When Robert Zoellick took over the World Bank in 2007after months of bitter wrangling over professional favours done by its former president,Paul Wolfowitz,for his girlfriendmany people hoped that happier times lay head for the institution. So it was a shock to hear Mr Zoellick describe as appalling the banks behaviour over a bungled project to develop the coast of Albania. He was responding to the findings of a bank-appointed panel which found a clear link between the wrongful demolition of 16 homes in the coastal town of Jale and the project,to which the bank had pledged $17.5m.
Mr Zoellicks frank mea culpa sounded impressive,and the project has been suspended. The bank managements response,in a document dated February 18th,is also contrite. And legal aid to the families affected,to help them seek compensation,has been promised.
But investigations have uncovered a sorry tale of incompetence,mismanagement,obfuscation and possibly worse. And they come barely a month after the bank was forced to issue a statement belatedly identifying three IT firms that had been debarred from bank projectstwo of them,Wipro and Satyam,for providing improper benefits to bank staff. The imbroglio provides fresh fodder to critics of the bank who argue that it is slow,opaque in its decision-making and not sufficiently accountable to people its work affects.
In the Albanian project,this is one of the embarrassing things: an appraisal document included a crucial reference to an agreement with the government about a moratorium on the demolition of unauthorised buildingsuntil clear rules could be set for defining illegal activity and assisting those who were affected. In reality,no such agreement existed,something that at least some staff knew. Corrections to the document were made shortly before the project was presented to the banks board,then amended,then inexplicably dropped. As a consequence,some staff continued to think that an agreement was in place,and to refer to it in other documents. A charitable way to describe the process would be haphazard.
According to the report by the banks general counsel into the curious matter of the agreement that wasnt,the bank has no clear procedure to fix responsibility for the accuracy of project appraisals. The response of the management admits the need for thoroughness in preparing for board meetings. Some might call this a statement of the obvious.
The Albanian project also sheds light on some murky questions about whom the bank recruits and co-operates with when it executes projects. In this case,the banks management told the investigation panel at first that there was no link at all between the demolitions in Jale and the coastal-redevelopment project.
Go directly to Jale
Indeed,the demolitions were carried out by the Albanian construction police,not the bank. But the panel found that the aerial photographs which identified the targets for demolition were provided by staff in the project co-ordination unit,and that they used World Bank funds to get them taken. These photographs were then sent to the construction police,along with a letter from the project co-ordinator asking for action to be taken as fast as possible.
The construction police responded to the project co-ordinators request with alacrity,arriving in the hamlet of Jale to demolish the illegal houses in the early hours of the morning. This eagerness to please was probably not entirely out of respect for the World Bank: the project co-ordinator was the son-in-law of Albanias prime minister,Sali Berisha,who has recently turned his ire on the bank.
The inspection panel notes in its report that local World Bank staff were concerned both by the co-ordinators political links and by his qualifications. He was appointed anyway,getting his job just a few months after his father-in-law took over as prime minister.
This is unlikely to be the only case of its kind. The appointment of influential people with their own agendas,sometimes at loggerheads with the banks,poses a large problem for the way its projects are administered. The banks response to the Albanian case includes a commitment to try to avoid appointments that involve conflicts of interest if possible. But the problem,some would argue,is that having such people on its projects may allow the bank to cut through red tape by virtue of their connections,a valuable skill in difficult political environments. And this could provide an incentive for senior managers to look the other way when well-connected people are recruited.
Old-fashioned corruption is a problem too,as is apparent from the saga of the two IT firms mentioned above. There is also a huge brouhaha about fraud in health projects in India,where investigations that ended in 2008 revealed unacceptable indicators of fraud and corruption,according to Mr Zoellick.
On the positive side,the bank has at least learnt to admit serious errors when they are proved to have happened. And it has wrestled seriously in recent years with the tough question of whether or not to cut off funding when corruption is suspected. Empowering its inspection panel to look into matters of corruption,which are currently not within its remit,would also be a useful step.
© The Economist Newspaper Limited 2009