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Corruption in Egypt Should Disqualify World Bank from U.S. Recapitalization

Bea Edwards, April 26, 2011

In the US budget for FY2012, the Obama administration requests Congressional approval of a $3.3 billion contribution for international financial institutions (IFIs). A significant proportion of this amount would partially recapitalize the World Bank, now struggling financially as a result of the 2008/2009 international economic crisis. When Treasury Secretary Timothy Geithner testified before Congress on March 9, 2011 in support of the appropriation, he was asked if, in his estimation, the IFIs were addressing issues of corruption effectively enough to warrant recapitalization. Congressman Charles Dent (R-PA) expressed reservations about the integrity of the IFIs and asked Geithner to vouch for the reliability of the anti-corruption measures in place in these institutions.

Yahia Hassanein Abdol-Hadi, an Egyptian whistleblower, alleged that Mouheiddin was corrupt in 2006, when Mouheiddin reportedly arranged for the privatization of the Omar Effendi retail chain at artificially low prices -- to the benefit of Saudi businessman Gameel Abdol-Rahman Al-Qinbit. According to Yahia, the valuation committee, on which he sat, was pressured by a group that included Mouheiddin to facilitate the privatization of the Omar Effendi chain by lowering the asset’s valuation in an amount of approximately $100 million. The incident played out in the press in Egypt and occasioned fierce opposition from the thousands of retail workers whose jobs and salaries were lost in the deal.Which Geithner did, in a manner of speaking. He claimed that the IFIs are not as corrupt as they used to be and not as corrupt as other aid organizations. Currently, however, rumors abound in Egypt and abroad that World Bank Managing Director and former Minister of Investment in Egypt, Mahmoud Mouheiddin, is under investigation by the new government in Cairo for corruption. Although World Bank President Robert Zoellick denies this, compelling reports suggest that it is true.

At the same time, the International Finance Corporation (IFC) of the World Bank hailed the privatization of Omar Effendi as “an ambitious modernization program that will help the chain provide affordable prices and modern shopping experiences for consumers across the income spectrum.” Unmentioned in the IFC announcement was the fact that over 2,000 retail workers lost their jobs in the transfer and were thrown into an urban economy that offered them little or no employment opportunities in compensation.

This week, the Omar Effendi caper is back in the news in Egypt as activists seek the return of the asset to the public through a lawsuit that charges widespread corruption.

The Omar Effendi privatization was part of a larger program, championed by the World Bank and the International Monetary Fund (IMF), and adopted by the Policies Committee of the National Democratic Party (NDP), headed by then-Egyptian President Hosni Mubarak. In 2000, Gamal Mubarak, son of the President, became head of this committee and began aggressively pursuing a non-transparent privatization program, which many charged, even at the time, was corrupt. Also on his “Policies” committee were Youssef Boutros Ghali, an important figure at the IMF, and Mahmoud Mohieddin, now World Bank Managing Director.

On April 16, 2011, the new government in Egypt dissolved the NDP, together with its “Policies Committee,” in a court ruling that found the party had “adopted policies that bolstered dictatorship and monopolized power... rigged elections and controled parliament and retarded the country economically and socially."

Presently, Gamal Mubarak is in jail awaiting trial, Boutros Ghali has been charged with corruption, and Mouheiddin is expected to be charged.

It is important to note that Mouheiddin was not just another member of this committee, but a central figure. In fact, he created Egypt’s Ministry of Investment in 2004 and moved Egypt to the top of the “reformers” list in the World Bank and International Finance Corporation’s 2008 Doing Business Report. His tenure on the committee witnessed an unprecedented privatization process in Egypt, which was cited as one of the reasons for his appointment as a World Bank Managing Director.

Despite the statistical economic growth, however, the government’s auditing office reported this month that poverty was on the rise in Egypt. In keeping with the insularity of World Bank political circles, however, Mouheiddin has been put in charge of the institution’s poverty reduction programs worldwide.

With people like this running the Bank, it is not surprising that recapitalization is needed. What is surprising is that the Obama administration would promote it, throwing good public money after bad, as if there were no better use for it here at home.

Beatrice Edwards is International Reform Director for the Government Accountability Project, the nation's leading whistleblower advocacy organization.