Emad Mekay

WASHINGTON, Jun 20 2005 (IPS) — The U.S. Congress is considering a new bill that would condition its funding of the world’s multilateral development banks on reforms, transparency, anti-corruption measures and future oversight.

Introduced by U.S. Senate Foreign Relations Committee Chairman Dick Lugar, the bill calls for changes in how business is conducted at the five multilateral development banks: the World Bank, the African Development Bank (AfDB), the Asian Development Bank (ADB), the Inter-American Bank (IDB), and the European Bank for Reconstruction and Development (EBRD).

It includes several important policy reforms and comes amid a growing chorus of accusations of corruption and mishandling of funds administrated by the public lenders. Civil society groups that monitor the banks have been struggling for years to win approval for more rigorous oversight.

The legislation would authorise 3.7 billion dollars of funds to three of the five MDBs: 2.85 billion dollars to the World Bank’s International Development Association (IDA), an arm that lends to the very poorest countries at subsidised rates, 407 million dollars to the AfDB, and 461 million dollars to the ADB.

"Far too often, projects intended to boost economic development are derailed by corruption, and the poor suffer, unable to realise projected benefits in quality health care, clean water and education," said Lugar, who has been leading efforts at the U.S. Congress aimed at ending corruption at the banks.

"The Congress has an obligation to our own citizens, as well as the intended beneficiaries of MDB projects, to press for transparency and accountability in the banks’ operations."

A World Bank spokesman said it was not the Bank’s policy to comment on pending legislation, but added that the World Bank was known for its high accountability and transparency standards.

The proposed law requires that the U.S. Treasury Department and the investigative arm of the U.S. Congress, the Government Accountability Office (GAO), take broader measures, including issuing regular reports that gauge the MDBs transparency and track the implementation of the proposed reforms.

Watchdog groups welcomed the bill and said it was a step in the right direction.

"Attaching reform proposals to IDA reauthorisation at the World Bank increases both the visibility of the measures and the costs of non-compliance," said Manish Bapna, executive director of the Washington-based Bank Information Centre, a clearinghouse of information on the banks.

The bill calls for a host of transparency measures, including publishing transcripts of meetings of the banks’ boards of directors, as well as grant documents, country assistance strategies, and sector policies plans prepared by the banks’ staff.

If passed, the law would force the institutions to ensure that employees do not abuse their positions for personal gain, to improve the quality and oversight of development bank loans, and to strengthen whistleblower protections.

It requests better audits, especially in projects connected to the extractive industries, like oil, gas and mining.

"Contributions from the United States and other donors to the multilateral development banks must be well managed so that the mission of such banks is fully realised and not undermined by corruption," according to the bill.

"Bribes can influence important bank decisions on projects and contractors and misuse of funds can inflate project costs, cause projects to fail, and undermine development effectiveness."

It cites the example of Lesotho, which spent large sums investigating and prosecuting fraud related to a project that received funding from the World Bank, even though the country has other major problems to cope with, like an HIV/AIDS rate of more than 25 percent.

The bill says that the World Bank did not contribute money towards the prosecution or investigation.

In 2001, the GAO issued a report that evaluated the external audit reporting of the AfDB, ADB, EBRD, and IDB, as well as a report in 2000 that evaluated the internal controls of the World Bank, and recommended measures to strengthen such audit reporting and controls.

"In light of severe democratic deficits in the governance of MDBs, the bill advances several important reform measures around transparency and accountability," Bapna said.

Corruption has become a global issue as developing countries, watchdog groups and some economists complain that multilateral development banks are mishandling vast sums of money intended to alleviate poverty, yet taxpayers in the borrowing countries still have to repay the banks.

In the last fiscal year, the MDBs financed projects worth more than 35 billion dollars in the areas of public administration, transportation, budget support, health and education, among others.

The United States, the world’s largest economy, contributes more than one billion dollars a year to the banks, with a majority of that money going to the World Bank.

Since 1960, the United States has provided more than 42 billion dollars in direct contributions to the MDBs. Congress has the authority to determine how much and under what conditions funding will be allocated to the banks.

There have been numerous complaints about corruption inside the MDBs, and during earlier congressional hearings, several speakers called for urgent reforms. The U.S. Congress held four hearings to discuss the issue.

Lugar says that he hopes that his bill and the hearings would encourage other countries to take measures to crack down on corruption at the MDBs.

"Through adoption of the package of reforms I propose, I hope this encourages other donor countries to also press for transparency and accountability," Lugar said.

Bapna of BIC says that more and more countries are doing the same and stiffening oversight of the banks, but that citizens should have a greater voice in the reform process.

"Increasingly, donor countries are attaching conditions to IDA reauthorisation legislation," said Bapna. "This development can be either positive or negative depending on how closely the reforms reflect evolving international norms on development assistance and how deeply the public is consulted on these measures."