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FINANCE: Groups Cheer U.S. Congress’ Scrutiny of Global Lenders

Emad Mekay

WASHINGTON, Apr 8 2004 (IPS) - Development and advocacy groups, long concerned about accountability at international development and lending agencies like the World Bank, are cheering the U.S. Congress for adopting measures that provide more oversight of those bodies.

The reforms, passed by Congress in January, are designed to combat corruption and conflict of interest at agencies including the World Bank and the Inter-American Development Bank (IDB), collectively known as multilateral development banks (MDBs).

With the changes to the Consolidated Appropriations Act, the Secretary of the Treasury, whose department oversees MDBs, is now required to report to Congress on the agencies’ progress in improving transparency and accountability, through such measures as publicly revealing details of the conditions tied to each loan and strategy they implement.

The secretary’s first report to Congress is due in September.

Congress initiated the reforms after its General Accounting Office found lacking many of the accountability and consultation mechanisms at the organisations.

The banks are the largest source of development finance in the world, typically lending 30-40 billion U.S. dollars a year to low and middle-income countries.

That money, coupled with their forceful policy advice, means the MDBs are central in determining the direction of development policy across Latin America, Asia, Africa and Central and Eastern Europe.

The reforms also established policy benchmarks for openness and accountability, which includes greater information disclosure of all the banks’ operations, from project preparation to executive board discussions.

"The institution shall establish a plan and schedule for conducting regular, independent audits of internal management controls and procedures for meeting operational objectives, complying with bank policies, and preventing fraud, and making reports describing the scope and findings of such audits available to the public," says the act.

It also urges the banks to publish summaries of independent audits of their effectiveness and internal controls, and to establish effective complaint mechanisms and policies to protect whistleblowers – individuals who reveal privileged information about an agency believing it to be in the public good – from retaliation.

Other MDBs include the Asian Development Bank, African Development Bank, Inter-Development Bank and the European Bank for Reconstruction and Development, along with their subsidiaries.

The changes won praise from traditional critics of the institutions among civil society. The Government Accountability Project (GAP), a Washington-based public interest groups that specialises in whistleblower protection, said the move is a major step forward.

"This legislation creates powerful tools for advancing the rule of law, encourages fiscally sound development projects and programmes, and reduces fraud and corruption at the multilateral development banks," said John Fitzgerald, director of GAP’s multilateral development banks programme.

"One of the most powerful provisions is this simple statement that any loan or grant must include the resources and conditions necessary to ensure that the applicable laws are obeyed, rather than saying, ‘here’s the money, we trust you will obey the law, whatever it is’," he told IPS.

Many groups have maintained that MDBs’ loans have supported ill-conceived programmes that were largely responsible for widespread environmental and social damage, adversely affecting millions of people in developing countries.

They also complained that the international institutions were rarely held accountable for their actions.

But earlier this week 14 of those critics wrote to thank congressional backers of the changes. The groups include the Bank Information Centre, Environmental Defence, Centre for Concern, Friends of the Earth- U.S., International Rivers Network and Jubilee USA Network.

"We look forward to working with you to ensure that the Treasury Department and its partner agencies in MDB oversight take an active and thorough approach to implementing these reforms," the groups said in their letter.

GAP took some credit for the changes, saying it had waged an intensive campaign to educate Congress about the need for policies at the MDBs that protect the free speech rights of employees and improve institutional accountability.

The group recently reported that the IDB, the largest public lender to Latin America, had committed itself to penalise those who retaliate against whistleblowers but that it did not put mechanisms in place to fulfil that promise.

GAP also criticised the bank for contradictory policies – promising whistleblower safeguards while banning employees from communicating with outside sources without talking to the bank’s communications department first.

"Overall, the IDB whistleblower programme has promise as an ambitious but imperfect management tool internally," said GAP.

All the groups say that they intend to see that the changes are monitored.

"We expect that Congress does not intend to authorise or appropriate additional funds without reasonably good progress on these points on which there is virtual consensus across the political spectrum," said Fitzgerald.

He also recognised that the reforms might not create an airtight oversight system.

"It may be necessary for legislatures to reduce or clarify the sovereign immunity that the banks enjoy, so that they and their agents are more clearly liable for actions taken in violation of their own policies or existing law."