The World Bank, based in Washington and owned by its 184 member governments, spends about $20 billion a year to promote economic development in poor countries. The Bank in recent years has stepped up its efforts to combat corruption to make sure that its money is used properly.
Since becoming president of the World Bank in March 2005, Paul Wolfowitz has made the fight against corruption a major priority. Calling it the single biggest obstacle to development, Wolfowitz has suspended or delayed loans to Chad, Bangladesh, and India, when corrupt activities were uncovered. Wolfowitz also commissioned a far-reaching study on the effects of corruption.
"The report argues also compellingly, that the best check against corruption is to strengthen governance systems supported by regular monitoring," he said. "Simply uttering the word corruption drives headlines but the real issue that we are addressing at the World Bank Group is how to promote good governance and accountability."
It wasn't always this way. As recently as the 1990s, the Bank was accused of turning a blind eye to corruption. It lent billions to the corrupt government of Mobutu Sese Seko in what was then called Zaire and is now known as the Democratic Republic of the Congo. In Mozambique, the Bank's advocacy of privatization of state-owned enterprises was linked to a financial scandal that culminated in the murder of a respected journalist and bank examiner in the year 2000. Economist and university lecturer Joe Hanlon has written extensively about the World Bank and Mozambique.
"I've argued for some time that the donors are complicit in the corruption, and, in fact, they supported corruption in Mozambique," he said. "So when the World Bank forced the local banks to give loans to privatized companies that the local banks said would never be repaid, the World Bank said, 'we want you to give the loans anyway to support privatization.'"
Mozambique, like many countries in Africa, has a huge corruption problem that is accentuated by single party dominance, a lack of checks and balances within the government, limited rule of law, and linkages between corruption and organized crime.
Wolfowitz, who this month has been in Africa reviewing development projects, says a free press is vital to combating corruption.
"I think when people try to say there is a sharp differentiation between economic development and political development, they ignore such things as the fact that, when you have a free press, you have a check on corruption that isn't there when it is muzzled and controlled," he said.
Critics of the World Bank say Wolfowitz's anti-corruption campaign doesn't go far enough. A coalition of environmental, human rights and leftist political groups want corporations linked to corruption banned from World Bank projects. They say some bank projects like the Chad-Cameroon oil pipeline continue to be riddled with corruption.
But many observers say the World Bank has put real teeth into the anti-corruption effort. It has established an office of institutional integrity and sent anti-corruption teams to countries that are recipients of Bank's loans. It has promised to blacklist firms that engage in corruption. World Bank chief economist Francois Bourguignon says there are good reasons for waging a long-term fight against corruption.
"The crime of corruption is knowing that it destroys incentives for any kind of [constructive] activity," he said. "If you know that when you undertake a profitable activity, then somebody will come and expropriate part of your gain, then the profitability is being reduced."
Wolfowitz says the anti-corruption campaign promotes economic development. It is, he says, about making sure that the Bank's resources go to the poor and don't end up in the wrong pockets.