World Bank Disgrace

From: http://online.wsj.com/article/SB120026972002987225.html?mod=opinion_main_review_and_outlooks

Credit Robert Zoellick for knowing how to put the best face on a profound embarrassment. On Friday, the World Bank president announced in a press release that the bank had "joined forces" with the government of India to "fight fraud and corruption" in that country's health sector. This is happening at the same time that Mr. Zoellick's colleagues are hounding bank anticorruption chief Suzanne Rich Folsom, the person primarily responsible for bringing the scandals to light.

Corruption is an endemic problem in bank projects, swallowing unknown but significant chunks from its $30 billion-plus annual portfolio. No less a problem has been the bank staff's ferocious resistance to anything that might stand in the way of its lending ever more money to projects run by the same governments that tolerate this malfeasance.

Yet nothing we've seen so far can compare to what has now been uncovered about five health projects in India, involving $569 million in loans. The projects were the subject of a "Detailed Implementation Review," a lengthy forensic examination undertaken by Ms. Folsom's Department of Institutional Integrity, known within the bank as INT. As of this writing the bank has not publicly released the review, though it's been shared with the bank's board. But we've seen a copy and are posting its executive summary on wsj.com/opinion and OpinionJournal.com (click here to see it). We are also posting photographs that show the real price that corruption in bank projects exacts on the poor. Here are some of the lowlights:

• In the $54 million "Food and Drug Capacity Building Project," for which money is still being disbursed, the INT found "questionable procurement practices, some of which indicate fraud and corruption, in contracts representing 87 percent of the number of pieces and 88 percent of the total value of equipment procured." That is nearly $9 of every $10 in aid funds.

• For the $194 million "Second National AIDS Control Project," the INT discovered that "some of the test kits supplied by particular companies often performed poorly by producing erroneous or invalid results, potentially resulting in the further spread of disease."

• In the $114 million "Malaria Control Project," the review found "numerous indicators of poor product quality in the bed nets supplied by the firms." And in the $125 million "Tuberculosis Control Project," the INT discovered "bidders sharing the same address and telephone numbers, unit prices showing a common formula, and indicators of intent to split contract awards among several bidders."

• After visiting 55 hospitals connected to the bank's $82 million "Orissa Health Systems Development Project" (Orissa is one of India's poorest states), INT investigators found "uninitiated and uncompleted work, severely leaking roofs, crumbling ceilings, molding walls, and non-functional water, sewage, and/or electrical systems." It also found "neonatal equipment that lacked adequate electrical grounding, potentially exposing babies and their medical staff to electrical shocks."

All this would be bad enough if Indian companies or officials were making off with ill-gotten gains behind the backs of World Bank staff. Instead, the INT found evidence of the bank repeatedly looking the other way. In the case of Orissa's 55 "hospitals," the INT found that the "construction management consultants (CMCs) who supervised the work certified that 38 of these hospitals to be complete to project specifications." In the AIDS Control Project, "the bank appeared to pay scant attention to the performance and quality of the goods supplied to the blood banks and testing centers, instead focusing on the number of such facilities being erected."

The report goes on in this vein for hundreds of pages. With the exception of Paul Volcker's investigation of the U.N. Oil for Food scandal, we can think of no comparable review of an international organization that has brought such damaging facts to light, certainly not one that was internally conducted.

Yet not only does Mr. Zoellick's press release fail to praise INT's dogged achievement, it ignores Ms. Folsom altogether. It does, however, give pride of place to bank managing director Ngozi Okonjo-Iweala, who was recently hired by Mr. Zoellick and is quoted as saying she is encouraged by the Indian government's "strong resolve" to deal with corruption.

We'll believe that resolve when we see it. Such promises would be more credible if Mr. Zoellick took meaningful steps to hold accountable those in the bank who acquiesce in this corruption. Former President Paul Wolfowitz showed real spine when he stopped lending to a related Indian health project after a previous INT investigation uncovered fraud. Yet lending to Indian health projects resumed the moment he departed last year.

We wonder, for example, what this now-documented Indian corruption means for the career of Praful Patel, who has been running the bank's South Asia operations since 2003, and for Managing Director Graeme Wheeler, who until recently oversaw Mr. Patel's work. Instead of accountability for these supervisors, the bank offers up the Orwellian contrivance by which Ms. Folsom has been whited-out from this story, like the proverbial vanishing commissar.

The foreign aid lobby sometimes says that corruption is the inevitable price of "doing good" in the developing world. Our online readers should look at the photographs of hazardous laboratories and sewage overflowing in hospitals, and wonder how anyone can make that case with a clear conscience.