They are called "los FOE," a Hispanicized version of the English acronym for "Friends of Enrique." To be a "FOE" denotes membership in a select club at the U.S. taxpayer-supported Inter-American Development Bank (IDB), the largest supplier of investment capital to Latin America, headquartered just two blocks from the White House. "Enrique" is IDB president Enrique Iglesias, who appears to have many friends, both inside and outside the bank, and for good reason.
Yet in recent years there has been a growing cadre of critics within the bank who are concerned about an alleged good-old-boy network among FOEs that is determining hiring, promotion, and lucrative post-retirement sinecures at the IDB, even at the most senior levels. As a result, serious ethical and legal issues have been raised.
A months-long investigation by Insight has found disturbing allegations of cronyism and a management culture of corruption at the IDB directly linked to what some call "la cadena de la felicidad," or "the chain of happiness," enjoyed by Iglesias' favored friends. "No one supposedly dealing with employment at the bank ever employs anyone," charges one insider. "They are all handpicked and imposed from above." Such practices have flourished, critics say, even as for the past five years the region has languished economically and some countries, such as Uruguay, are on the border of financial collapse.
Well-placed bank sources say the issue is not whether senior officials and managers at the IDB are incompetent or lack credentials to do the complicated jobs sponsored by the bank, although some clearly are as in any large institution. Rather, critics including current and past members of the IDB board of directors are raising questions about failed oversight because of a culture of not questioning those close to or otherwise hand-picked by Iglesias, whose personal integrity on the job is not in question.
"People know that if they go against the establishment and they are fired the administrative tribunal will give them--at the most--a year's salary," says one human-resources manager. "But they will lose their job, their visa, and most likely be blackballed by the other multinational organizations." Such an environment, one that allegedly stifles whistle-blowers and internal exposure of wrongs, has become a growing concern, according to those who spoke to Insight.
For example, one of Iglesias' lifetime friends and colleagues is Jose Maria Puppo, a fellow Uruguayan who until recently held the coveted post of IDB representative in Buenos Aires. In that position, Puppo helped approve a $4.6 million occupational health and safety program, financed by the bank's Multilateral Investment Fund (MIF) for Argentina, despite reported staff opposition to the project. The foundation implementing the technical assistance grant is headed by Juan Francisco Jorba, another Uruguayan and, like Puppo, a lifelong Iglesias friend.
Upon retiring as IDB representative in Argentina, Puppo became the executive coordinator of the program and has, according to two sources, formed a consulting firm for the purpose of evaluating bank projects with Jorba and a third Uruguayan with long experience with the IDB.
Iglesias, Jorba and Puppo (among many other IDB officials) either failed to respond or declined to answer dozens of questions submitted in writing by Insight concerning a broad range of issues raised by critics, including the appearance of impropriety in the approval and staffing of the MIF program. "As you can see," said one angry bank official, "it is good to be Uruguayan and a friend of Iglesias." (Click here to see copies of IDB documents concerning Puppo's role.)
The number of Uruguayans and Spaniards (Iglesias was born in Spain) employed at the IDB, bank officials tell Insight, far exceeds their countries' size in terms of population, or, in the case of Spain, its financial contributions to the bank. The apparent tilt in placing certain nationals into key posts, together with a marked trend in the hiring of the sons, daughters and other relatives of the region's politically prominent, greatly has eroded the legitimacy of IDB merit principles. The phenomenon occurs even as the bank puts up millions of dollars in loans and technical assistance and seeks to promote transparency and other good-government best practices throughout the region.
According to the IDB's Website (www.iadb.org/ocfc/), the fight against fraud and corruption in bank-sponsored programs and activities "is given the highest priority in the institution. Both the bank and its member countries recognize that fraud and corruption are serious obstacles to development and that combating them on all levels becomes essential. ... The Bank has always required that its operations be free of fraud and corruption and that the work of its employees adhere to the highest ethical standards."
