Friday, 6 February 2009

A word for the World Bank

Business Mirror

THE World Bank is accusing Philippine officials and contractors of colluding to overprice government road projects that it had intended to fund. But other than allegations of corruption, perhaps local investigators should also look into possible flaws in the funding process. And in this line, maybe the World Bank shares in the blame.

For one, its decision not to impose ceilings on project bids—contrary to local bidding practice—invariably allows contractors to maximize profits by overpricing bids. It is naive to think that bidders will not take advantage. After all, it is difficult to collect payments for government projects, and contractors normally lose unless contract prices are adjusted.

Worse, the World Bank went to town with its story of corruption and collusion even as bribe money did not seem to have actually changed hands. As noted by the bank itself in a press statement released from Washington, D.C. on January 14, “As a result of swift action when suspicions of collusion in the bidding process were raised by the project team, the World Bank stopped an estimated $33 million from being awarded. No World Bank funds from the NRIMP 1 project were disbursed to the now-sanctioned firms.”

The World Bank acted, by its own admission, based on mere suspicion of its project team, although it likewise claimed in the same press statement its consequent “investigation uncovered evidence of a major cartel involving local and international firms bidding on contracts.”

It remains uncertain, however, whether documentary and testimonial evidence were actually collected in the course of its internal investigation, and that due process in the Philippine context was observed during its probe. Neither is it confirmed if any evidence actually admissible in local courts has been turned over to the government.

Nonetheless, given the results of the World Bank’s internal investigation and despite the pending investigation of the bank’s complaint by the Philippine government, the bank moved ahead to sanction contractors and prohibited them from participating in future bank-funded projects.

But even this sanction seems half-baked, given the bank’s own conditionality that “[their] debarment can be reduced or terminated after [so many] years if the [debarred] firm[s] put in place a compliance program satisfactory to the World Bank”—a jail term with provision for parole on good behavior.

And as if this is not confusing enough, while the bank withdrew part of the funding for the first phase of the National Road Improvement and Management Program, or NRIMP, it still financed the second phase of the project. And this was after several safeguards were reportedly put in place, in cooperation with the Philippine government.

Adding to these mixed signals is that while the bank indicts the Philippine public-bidding process, it continues to peddle loans to the very same government it accuses of wrongdoing, as it expresses interest in a number of emerging financing opportunities. This includes the program for conditional cash transfers to the poor under the proposed P300-billion fiscal-stimulus package.

One cannot help but recall the case involving a 10-year program for rural development in Mindanao that started in 1998. By 2002, during the World Bank’s evaluation of the first phase of that project, it reportedly warned that it could pull out funding due to dismal implementation. But just last year it started the program’s second phase with an offer of $123 million. This was after a subsequent evaluation indicated that “communities continued to pursue their projects, surpassing the targets of the communities [in poverty alleviation].”

If anything, this experience with the Mindanao program indicates that the World Bank, despite all its good-governance practices, can also make mistakes in judgment. Fortunately, in the case of the Mindanao program, it corrected itself in time and took remedial measures, including the additional offer of additional funding last year.

The sad part is that in the case of the NRIMP’s controversial first phase, through the World Bank’s premature public disclosure of sanctions against contractors it unilaterally deems corrupt, it preempts the Philippine government’s own investigation of the scandal. Worse, such disclosure is without accountability, not at the risk of pain or censure, and hides behind the mantle of confidentiality and multilateral privileges.

If at all the World Bank allegations cannot be conclusively proved in local courts, then its premature disclosure of sanction would have done irreparable damage to the country, its international reputation, its government, its private contractors, its public-bidding process and its people. The World Bank action is not unlike that of grandstanding politicians who publicly accuse rivals of wrongdoing without producing evidence or proof, and then hide behind parliamentary privilege.

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