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Geithner Asks Congress To Fund The Development Banks, Claiming They're Not As Corrupt As They Used To Be

Bea Edwards, March 31, 2011

This week the Inter-American Development Bank (IDB) wrapped up its Annual Meeting in Calgary, Canada. The stream of press releases issuing from there included one about accountability, which, for unknown reasons, referred to the 2010 Development Effectiveness Overview. It included this glowing but ambiguous quote:

 

The report summarizes the actions taken by the Bank in 2010 to measure and improve the social, economic and environmental impact of the IDB’s work throughout the region. It reports on the development impact of several ongoing IDB projects in the region, in areas such as agriculture, education and on the Bank’s work in Haiti, offering a unique opportunity to share important lessons learned with policymakers and the public in general.

Notice that the reference does not claim any actual effectiveness. Nor does it allude to accountability. Instead, we find that the Bank has taken “actions;” its work in Haiti offers a “unique opportunity;” and there are “important lessons learned.”

This is not surprising. The more independent (although not completely so) Office of Evaluation and Oversight (OVE) at the IDB had released a different report five months before the Annual Meeting. The OVE report drew dismaying conclusions about the same point: researchers found that IDB projects are not “evaluatable.” Worse than that: in 2009, Bank projects lent themselves even less to objective evaluation than 2001 Bank projects did. In other words, accountability in IDB projects is decreasing not increasing.

Well, this seems serious.  Despite the billions of dollars spent by the IDB on loans and projects and itself, US taxpayers who contribute to the Bank have no way of knowing what the real results were. While this would seem to be an important lesson, the US Treasury Secretary, Timothy Geithner, apparently has not yet learned it.

When testifying before Congress on March 9 about additional multi-billion dollar contributions to the World Bank, Inter-American Development Bank (IDB) and other multilateral development banks (MDBs), Geithner sang their praises:

Our success and security at home depend on our ability to expand export opportunities for American companies and to create a more secure world. America needs the MDBs to nurture the next group of emerging markets for our exports, to foster peace in countries facing conflict or on the brink of collapse, and to advance our shared values in the world.

Oh please. Before appropriating $3.3 billion more for these banks, the US Congress would do well to ask some hard questions about the MDBs.

At the March 9 hearing, Representative Charles Dent (R-PA) did just that. About midway through the hour, Dent asked Geithner if the reforms negotiated with the banks by the Treasury Department included addressing internal corruption and retaliation against whistleblowers as a condition of the billions in new funds. Rep. Dent specifically mentioned a whistleblower in Haiti whom the IDB subjected to retaliation after she raised questions about fraud in a reconstruction contract, and cooperated with examiners in a largely cosmetic but still (mildly) unflattering audit in the IDB’s Port au Prince office.

For a copy of the Spanish version of the IDB/Port au Prince (pre-earthquake) audit, click here.

Geithner responded by telling Dent that the US Treasury would exact from the MDBs the “best standards for internal controls that we can.” He went on to say that the IDB and the other banks are much less corrupt than they used to be:

[W]hen you look at the standards those institutions set internally for internal controls and safeguards, they are dramatically better than they have been. Our reforms that we negotiated will make them significantly better and I will hold them against almost any other program for development assistance.

None of this is reassuring. Without citing any evidence at all, Geithner says that other development institutions are more corrupt than the banks. Well, two questions then. First, so what? And second, how does he know? In January, The Global Fund published the facts about corruption and fraud in its projects … but the news came from the Global Fund itself because the institution retained a skilled and committed investigator, giving him the autonomy, staff and resources necessary to get the goods. Geithner cannot compare the World Bank or the IDB to the Global Fund’s record because both banks conceal corruption rather than address it.

At the IDB, for example, the senior representative in Guatemala, Alvaro Cubillos, was up to his eyeballs in cronyism and kickbacks with a counterpart government. It got so bad that he had to be “separated” from the IDB in 2008 for misconduct. As the embarrassing news seeped out, Luís Moreno, the IDB President and a compatriot of Cubillos, wrote this e-mail to senior managers:

I request that you handle this information with absolute respect for the person and the confidentiality that this matter warrants (translated from Spanish).

For original Spanish text, click here.

Unlike the Global Fund, there was no website announcement about corruption here. True to form, it was kept absolutely confidential, just as Moreno had instructed. We’d be curious to know whether Geithner knew abut Mr. Cubillos and his confidential financial activities. And if so, maybe the US Congress should know the terms of Mr. Cubillos’ separation from the Bank. The poor soul who blew the whistle on Cubillos, of course, was first transferred and then fired.

The internal oversight offices at the MDBs are – to be frank – a mess. They are plumbers units and little else. They find the leaks and plug them. The people who run them tend to be deceitful and corrupt themselves. At the World Bank, Suzanne Folsom, the former head of investigations resigned under pressure in 2008 with a pocket full of money, and then trundled off to AIG to “serve” as Chief Compliance and Regulatory Officer. When AIG melted down, she hustled out the door once again with about a million in severance. Even the US Senate started asking questions about her. At the World Bank she was replaced in the “Integrity” unit by Leonard McCarthy, then the new Vice President who, shortly thereafter, came under investigation himself in his native South Africa for politicizing a corruption case and using dubious sources and methods. His rogue operation caused the corruption case to fall apart, and the target was subsequently elected President of South Africa.

At the IDB, the Ethics Officer abruptly resigned about a month ago, but no one knows what exactly she did. And three weeks ago, the Ethics Officer at the World Bank suddenly decided to “move on.” No explanation, not even the standard new-job-opportunity, more-time-with-my-family excuse. Nothing. In Washington, this means that you either did something right and got slammed for it, or you did something really wrong and you need to be gone before someone starts asking questions.

At the Government Accountability Project (GAP) we work with whistleblowers from the MDBs – especially the World Bank and the IDB. A serious problem at both banks is the ferocious retaliation directed at whistleblowers, the ineptitude of the investigations process (and the investigations departments) and the kangaroo courts where whistleblowers find themselves trying to get their jobs back once the reprisal has taken effect.

On March 9, Geithner assured Dent that Treasury would negotiate reforms at the banks before the US government hands them billions in new funding.  His testimony was a litany of bureaucratic reassurances – words like “reforms,” “implemented,” “enforceable,” “operational.” He sounded like the banks themselves, where “governance” is always just about to improve.

The dismal truth is that the anti-corruption measures proposed by Geithner as conditions for US funding for the MDBs are toothless. The banks are allowed to monitor and report on themselves. Or they hire someone to do it who reports to them and is paid by them (using our money). There is very seldom any disclosure of corruption or fraud unless it leaks out, the way the news of the IDB whistleblower in Haiti did. When that happens, the institutions’ “integrity” units embark on relentless witch-hunts for whoever talked. God help them when they’re found.

With the US economy still reeling from the fraud and corruption widely perpetrated directly on US taxpayers and homeowners by our own banks, the Congress cannot afford to waste more public money on institutions that cannot even evaluate their projects, much less police them.

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