However, Iglesias' critics say that the bank's own employment practices offer an important insight into how the IDB's example appears to contradict those goals. For example, well-connected hires at the bank include the son of Uruguay's foreign minister, the son-in-law of a former Nicaraguan president (and himself the Sandinistas' ambassador to Spain during the 1980s), a number of consultants, as well as selectees for the IDB's "young professionals" program. The trend continues even as U.S. representation among principal officers and supervisors at the bank appears to be on the wane in an institution whose largest single contributor is the United States.
In a recent case, an American with close ties to the office of the IDB vice president, currently headed by U.S. citizen Dennis Flannery, was removed from her position as a senior manager in the bank's employment division to make way for Magdalena Sanguinetti According to bank sources who contacted this magazine, Sanguinetti is a Uruguayan who lacks the breadth of academic credentials and employment experience of the person she replaced. Similarly, in the IDB's troubled Argentine representation, bank critics complain that there exists a veritable "Uruguayan mafia" of consultants from across Rio de la Plata.
"That's how Iglesias builds favors," explained a recently retired bank official, " by hiring the family and friends of influential people. It used to be an occasional thing; now it's common practice." Cases such as these have led to angry speculation and allegations of apparent cronyism and political back scratching.
There also is evidence of a failure by senior bank management to practice what the IDB preaches to its regional clients, including an apparent loosening of the rules governing employment of those past the IDB's mandatory retirement age of 62. Waivers extending employment beyond that age require Iglesias' personal approval.
Not only are Iglesias and his close aide, Auditor General William Taylor, far past retirement age--at least six other senior managers remain on the payroll at Iglesias' discretion. One of those past retirement age, Stephen Abraham, was made head of a bank anti-corruption unit despite having scant credentials for the job, according to IDB insiders who have spoken with Insight on the condition of anonymity.
Another FOE is Jorge Elena, a Uruguayan and the bank's former management-level secretary, who received plush country representative assignments, the last in Buenos Aires, despite being past retirement age. Elena's stay in Buenos Aires recently was extended by Iglesias despite a ruling by the bank's own administrative tribunal in favor of an employee who claimed that Elena had orchestrated a "Dantesque" campaign of psychological harassment against her [see "The IDB Star Chamber"].
At the same time, questions have been raised about what some see as the undermining by the IDB administration of the independence of the bank's board of directors -- and, therefore, of the oversight provided by that body. Critics point out that mandatory waiting periods have been significantly shortened for the subsequent employment of members of the supposedly independent board of directors in lucrative senior staff positions, from three years to one. Currently there are at least nine former board members employed at the bank as senior staff or as well-paid consultants.
"When I entered the bank, the norm for members of the board of directors was that they could not occupy administrative posts for three years," said one well-placed source in the bank's administrative offices. "This was done so that they would be insulated from pressures to seek other bank jobs, and, in so being, better serve both the institution and the countries they represented. Bringing those directors back creates perverse incentives, above all because their selection doesn't depend on their capabilities on the job, but rather on their friendship with Iglesias."
Iglesias' supporters admit that his record as a bank administrator is mixed, reflecting a "hands off" management style. However, even Iglesias' critics say that the former Uruguayan foreign minister has done yeoman's work in successfully promoting the IDB and its expanding mission to many audiences, including developed world patrons and regional clients of the bank.
Moreover, some bank employees who say that they know Iglesias well dispute claims that he personally rewards friends with jobs at the institution. "Enrique is well known for not taking care of his friends -- I know," a long-time friend from South America told Insight bitterly. "Instead he acts as sort of the bank's absentee landlord."
The result, according to critics, is that cronyism and allegations of corruption often go hand in hand in bank projects. For example: The Felipe Herrera Foundation in Chile. Described as a pet project of Iglesias, the foundation was set up in honor of the Chilean who founded the IDB and served until 1970 as its first president, before leaving to join the government of the elected president Salvador Allende Gossens, a self-proclaimed Marxist.
