Another Volcker report for another corrupt institution. Since we're talking about the world's second most out-of-control international bureaucracy--no prizes for guessing the first--we shouldn't get our hopes up. But in the past week some prominent outsiders have been forcing the World Bank to reckon with the alien concept of accountability. Now it's up to new bank President Robert Zoellick to see that their efforts bear fruit.
First up is former Federal Reserve Chairman Paul Volcker. For the past five months, Mr. Volcker and a panel of international experts have been conducting an independent review of the Department of Institutional Integrity, the bank's anticorruption unit known internally as the INT. Their report, which readers can find here, is being released to the public today.
In sober and measured terms, Mr. Volcker's report provides a devastating indictment of what it calls the bank's "ambivalence" toward both corruption and its own anticorruption unit. "There was then, and remains now, resistance among important parts of the Bank staff and some of its leadership to the work of INT," the report says (our emphasis).
It goes on to say that "some resistance is more parochial. There is a natural discomfort among some line staff, who are generally encouraged by the pay and performance evaluation system to make loans for promising projects, to have those projects investigated ex post, exposed as rife with corruption, creating an awkward problem in relations with borrowing clients." To put it more plainly, the report is saying that every incentive at the bank is to push more money out the door, and bank employees hate the anticorruption effort because it interferes with that imperative.
The report endorses the work of the INT, which was created a mere six years ago and which has been under what it calls a "particularly strong" institutional attack ever since. The INT, the Volcker panel says, "is staffed by competent and dedicated investigators who work hard and long hours with professionalism" and deploy "advanced investigative methods to detect and substantiate allegations of fraud and corruption." And it goes on to recommend that the anticorruption crusaders "should be nurtured and maintained as an exemplary investigative organization" within the bank.
In a phone interview yesterday, Mr. Volcker added that he gives "high marks" to current INT director Suzanne Rich Folsom. Mr. Volcker's endorsement should stop cold the recent attempts by some in the bank's entrenched bureaucracy to run Ms. Folsom out of the bank, as they did Paul Wolfowitz.
The bank is also being put on notice by the U.S. Senate through provisions in its foreign operations appropriations bill. The provision threatens to withhold 20% of U.S. funds to the bank's International Development Association arm (which provides interest-free loans to the world's poorest countries) until it is assured that the bank "has adequately staffed and sufficiently funded the Department of Institutional Integrity." The bill also demands that the bank provide "financial disclosure forms of all senior World bank personnel." Now, that will get the bureaucracy's attention.
Notably, it's a Democrat--Evan Bayh of Indiana--who's taken the lead on this issue. Mr. Bayh has ordered a Government Accountability Office report on the effectiveness of IDA loans and their susceptibility to corruption, the bank's procurement procedures, as well as the legendary pay packages enjoyed by its senior management. "There's a tendency [at the bank] to say 'just give us the money and go away,' " the Senator told us by phone yesterday. "Until there are some tangible consequences, they won't take us seriously. We shouldn't let that happen."
That's good advice, and not just for the bank. Secretary of Treasury Hank Paulson, who was absent without leave during the Wolfowitz fiasco, also needs to step up to his oversight responsibilities. One particularly useful step he could take is to insist on a probe into the leaking of confidential bank documents to the Government Accountability Project, which ran a "parallel" review of the INT mainly in order to undermine Mr. Volcker's efforts.
As we reported Saturday, there is evidence the leaker is Managing Director Graeme Wheeler, the bank's No. 2 who also happens to be Ms. Folsom's No. 1 institutional enemy. Mr. Wheeler denies he's the leaker, but his name appeared on an email posted on the GAP Web site before it mysteriously disappeared.
Whatever the outcome of that affair, there's no question that Mr. Volcker and Mr. Bayh have set some useful benchmarks for the World Bank to clean up its long history of turning a blind eye to corruption. Now it's up to Mr. Zoellick to follow through, not least by saying goodbye to those in the bank "leadership" who want to continue business as usual.