Wolfowitz’s Anti-Corruption Hoax at the World Bank

A few weeks ago, Colin Powell’s former chief of staff in the State Department, Lawrence Wilkerson, revealed to a PBS NOW audience something we all knew anyway about Saddam Hussein’s weapons arsenal: ‘I participated in a hoax on the American people, the international community, and the United Nations Security Council.’

A chief planner of that hoax was Paul Wolfowitz. Is he now carrying out another–telling the world that he’s ridding the Third World of corruption?

‘I would certainly counsel Paul Wolfowitz to put himself in the hands of the professionals who run the World Bank’s external-relations department: he needs an extreme makeover,’ former IMF chief economist Kenneth Rogoff advised shortly after his appointment last April.

He got one. By September, a Los Angeles Times editorial remarked, ‘Wolfowitz’s most valuable contribution to date may simply be his role as a cheerleader. Amid an agency and a US public that is cynical about the value of foreign aid, Wolfowitz has continually pointed out that things are changing for the better in Africa and that the world’s contributions are making a difference.’

Commentator Ariana Huffington observed last November, ‘Talk about your Extreme Political Makeover. Wolfie has gone from war hawk to the second coming of Mother Teresa–all without having to make any kind of redemptive pit stop in political purgatory or having to apologize for being so wrong about Iraq.’

Added Washington Post journalist Dana Milbank in December: ‘Being Wolfie means not having to say you’re sorry. Since taking the World Bank job six months ago he has found a second act. He has toured sub-Saharan Africa, danced with the natives in a poor Indian village, badgered the United States to make firmer foreign aid commitments and cuddled up to the likes of Bono and George Clooney.’

There is no question that Wolfowitz quickly learned to talk ‘left’ about unfair trade subsidies, meagre US aid and corruption. Whether this was merely superficial rhetoric, veiling the sinister agenda of the petro-military complex, would soon be tested.

Last August in Ecuador, the centrist government employed a Keynesian finance minister, Rafael Correa, who renewed Ecuador’s long-standing $75 million tax-avoidance complaint against Occidental Petroleum. In addition, a new Ecuadoran law aimed to redirect 20% of an oil fund towards social needs and 10% for national development in science and technology, instead of debt servicing to foreign banks. (The windfall from the oil price rise from $18/barrel when the fund was set up, to $70/barrel in 2005, was being funnelled to Ecuador’s creditors.)

Correa aimed to rescind Occidental’s control of the oilfields, as the original contract allowed for under conditions of non-performance. But next door to Ecuador, in Colombia, Wolfowitz had helped Occidental defend one of the most productive oil fields in the world, Cano Limon, whose pipeline runs through jungle adjacent to guerrilla controlled territory. The Pentagon established a Colombian ‘Pipeline Brigade’ with a $150 million grant arranged by Wolfowitz when he was the second-ranking military official.

A senior financier explained in MRzine: ‘Wolfowitz’s decision provoked a crisis in the government of president Alfredo Palacio who, especially with a weak government, has indicated his reluctance to confront the United States. After discussions with the president, finance minister Correa was obliged to resign and the head of the national petroleum company has been sacked. The new head of the petroleum company, Luis Roman, held the same post in the 1990s and helped Occidental into its current position. In fact, he is a supporter of further privatizing the oil fields.’

A few months later, a seemingly opposite case arose in Africa, namely a redirection of the controversial Chad-Cameroon oil pipeline’s funds away from social programmes into the military. As leader of the country tied with Bangladesh for most corrupt in the world (according to Transparency International), Chad’s authoritarian president Edriss Déby and the country’s parliament amended a 1999 petroleum revenue management law last December in spite of warnings by Wolfowitz.

Bank cofinancing of the $3.7 billion pipeline was the target of a long-running international campaign by community, human rights and environmental groups on grounds it would simply empower the Déby regime, not the people. In 1999, the Bank had responded with revenue legislation to mitigate these concerns.

Hence Déby’s 2005 amendment triggered Wolfowitz to withhold any new loans and grants and halt disbursement of $124 million in International Development Association monies. A local group, the Chadian Association for the Promotion and Defence of Human Rights, endorsed Bank sanctions because ‘new money would mainly be used for military purposes and increasing repression of the Chadian people. But we regret that the Bank did not listen to the warnings of civil society organisations earlier.’

Indeed, as the Bretton Woods Project records, ‘Local authorities and the military are known to extort money from villagers when they receive cash compensation from the oil companies. Chadian human rights organisations report that human rights activists trying to defend local peoples’ rights often receive death threats and have to flee the region. Pollution is taking a toll on the health and crops of some of the poorest people on earth, but none of the project sponsors are even studying it, let alone resolving the problems.’

Surprisingly perhaps, this case of petro-military alignment was resolved–temporarily–against the World Bank’s allies in a repressive regime and multinational oil corporations. Wolfowitz apparently required a dose of public credibility in what was Africa’s highest-profile financing dispute. Cynics might add, on the other hand, that the other crucial function of the clampdown was to impose Bank discipline on an errant country, in the process sending a tough lesson to others, that they must obey Washington’s orders.

Likewise, the same conflict of objectives arose in Ethiopia and Kenya late last year. In the former, Africa’s second most populous country and the world’s seventh-poorest, donors announced the suspension of $375 million budget support following severe state repression including a massacre of opposition political protesters and mass arrests. Although this threatened to wipe out fully a third of the country’s budget, and although president Meles Zenawi–an ex-Marxist ex-guerrilla–was a favourite of the neoliberals, the Bank complied.

