Emad Mekay

WASHINGTON, Apr 22 2005 (IPS) — The U.S. Congress is moving to demand tougher transparency and accountability measures from the five leading multilateral development banks that lend billions of dollars to developing nations.

U.S. Senate Foreign Relations Committee Chairman Richard Lugar says those demands will come as part of legislation authorising renewed funding for the banks, whose work affects hundreds of millions of people around the world.

The five Multilateral Development Banks (MDBs) are the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank, and the World Bank.

Corruption has become a global issue as developing countries, watchdog groups and some economists complain that multilateral development banks (MDBs) are mishandling vast sums 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, health and education, among others.

In exchange, the MDBs push borrowing countries to lift economic barriers and foster a worry-free environment for the operations of multinational corporations based in industrialised nations.

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’s International Development Association, which lends to the very poorest countries at subsidised rates.

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.

Lugar said his committee, at the request of the George W. Bush administration, is working to ensure that U.S. contributions are managed well and “that the mission of the MDBs is not undercut by corruption.”

Lugar was speaking on Thursday in the fourth hearing devoted to reviewing U.S. policy toward the MDBs.

The U.S. Congress says it is looking for ways to help anti-fraud efforts at those public lenders.

As part of this effort, Lugar said he sent letters of inquiry on individual projects and policies to the various banks, while his aides have visited overseas projects and interviewed bank employees, non-governmental organisation representatives, academics and government officials.

Other legislative bodies have conducted similar investigations. The British parliament has undertaken its own inquiry, while the Italian Senate issued an order last September requesting an investigation.

“Corruption impedes development efforts in many ways,” Lugar said. “Bribes can influence important bank decisions on projects and contractors. Misuse of funds can inflate project costs, deny needed assistance to the poor, and cause projects to fail.”

There have been numerous complaints about corruption inside the MDBs, and during earlier hearings, several speakers called for urgent reforms.

Among the recommendations were changing the incentives at the MDBs so that staff would feel less pressure to approve loans, and focus more actively on supervision and auditing of their lending.

There were also calls for more transparency in MDB operations and a requirement that borrowers improve transparency within their governments.

Among the measures that may be requested by Congress is for the MDBs to harmonise anti-corruption policies and compile shared “blacklists” of corrupt companies and individuals.

As it now stands, a company that is barred from working with the World Bank can still enter into contracts with the other MDBs. The European Bank for Reconstruction and Development, which operates in 27 countries that were once part of the Soviet bloc, has never banned a firm or an individual despite rampant corruption in the region.

At Thursday’s hearing there were also calls for external audits of managerial and financial controls like those described in the so-called Sarbanes-Oxley legislation, named after two U.S. senators, for all publicly held companies in the United States.

“The challenge of preventing waste, fraud, and corruption at the MDBs must be tackled with vigour,” said Lugar.

Because of their enormous influence on the world and their constant demands for better governance from borrowing nations, many critics have said it was ironic that the MDBs themselves have yet to practice what they preach.

“It is imperative that the policies and practices of the banks themselves reflect the values of transparency and respect for human rights that they expect from the rest of the world,” said Tom Devine, legal director of the Washington-based Government Accountability Project (GAP).

“That is because these practices can have life and death consequences,” he added.

Devine, whose organisation works to protect whistleblowers, charged at the hearing that witnesses to misconduct and abuse at the banks are afraid to come forward.

“Our evidence demonstrates that their fears are well-founded. The banks routinely victimise the messenger rather than hold accountable those who defraud donor countries and recipient countries alike,” he said.

Previously, the United States has passed bills requiring that the country use its voice and vote to implement transparency reforms and to prevent the targeting of whistleblowers.

But U.S. Executive Director to the Asian Development Bank (ADB) Paul W. Speltz said at the hearing that the ADB has made “significant progress”.

He said the bank is opening its operations to outside scrutiny, strengthening its anti-corruption capability, and promoting good governance in borrowing countries.

He said that in 2004, the Manila-based ADB established a new inspection mechanism to address the concerns of persons affected by ADB projects and that the 2005 ADB budget included a 12 percent increase in funding for it.

Both the ADB and the European Bank for Reconstruction and Development said that an increasing number of projects include strict anti-corruption safeguards, including a transport project in Nepal, the Sri Lanka tsunami rehabilitation project, and the Bangladesh independent anti-corruption commission project.

The World Bank, the largest of the MDBs, also says it already has multiple layers of oversight mechanisms, including audits, an inspection panel that reviews complaints about Bank projects, and the institution’s governing board, among others.

But Devine charged that a great deal of rhetoric has been coming out of the institutions, with no substantial changes on the ground. He urged stepped up involvement by the U.S. Congress.

“While there is no doubt that some light has been shone on corrupt practices, the banks are too eager to direct that light on client countries,” Devine said. “Their anti-corruption claims are more rhetorical than real.”