World Bank President Paul Wolfowitz on Friday suspended all loans to Chad, including support for a high-profile oil pipeline project, saying the government had breached an agreement with the Bank by altering an oil revenue law.
Chad's parliament on December 29 approved legislation that relaxes controls on the use of oil profits from the 1,070 km (620 mile) Chad-Cameroon pipeline, reversing a World Bank-backed law that would have saved the profits for programs that benefit the poor. Wolfowitz's decision is one of the most drastic steps the World Bank can take against a member country and shows he is willing to wield the stick against governments who
don't play by the rules. "We've been trying for some time to open dialogue with the government of Chad to see if the concerns that they have expressed can be addressed and regrettably, instead of engaging in dialogue, they have proceeded unilaterally," Wolfowitz told Reuters.
In a conference call with reporters, Wolfowitz said he spent two hours on the phone on Thursday night with Chad's President, Idriss Deby. Wolfowitz said he saw no alternative to suspending the Bank's $124 million in loans to Chad, even as he held open the door to further negotiations. ''I think it's very much in the interests of the Chadian government to establish in the eyes of everybody that they are honorable parties to the agreements that they undertake,'' he said. Wolfowitz said President Deby had told him that Chad had a sovereign right to decide how to spend the oil money -- a position Wolfowitz accepted while insisting that it violated Chad's agreement with the Bank and that it entitled the Bank to suspend its loans.
Wolfowitz emphasized that "this is not the end of dialogue or the end of negotiations," and that "our actions can be reversed anytime we reach an agreement with Chad." He voiced sympathy for Deby's complaints that the country has serious security problems from the inflow of refugees from neighboring Sudan, which is riven by civil strife. But especially since the government has yet to satisfactorily explain how it has spent the money thus far, Wolfowitz said, he was obliged to counter Chad's "breach" of the pipeline deal.
Wolfowitz's decision was praised by Ian Gary, a policy adviser for Oxfam America who is a longtime critic of the pipeline. "The World Bank did what it needed to do," he said. He asserted, however, that the debacle shows that the Bank should refrain from funding similar projects in the future.
By suspending its assistance, the World Bank acknowledges the failure of what it presented as a model agreement with a poor country on the management of its natural resources. Wolfowitz took his decision after consulting the Board of Directors of the Bank. He emphasized that this decision would not prejudice the decision member countries could make individually, nor that of the IMF.
Mahamat Ali Hassan, the Minister for Economics, said the 1999 agreement no longer made sense for Chad and had to be changed. "The modification of the law to which the World Bank is referring was largely explained at the time by the government, which always showed its availability to maintain talks with that institution," Hassan said. "These reasons converge with the concern of having more flexibility in the use of the oil incomes, in order to efficiently reduce poverty." Hassan added that the suspension of the loans would hurt the people of Chad even more. But critics fear that with oil revenue now going into a general fund, it will be used to buy arms to fight two minor rebellions instead of reaching a negotiated agreement.
Chad said on Saturday it was shocked the World Bank had suspended all of its loans in a row over how the central African country spends oil revenues and called on the global lender to reverse its decision. "The Bank's decision, which current consultations in no way predicted, comes at an odd and difficult time for Chad and surprises us by its brutality," Hassan, said in a statement. But he added the government remained open to dialogue and was ready to take measures to resolve the argument, without giving any further details.
ExxonMobil said it continues to support dialog between the World Bank and the African country despite a decision earlier Friday by Paul Wolfowitz to cut off financial support to Chad, one of the world's poorest nations. "ExxonMobil is supportive of efforts through dialog between the World Bank and the government of Chad to address financial difficulties the Government of Chad may be facing," a company spokeswoman in the US told Platts.