World Bank leader speaks up on corruption

By Mercy Lamola

Vinay Barghava admits the World Bank has been labeled as corrupt for having unfair policies and practices.

As director of international affairs at the World Bank, Barghava spoke at the University of Calgary-led Corruption Forum. The forum was held in the Rozsa Centre Wed., Jan. 24 as a joint project between the Haskayne School of Business, the department of Latin American studies, the Development Studies Club and the Centre for Public Interest Accounting.

“One misconception is that the World Bank imposes conditionality on the poor countries which does harm to their development,” said Barghava. “We are also accused of pushing western countries’ policies on poor countries.”

This was one of several criticisms that Barghava came to address in addition to new World Bank policies.

The World Bank was founded in the years following the Second World War to help countries like Germany and Japan with post-war reconstruction efforts.

In the 1970s the World Bank mandate changed to one of poverty reduction. It now works at the country level to help strengthen governance, at the project level to stop corruption within World Bank group operations and at the global level to develop partnerships and share transnational issues. Over 180 member countries make up the World Bank, both funding and using its services.

Barghava explained that loan money comes from two sources. The first source is the financial market. The World Bank goes to markets like Wall Street, Tokyo and London to buy and sell bonds. Because of their high credit rating, the World Bank is able to buy bonds cheaper than independent countries. The money from this source is loaned to developing countries at a market interest rate and paid back over a 12-15 year period.

The second source is donations collected every three years from member countries, which go toward the International Development Association fund. Money from this fund is loaned to countries that do not have market-worthy economies. The loans are interest-free and repaid over a 40-year period.

“We have learned from old mistakes and we have fixed them,” said Barghava.”Many of the criticisms are valid but they don’t match our current factors.”

“In the past we have promoted economic policies associated with western countries’ economic policies, or market economies,” said Barghava. “History has proven that market economies work. Take China and Japan for example.”

In addition to the benefits of a low-interest loan, Barghava insisted there is more than money to be gained from a World Bank partnership. Staff from over 80 countries, of which the U.S. makes up 16 per cent, have offices in the loaning countries. This allows the World Bank to have continuous discussion with borrowing countries for the entire loan term. The World Bank also provides technological support and partnerships to manage projects.

“All of our experience shows unless you have economic growth you cannot reduce poverty,” said Barghava. “All of the lessons we have learned show that growth with environmental considerations has been sustainable.”

Some other changes to policy within the World Bank involve the way that corruption is investigated and punished. Many countries that currently have loans also face regime changes, military conflict or tyrannical governments.

“Very often the poorest countries are the ones where corruption is the highest,” said Barghava. “By definition of our mandate, we operate in high-risk environments where money can get lost into corruption. When we are faced with corruption our answer is not to cut and run or disengage. Our option is to engage, but engage in a manner with eyes open and do everything possible to make sure the money is used for the purposes it was granted.”

At the outset of a loan, the World Bank customizes a strategy specifically suited to each country’s particular problem. Preventative measures include portfolio reviews, increased disclosures and strengthening ethical corporate practices, said Barghava. These measures are a way of guaranteeing money is used for the purpose it was given. When corruption is discovered the World Bank places public sanctions on corrupt firms and creates a plan to strengthen existing investigation departments.

Barghava emphasized the importance of dealing with corruption, which has consequences for all people involved with loans.

“The return on the investment is less,” he said. “If a project is expected to generate an economic rate of return of 10 per cent, if there is a large rate of corruption, that rate is lower. It reduces the overall level of investment. Many businesses are deterred by corruption. If there is corruption, whether it is judicial, auditory, tax, or customs organizations, it undermines institutions of government and society. It cuts down the efficiency of public services such as hospitals and education, which hurts the poor the most.”

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