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16/04/2003 | IDB President Promises Reforms

Martin Edwin Andersen

 

The stakes had grown increasingly high, but the speaker knew his subject. In an address kicking off the annual meeting of the U.S. taxpayer-financed Inter-American Development Bank (IDB), held this year in Milan, IDB President Enrique Iglesias declared: "Corruption is a concern in the public and private sectors alike, distorting economies and finances and creating incentives that impact every level of society. It puts democratic institutions in peril, holds up countries' socioeconomic advancement and, if allowed to take root, can undermine the credibility of democratic institutions and systems."

The event was less well-attended by international luminaries than those held in past years. However Iglesias, elected late last year to his fourth five-year term, stressed to the gathering that a series of measures would be implemented that would help create accountability in the bank - Latin America's largest source of investment capital - as well as in the programs it finances abroad. The IDB, Iglesias added, was determined "to ensure that bank employees act ethically and with absolute integrity, ensure that there are effective controls and oversight arrangements in place, and equip the bank to support the member countries' anticorruption efforts."

"To that end," he announced, "we have launched a review of internal controls and procedures, with a view to bolstering transparency rules and requirements already in place in the bank. We are instituting zero-tolerance policies for purposes of the bank's projects and programs, prompted by the need to ensure that our activities are free from fraud and corruption and taking appropriate disciplinary measures in the event of confirmed instances of unethical conduct."

Iglesias' unveiling of the reform agenda followed a series of investigative articles published by Insight and Insight Online that uncovered a wide pattern of high-level cronyism and other misconduct at the bank, in some cases so severe that it is believed to have contributed to an attempted suicide by a distraught bank supervisor. The series already has led to at least one criminal referral of an IDB auditor in an alleged jobs-for-money kickback scheme and, according to more than a dozen sources, has created a situation of near revolt among bank employees who say they are fed up with the alleged institutionalized corruption within management.

The promised reform also came as U.S. congressional investigators began to probe the Inter-American Investment Corporation (IIC), an IDB sister organization also financed by U.S. taxpayers and presided over by Iglesias. The probe centered on alleged losses of more than $41 million by the IIC in 2002 and a reported financial pass-through mechanism from the IDB to the troubled institution that one observer called "robbing Pedro to pay Paulo." In Milan, Iglesias also appeared to hedge on the IDB's controversial commitment to finance a $1.5 billion Peruvian natural-gas project that critics say poses significant risks both to the environment and to Indian tribes living in the remote area.

Iglesias' new commitment to reform stood in stark contrast to recent comments by senior bank officials flatly denying that corruption was a problem at the institution. In a December letter to the magazine, IDB press chief Mirna Liévano de Marques responded to Insight's investigative series, saying, "We know from our internal controls and constant monitoring that these allegations are unfounded."

The posh atmosphere at the Milan meeting did not blunt growing criticism within the IDB of senior bank management, Iglesias' initiative notwithstanding. The bank's board of governors sharply criticized current policies, urging renewed efforts within the IDB to fight internal corruption, make good-faith efforts to improve transparency and to strengthen safeguards in the procurement of goods and services.

Independent bank critics cautioned that Iglesias' promise to overhaul moribund IDB oversight offices should be weighed in the light of past experience. "In 1994, the IDB committed to making organizational reforms, including implementation of an information-disclosure policy, an independent investigation mechanism and broad public consultation," Amy Gray, Latin America director for the Bank Information Center (BIC), an independent watchdog group, tells Insight. "These promises were made to secure millions of dollars in U.S. aid. Nine years later these reforms have been only minimally implemented, occasionally with the excuse that there are not resources for them. This is an insult to Congress, which made the money available on the condition of successful implementation of the reforms."

In Milan, Iglesias announced the adoption of "significant" oversight measures ranging from a new information-disclosure policy; a review of IDB tendering policies and procedures; new codes of ethics for staff, senior management and the board of directors; whistle-blower protection; and "new and more-stringent audit procedures to prevent and sanction irregularities and investigate allegations of misuse of funds by bank employees or any party that administers funds under bank operations." It was, he added, "my intention to see this set of measures become effective without delay, and to make certain they are applied and enforced."

With senior members of the U.S. Congress stepping up scrutiny of the role played by the multilateral development banks, including the IDB and the World Bank, Iglesias' promises appear to come not a moment too soon. If he makes good on them this time, independent observers tell Insight, and uses the new broom on senior bank officials who allegedly have engaged in illegal or unethical activities, the IDB could become a model for its sister organizations.

Martin Edwin Andersen is a reporter for Insight.

Insight Magazine (Estados Unidos)

 


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