Divisions among World Bank shareholders over its approach to fighting corruption have spilled out into a public battle.
In a move likely to raise tensions at the Bank governors’ meeting, UK international development secretary Hilary Benn announced on Thursday that he would hold up $90 million (£50 million) of funding until reforms of the Bank’s conditionality went through.
Nominally the conditionality argument is a separate one. But earlier this month, a clash at the World Bank board over Wolfowitz’s anti-corruption campaign had centred on a draft document that suggested lending to certain countries could be “slowed” to combat corruption – conditionality by another name.
Wolfowitz insisted at a press conference yesterday that he was in “complete agreement” with the UK’s Benn on conditionality, and that he “could see no difference” with him on the means to fight corruption either.
But European shareholders have tussled with Wolfowitz for months over his draft document, Strengthening Bank Group Engagement On Governance and Anti-Corruption, which has now been revised six times.
In the most recent version, the contentious paragraph on “slowing” lending had appeared to prioritise anti-corruption over other development aims, envisaging “delaying the use of country systems, tight ring-fencing of Bank-financed projects, and dominance in some country strategies of the governance agenda” that might “slow progress” on other priorities.
A second problem at the board was wording in the document, that appeared to downplay the board’s oversight role. The third sticking-point, particularly for Russia, China, Algeria, Saudi Arabia and South Korea, was a paragraph referring to cooperation with local “champions of reform”, which it was feared would open the door to the Bank working with NGOs over governments’ heads.
Bank insiders expect a consensus to be reached on the wording of the document and for it to be passed. But for the underlying divisions – between Wolfowitz’s crusading stance and the approach favoured by European shareholders and many NGOs, of carefully integrating corruption issues with development – will remain.
“This won’t go away. The issue is how [Wolfowitz] acts on the proposals: he is accountable too, after all”, a European official at the Bank told Emerging Markets, on condition he not be named.
Would the Bank “treat all countries in a consistent way” or ignore corruption in those that are seen as “politically important”, the official asked. And would anti-corruption be “the only item on the agenda, to the exclusion of others?” The official also voiced concern that staff would be incentivised to concentrate disproportionately on corruption issues.
As the row rumbled on in Singapore, Paul Volcker, former head of the US Federal Reserve and now chairman of the trustees of the G-30, gave his implicit, but weighty, support to Wolfowitz at a seminar on governance yesterday.
Corruption is “the next area of battle” in the world economy, Volcker told the Raffles Forum, hosted by the Lee Kuan Yew public policy school. The murder on Thursday of Andrei Kozlov, deputy head of the Russian Central bank and a champion of regulation in the Russian market, was part of a worldwide “struggle between the forces of corruption and the forces of good governance,” Volcker added.