In Kenya, a corruption scandal debilitated Mwai Kibaki’s government, and by January Wolfowitz again suspended financing, in this case $261 million, over half of which had been approved by the Bank’s board just a few days earlier. The motive here, transparently, was the need to urgently save face, given that the main Kenyan corruption investigator, John Githongo, had fled to Oxford to release his investigative report from the safety of distance.

Former British ambassador to Kenya Edward Clay accused Wolfowitz of ‘blind and offensive blundering’ for initially providing the loan to Nairobi, a solid ally of Washington/London against Islam. So the temporary retraction of Bank funds earmarked for Kenya probably reflects the lender’s embarrassment, at the very time Wolfowitz was trying to shake out the Bank of officials implicated in various other scandals.

For example, India saw $800 million in health-related loans delayed due to corruption, and Argentina was also penalised recently. And in the Republic of Congo-Brazzaville, revelations emerged in early February that president Denis Sassou-Nguesso and an entourage of 50 people spent $300,000 for an eight-day stay at the New York Crowne Plaza last September, including $8,500/night for a luxury three-storey hotel suite. After an intervention by an NGO, Global Witness, following a vulture fund’s whistle-blowing on these expenditures, Wolfowitz cut debt relief to Sassou-Nguesso. (The vulture fund had bought Congo debt cheap and wanted the funds directed to its own hedonistic New York expenditures instead.)

One such incident appears just too challenging for Wolfowitz. The Bank’s Multilateral Investment Guarantee Agency made a $13.3 million political risk insurance investment in the DRC’s Katanga province just before an October 2004 massacre. The lucrative Dikulushi Copper-Silver Mining Project, run by the Australian firm Anvil Mining, was given Bank support in spite of intense social unrest in the country. Indeed, DRC armed forces killed 100 people during the suppression of a rebellion by the Mayi-Mayi militia in Kilwa, and the Australian Broadcasting Corporation reported that the firm’s trucks moved troops to the site of the killings and then moved corpses out.

Although company headquarters denied knowledge of an Anvil role in the massacre, critics in the DRC and watchdog agencies assume that a subsequent Bank investigation would reveal corporate connivance. With Wolfowitz still reluctant to disclose the facts five months after receiving the document, Nikki Reisch of the Bank Information Centre remarked: ‘Stalling the release of the report only gives the impression that the Bank Group has something to hide. It seems strange that an audit of such a high-profile and controversial project would be kept secret.’

Meanwhile in a country Wolfowitz knows far better, Iraq, the Bank and IMF argued to the new government in late 2004 that the world’s second-largest oil reserves be exploited by multinational companies through a very unusual arrangement, production sharing agreements, which amounted to a privatisation process. Other IMF conditionality began to bite last December, as a $685 million stand-by credit was advanced to Baghdad on four conditions: cutting public subsidies especially on fuel (the cheapest in the world); restructuring Iraq’s external debt; strengthening administrative capacity, including statistical reporting; and restructuring Iraq’s two state-owned banks. When Baghdad raised petrol and diesel prices by up to 200%, riots ensued and the oil minister was compelled to resign in protest.

With these diverse examples, what can we conclude about the dire state of international financial governance? Wolfowitz cannot be trusted, and although his minor anti-corruption sweep is causing staff anxiety, there is no indication that deeper-rooted problems at the Bank will surface, through, for example, whistleblower protection that is now being widely called for by watchdog groups.

As Charles Abugre of Christian Aid wrote in Pambazuka recently, ‘To monitor compliance often requires even greater involvement and power of donors in domestic governance. It is like saying that new forms of colonisation are acceptable on human rights grounds. This is dangerous. Yet, there are cases where human rights abuses, dictatorship and corruption are at such a level that the impact of debt relief and aid will be to strengthen repression and enrich a few than promote development.’

Under present circumstances, many will not agree with Abugre’s proposed solution: a trust fund for debt relief grants to be run by the African Union (which this year is chaired by none other than the despot Sassou-Nguesso).

Dennis Brutus from Jubilee South Africa is in town to launch his fantastic new book, Poetry and Protest (Haymarket Books and UKZN Press). As I talk this dilemma over with him, he offers a very simple proposition: ‘It seems to me that both the IMF and Bank are inherently corrupt institutions, because they systematically transfer the wealth of poor countries to the North. While they are asking their clients–dictators and other ruling elites–to clean up their act, our job is still is to demand the abolition of this much more broadly corrupt system.’

This is not theory, Brutus reminds: ‘The World Bank Bonds Boycott is still going strong)

But what do you do if you’re in Nairobi or Brazzaville or Harare, then? Would it help to have Kibaki or Sassou-Nguesso or Robert Mugabe–who just caused a massive inflation spurt by repaying the IMF long-overdue debt–even more under Washington’s thumb?

Brutus replies: ‘Each case is different. Ask the progressive movements in those countries, and take the lead from them! Unless you have the mass of the citizens participating in the debate over resource inflows and outflows, you will just see elites being legitimised and empowered. We had this enormously instructive participatory-budgeting example from the Porto Alegre municipality. Limited and truncated as it was, it nevertheless gave a sense of the way we will want to control resources and stop corruption in the future, in Africa and everywhere else.’

PATRICK BOND’s forthcoming title from Zed Books and UKZN Press is Looting Africa: The Economics of Exploitation.



Patrick Bond is professor of sociology at the University of Johannesburg in South Africa. He can be reached at: pbond@mail.ngo.za