and advocacy organization.