[Africa] World Bank May Delay Some Africa Debt Relief Over Corruption

from Bloomberg

The World Bank, concerned about allegations of government corruption in Africa, may delay some debt relief announced with fanfare in September, officials said.

The bank, owned by 184 nations and finances projects in developing nations, has agreed to cancel $37 billion in debt from 18 of 38 countries. Some of the remaining nations, including Chad and Congo, may not get aid as planned because of their handling of oil revenue.

The World Bank ``needs to be certain that we don't send the wrong signals,'' Pietro Veglio, a World Bank executive director who represents seven countries in Europe, said in an interview. ``We don't want to reward a country that after they get the debt relief, they start that conduct that leads to debt.''

After praising the Republic of Congo a year ago for better fiscal management -- a requirement for writing off $1.68 billion in Congo's debt -- World Bank directors learned in February that President Denis Sassou-Nguesso and his staff ran up a $250,000 tab at two Manhattan hotels in September. Two weeks ago, Congolese police arrested two human-rights activists who were investigating whether the government misused oil money.

The incident ``suggests to me that it's not going to be easy'' to hit the targets for reform, World Bank President Paul Wolfowitz told reporters on an April 11 conference call. ``It is not satisfactory to just pass the mark for a week or a month and say, `We met it.' There has got to be sustained performance.''

Addressing issues in the debt-relief agreements the bank outlined at its September annual meeting will be on the agenda at this weekend's spring meeting in Washington.

Reducing Poverty

Bank critics say writing off money owed without improvements in the fight against corruption won't reduce poverty -- the main goal of the relief plan.

``There are huge corruption and governance concerns; where is the proof that international debt relief will solve that?'' said Sarah Wykes, a senior campaigner and investigator for Global Witness, a group in London that monitors human-rights and environmental abuse. ``If the slate is wiped clean for Congo, they are just going to go out and borrow some more.''

George Ayittey, an economist at American University in Washington and a former World Bank consultant, said that before canceling debt, the bank should force conditions, such as insisting countries have an independent central bank and an independent press.

`Political Chicanery'

``They have allowed themselves to be duped with that political chicanery,'' Ayittey said. ``Who is the World Bank trying to help, the corrupt government or the people?''

Wolfowitz, 62, began his service in June 2005 with plans to help raise living standards, improve fiscal management and stem corruption in Africa. Relief for nations with ``unsustainable debt,'' discussed before he arrived, became a top priority.

The World Bank expects by July to forgive loans owed by Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia.

Relief for a second and third tier of nations, including Chad, Congo and Sudan, would come later, provided they show proof of economic stability and government reform, bank officials said.

Determining a country is poor enough to warrant debt relief is just a first step, Wolfowitz said. The bank can change its mind based on governance, transparency and steps to reduce poverty, he said.

Performance

``Relief is not something that we give just on the basis of promises,'' Wolfowitz told reporters following a Feb. 16 board meeting. ``It had to be earned on the basis of performance.''

Chad, located about 300 miles north of Congo's border, is learning that lesson the hard way. Wolfowitz in January cut off $124 million in loans after the nation changed its laws to siphon oil pipeline revenues away from anti-poverty programs.

Bank directors were equally troubled by the Congolese delegation's seven-day stay at the New York Palace and Crowne Plaza hotels in Manhattan during a United Nations meeting.

The charges for Sassou-Nguesso's room alone totaled $81,706 and were mostly paid with cash, according to a copy of the bill provided by Elliott Management Corp., a hedge fund suing Congo for unpaid loans.

Congo has the world's highest ratio of debt to gross domestic product. The nation owes roughly $8.5 billion in external debt, an International Monetary Fund document dated November 2005 shows. That's about 235 percent of annual GDP and 806 percent of government revenue, according to World Bank calculations.

1.5 Billion Barrels

At the same time, the country is sub-Saharan Africa's fifth- largest oil producer, with estimated proven reserves of 1.5 billion barrels. While accurate data on how much Congo earns from oil is unavailable, the U.S. Energy Department estimates the oil industry accounts for about two-thirds of GDP.

``It is important to emphasize we have an obligation to the poor people of that country,'' Wolfowitz said.

The Congolese government ``must demonstrate sustained performance on good governance, transparent public finance and oil revenues management,'' the World Bank said in its Feb. 25 announcement that it agreed on steps for interim debt relief.

The human-rights activists arrested April 6 work for Publish What You Pay, a London-based international rights group that advocates transparency in the oil and mining industries. Congolese government officials couldn't be reached for comment at the embassy in Washington or at the UN.

Adam Lerrick, an economist at Carnegie Mellon University in Pittsburgh, said public and political pressures may eventually force the World Bank to go forward with debt forgiveness even if the countries stop well short of genuine reform. The governments involved, he said, ``don't have to be clean, they don't have to be cleaner, they just have to give the semblance of making a minimal effort.''