The World Banks tolerance for corruption

Opinion Journal:

Having knocked off Paul Wolfowitz as president, the forces of the status quo at the World Bank now have another target in their destructive sights: The corruption fighters at the bank's Department of Institutional Integrity. New President Robert Zoellick will soon have decisions to make.

As we reported at the time, the fight over Mr. Wolfowitz had little to do with his girlfriend and everything to do with his anti-corruption efforts. That truth is now coming into sharper relief, as a showdown looms over a series of reports about, and by, the bank's anti-corruption unit. Senior bank officials are especially eager to discredit, and if possible deep-six, a forthcoming internal report on corruption in a major bank-supported health care project in India. If that report ever sees the light of day, several top bank officials could lose their jobs, and rightly so.

The India controversy began with a 2005 report by the bank's Institutional Integrity unit into pharmaceutical drug procurement as part of the bank's Reproductive and Child Health I Project (or RCH I). The 16-page report has never been made public. But we've seen a copy, and it's a stunner that readers can find in full here.

Here's the key quote from the executive summary: "Evidence summarized below indicates that RCH I was subject to systemic fraud and corruption through i) bribery of Procurement Support Agencies (PSAs) and government officials; ii) falsification of performance certificates; iii) collusion among bidders; and iv) coercion of companies by cartel members and PSA officials."

The details include drugs that were "sub-standard" in quality yet cost more than World Bank standards allow, and glass syringes that failed to meet international standards. The report discloses that "Multiple witnesses admitted to bribing government officials, including ministers, in an effort to secure the award of Bank-funded contracts." All of this, keep in mind, for a project that is supposed to help the poor.

The report cites "substantial losses" into the tens of millions of dollars or more, as well as evidence of corruption risk at other health care projects in India "representing over US$2 billion in Bank funding." It concludes that the findings are "sufficiently grave" to merit sanctions against specific individuals and companies.

In a normal financial institution, such findings would lead to soul-searching, and heads rolling. But at the World Bank, what really matters isn't how much money reaches the poor but how much keeps going out the door. Corruption is seen as an inevitable cost of foreign aid, like breakage in the glassware trade.

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There is more including a companion piece by Bret Stephens.

Corruption is a form of theft which makes everyone but the corrupt poorer. It is why cities like New Orleans, Baltimore, Newark and East St. Louis are crumbling urban decay rather than vibrant places like Houston or San Antonio. Tolerance for corruption by the World Bank should result in closing that institution. If the bank is willing to tolerate corruption as a cost of doing business, then it has lost the plot. Shut it down and let its customers compete for loans from solvent institutions who are not permitted to tolerate corruption.