World Bank chief talks corruption

World Bank president Jim Yong Kim gave a major speech on corruption yesterday. He touted the Bank's  relatively recent (post-Cold War) attention to the issue and cited the decision to back out of a bridge project in Bangladesh as evidence of a zero-tolerance policy:

[S]ometimes things go wrong and then we need to stand firm. This is what happened in the case of the Padma Bridge Project where insufficient response by the authorities to the evidence of corruption at the time made us terminate a $1.2 billion credit in June last year...Until certain conditions are met to heighten oversight in the project and give assurance that a complete and fair criminal investigation is under way, we cannot consider financing the bridge.

But Kim also grappled with an important reality for the Bank: the societies most in need of Bank financing are often the most corrupt. This dilemma is particularly acute for the arm of the World Bank that gives concessional loans to poor countries. Kim insisted that vigilance on corruption need not mean abandoning projects in those countries:

Our willingness to work in difficult situations and an appetite for measured risk should never be confused with a willingness to tolerate corruption in Bank projects and activities.  Let me say it loud and clear: When corruption is discovered in our projects and activities, we have zero tolerance for it within the World Bank Group.

So where does this leave us? Should we shy away from high-risk interventions and forgo the potentially massive benefits to the poor or should we rather take a calculated risk, design appropriate safeguards and move forward with them? My answer is that we need to take risks for development results but we have to do so with our eyes open and try to mitigate those risks as much as we can. 

The Multilateralist

Argentina's cold war with the International Monetary Fund

The International Monetary Fund released a terse statement yesterday regarding Argentina:

On January 29, 2013, the Executive Board of the International Monetary Fund (IMF) was briefed by staff on economic developments in Argentina, whose Article IV consultation is delayed by 62 months.

Informal sessions to brief the Board based on information available are held approximately every 12 months for members whose Article IV consultations are delayed by more than 18 months.

That dry announcement is actually the latest salvo in a long-running battle between the international lender and one of South America's leading economies. The bad blood dates back to the country's 2001 economic collapse, which many in Argentina believe the Fund's policies exacerbated. Since 2006, Argentina has refused to participate in normal annual reviews of its financial and economic health required by the IMF's Articles of Agreement. That impasse has, in turn, encouraged the Fund to think more systematically about how to deal with members who refuse to participate in its economic surveillance program. Its report noted a worrying trend in compliance:

A few recent cases of severely delayed consultations have underscored the need
to better promote timeliness of consultations. The Fund has relied on a cooperative
approach to consulting with members, setting consultation deadlines as expectations rather than firm obligations. This approach has worked well for most of the membership.
Historically, delays in Article IV consultations have generally been relatively short or, in
cases of extended delays, for reasons beyond members’ control. However, some recent
delays have been unusually long for reasons that are not clearly beyond the members’ control. 

The IMF has an even more specific beef with Argentine officials: the quality of official data on inflation. Last year, the IMF repeatedly made clear its concerns about numbers provided by the government and warned that it might formally sanction the country if it does not address those concerns. Michael Warren of the Associated Press provides the background to the slow-moving confrontation over data:

The IMF has lost patience with these numbers after urging Argentina for years to improve this consumer price index, which lost credibility in 2007 after political appointees replaced career statisticians. The new methodology, which has kept official yearly inflation in the range of 10 per cent ever since, has not been fully explained, even as consumers complain about soaring costs of beef and other staples. IMF experts and Argentine economists have spent months working privately with government officials to recommend very detailed ways to get accurate numbers again, but the government has yet to adopt them.

The IMF is now on the 12th step of a 15-point process for flagging Argentina with what IMF Director Christine Lagarde called “the red card” for countries that don’t follow the rules.

What exactly that red card might entail has been left somewhat vague, but the loss of voting rights and even formal expulsion have been discussed. It's doubtful matters would reach that point. Expulsions from international organizations are rare, even in the face of continued acts of defiance.