Saturday, July 16, 2005

Editorial: ADB must take a stand on corruption

Published by the Nation on July 16, 2005,

The Asian Development Bank must ensure transparency in its lending practices if it is to continue receiving funding./The Asian Development Bank (ADB) has always played a major role in bringing more trade and investment to the Mekong sub-region as part of an effort to promote sustainable development in the six states that lie along this important international river.

Earlier this month, it hosted a summit of leaders, ministers and senior officials from China, Burma, Laos, Thailand, Cambodia and Vietnam in Kunming, the capital of China’s Yunnan Province. The ADB has always been an advocate of the economic benefits of infrastructure construction agreements made under its auspices, including huge dam projects and the building of international transport links. While these major projects do offer tangible benefits in facilitating trade and investment as well as improving people’s living conditions, they also pose potential social and environmental effects that must be taken into consideration at the planning stage.

In the past, social and environmental costs, particularly those that might not be immediately obvious, were all too often left out of the equation, and inadequate corrective measures were developed as an afterthought and put in place only after projects had been completed. Much has changed for the better in this respect, as international development banks like the ADB and the World Bank have embraced higher international standards in the projects they fund in developing countries.

However, there is one area in which international development institutes still need to improve – the accountability in their lending operations and the rampant corruption in many countries in the region. It is still commonplace for large slices of development loans approved by the ADB or World Bank to be siphoned off and into the pockets of local politicians and bureaucrats.

For several years, multilateral development banks, including the ADB and World Bank, have been subjected to increased public scrutiny for corruption in their lending practices, which is now causing members of the US Congress to make further funding of these financial institutions conditional upon comprehensive reforms in their lending practices.

In a 2003 assessment of the ADB’s loans to its three major borrowers – Indonesia, Pakistan and Sri Lanka – the New York-based Environmental Defence Centre concluded that at least 70 per cent of the ADB’s projects failed to produce lasting economic and social benefits, in part due to corruption. The findings prompted an investigation into ADB loans to Cambodia last year by the US Senate’s Foreign Relations Committee after reports that ADB funds intended for projects to help poor farmers and improve rural infrastructure had been misappropriated. The US Senate committee has urged Japan, one of the biggest shareholders in the ADB and the World Bank, to do the same.

As the US replenishment of funds to multilateral development banks becomes due later this year, Senator Dick Lugar, chairman of the US Foreign Relations Committee, introduced legislation that ties reforms to a US$3.7 billion (Bt155 billion) contribution to development banks, of which $461 million is due to go to the ADB. Among the reforms stipulated are measures to safeguard against development bank employees misusing their positions for personal gain, promoting transparency and accountability at development banks, and requiring that all funding documents be made public.

The US and Japan are the two largest shareholders in the ADB, together holding more than 30 per cent of the bank’s shares.

As has been noted by Transparency International for some time, graft has been a known problem in countries that borrow funds from the ADB. It is therefore surprising that the ADB still has not lived up to the highest international standards in anti-corruption measures.

The ADB has long been preaching good governance to borrowing countries, but still has not done enough to deal with cases of corruption related to the projects it funds.

Take for example Thailand’s notorious Klong Dan wastewater treatment plant. Massive corruption brought this ADB-supported project to a halt last year, when it was already 90-per-cent complete. Rajat Nag, director of the ADB’s Mekong Department simply shrugged off the controversy, claiming that while the bank looks out for corruption, there are limits to what it can do.

Attitudes such as this have a lot to do with ADB’s loan approval practices, which should be discarded. While the scale of the corruption problem is not fully known, there is no question that it will continue in some form or another unless the ADB operates in a more transparent manner. After all, international development banks have a responsibility to their shareholders and the citizens of the borrowing countries to see to it that the funds for projects they approve go towards sustainable development and improved living conditions, which is only possible when the lending practices are corruption-free.

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