IDB press officer Mirna Lievano de Marques said that the foundation was established to foster a variety of programs. It was, she said, to promote regional cultural and development initiatives, in particular those related to the enrichment of the cultural identity of Latin America and the Caribbean and the promotion of the political, economic, social and cultural integration of the region." (Click here to see a copy of the Lievano de Marques letter.)
Testimony from several sources and documents obtained by Insight from Chile, however, reveal that the foundation's high-minded principles were not always reflected in its IDB-supervised operations. These critics point out that well-established bank practices prohibit the subsidy by the multilateral bank of the renting, rehabilitation or purchase of private residences, which as such serve no development purposes. Indeed such subsidies were paid to the Herrera family, even as Felipe Herrera's son, Claudio Herrera Alamo, served as the foundation's president.
IDB funds were advanced to the foundation far in excess of standard bank practice, the documents show, and IDB strict disbursement deadlines were waived. Herrera Alamos' son, Claudio Herrera Jarpa, was paid $44,821 for "investment promotion" for the foundation, while Javier Insulza Merlet, the son of the presidential chief of staff of Chile's current socialist government, received $12,004 for conducting seminars. After repaying the foundation $64,450 for expenses not recognized by bank auditors, Claudio Herrera Alamo suddenly resigned as the organization's president. (Click here to see copies of IDB/Felipe Herrera documents.)
Lievano de Marques confirmed that there had been problems at the Foundation, an organization that bank insiders say may be a model for a similar organization in Uruguay in honor of Iglesias, who recently was elected to his fourth 5-year term at the head of the IDB.
As part of the bank's "regular supervisory activities," she said, the IDB "conducted a review of the eligibility of expenditures and the adequacy of the foundation's plan of operations. The foundation was required to repay $64,000 for expenditures, which did not meet the criteria for the bank's financing." Within a month, Insight sources and bank document show, Claudio Herrera Alamo resigned as the organization's president, although no reason was given.
The IDB, Lievano de Marques added, "was reimbursed for all detected ineligible expenditures. Moreover, the bank continues to rigorously oversee the foundation's activities. This oversight includes a requirement (enforced since the foundation's inception) that the foundation's books be audited each year by an independent accounting firm."
The degree of direct bank oversight remains a matter of dispute, however. Bank document's obtained by Insight showed that IDB deputy auditor general Fernando Fernandez was copied on at least three of them. However, Lievano de Marques said that Fernandez, "as a member of the Office of the Auditor General, never assumed any oversight role related to the foundation." If so, ask worried officials and critics, who was in charge?
Despite the pattern of apparent irregularities, the IDB financial specialist responsible for the foundation's portfolio at the bank's representation office in Santiago, Jose Luis Vasquez, recently was appointed deputy representative in the coveted Buenos Aires office. Bank specialists and auditors tell the magazine that the choice of Vasquez was "highly irregular" as he was named to the post after the applications of those job seekers selected in a competitive process were voided. Ordinarily, say those familiar with bank employment procedures, a second application process, which in this case was never initiated, should have been held.
Iglesias has not responded to an Insight request for an interview to discuss his critics' complaints and other issues, including accomplishments for which he is most proud. And he has not answered several questions submitted to him through the bank's press office. However, bank sources say, questions such as those raised by this magazine are expected to be discussed during the IDB's annual meeting, to be held later this month in Milan, Italy.
Meanwhile, IDB insiders are betting on two important Latin Americans as possible replacements for Iglesias. One is former Mexican president Ernesto Zedillo, the architect of that country's democratic transition, and currently a professor at Yale University and a columnist for Forbes magazine. The other is Eduardo Aninat, who served as Chile's finance minister during the government of Christian Democratic president Eduardo Frei (1994-2000).
Aninat is credited with sheltering Chile's economy from the "tequila effect" of a recent Mexican financial crisis, with reducing his country's external debt, and with presiding over a period of strong economic growth. Currently the deputy managing director of the International Monetary Fund, Aninat is slated to leave that post in June.
Martin Edwin Andersen is a reporter for Insight.