In a recent post, Rick examined the Canadian Supreme Court case concerning a high-level corruption scheme implicating Bangladeshi government officials and executives at SNC Lavalin, a Canadian construction company, over a cancelled World Bank project in Bangladesh. The $1.2 billion project underlying the case was the Padma Bridge, a massive infrastructure that some estimated would increase the Bangladeshi GDP 1.2% each year.
Upon discovering the corruption scheme in 2011, the World Bank—recognizing the importance of the infrastructure project for the Bangladeshi people—initially responded by attaching conditions to the continued funding of the bridge. Specifically, the Bank requested that the Bangladeshi government (i) place all public officials involved in the investigation on leave pending the completion of the investigation, (ii) appoint a special inquiry and prosecution team, and (iii) agree to provide full access to investigative information. However, on June 29, 2012, the World Bank cancelled its funding of the project, deeming the Bangladeshi government’s response “unsatisfactory.”
Although neither the World Bank nor SNC Lavalin are involved in the project anymore, the government of Bangladesh is nonetheless moving ahead with the Padma Bridge, and has awarded the construction contract to a Chinese firm. Since the World Bank withdrew its involvement, the estimated cost of the bridge has climbed by over US$1 billion, and the expected completion date is being pushed back by two years to 2020. These climbing costs and greater delays suggest not only less efficiency, but also that even more money is being siphoned off by corrupt public officials, to the detriment of the Bangladeshi people.
Because of this, it may seem that the World Bank’s decision to disengage from the project, and allow the Bangladeshi government proceed on its own–without any Bank oversight–was a misguided policy. I understand this view, but on balance I do not agree. While the World Bank’s decision to terminate its involvement in the project may have increased costs and corruption in the short run, in this case the Bank made the right call. That does not mean that the Bank should have a “zero tolerance” policy that requires it to suspend any project where there is evidence of corruption of any kind. But in the particular circumstances of this case, withdrawal was the best of the Bank’s bad options.
As I noted above, the arguments that the Bank should have stayed engaged with the Padma Bridge project, despite the credible evidence of corruption, were by no means frivolous. Two such arguments are especially compelling:
- First, as indicated by the mounting costs and delays in the bridge’s construction, the World Bank’s total disengagement may have had the adverse effect of simply substituting SNC Lavalin with a more corrupt enterprise. Perhaps the World Bank’s additional level of oversight, and commitment to fighting corruption, could have reduced the scale of corruption, even if that meant accepting some degree of graft.
- Second, even putting the corruption issue to one side, the delay in constructing the Padma Bridge due to the World Bank’s disengagement has a significant human cost. Bangladesh is an extremely poor country. The Padma Bridge, once completed, would be a boon to the economy, linking the capital city, Dhaka, to the poor and underserved southwest of the country. At present, the Padma River, which is five kilometers wide, is a significant barrier to developing the southwest of the country, as freight and passenger transportation to the rest of the country is grossly inadequate at present. The World Bank’s mission is first and foremost to end extreme poverty. While fighting corruption is another priority of the World Bank, to the extent that continued World Bank involvement would have seen the bridge constructed sooner, and presumably at a lower cost, one can view the disengagement as a mistake.
Nonetheless, despite these reasonable concerns, the Bank ultimately did the right thing in pulling out of the Padma Bridge project, for three reasons:
- First, by giving the Bangladeshi government an opportunity to reform and continue to receive funds—conditional disengagement—the World Bank put the ultimate responsibility in the hands of the Bangladeshi government. While the conditions may have been seen as unrealistic, the conditional disengagement likely helped to preserve the reputation of the World Bank in the eyes of the Bangladeshi people. Upon discovery of a scheme of this size, it is far more sensible to direct the World Bank’s resources to fighting corruption than to knowingly lining the pockets of government officials.
- Second, the decision to disengage from the Padma Bridge should be viewed in the broader context of the World Bank’s evolving mission. Though the World Bank’s stated mission is to fight extreme poverty, in the 1990s the Bank began to recognize fighting corruption as a core element of this aim. In 2013, World Bank President Jim Yong Kim referred to corruption as “Public Enemy Number One,” suggesting that a willingness to confront corruption is crucial in working to end extreme poverty. Cancelling this project sent signals to all recipients of World Bank funds that the World Bank is serious about its fight against corruption and is willing to stand up to corrupt governments. Though this may have had adverse short term effects on economic development in Bangladesh, viewed as part of a long term effort to lessen corruption’s nefarious impact on development, this decision may have a net positive effect.
- Third, it is important to emphasize that this case was particularly egregious. Even if one believes (as I do) that a literal “zero tolerance” policy is inappropriate in this context, and that international lenders and donors must be willing to move ahead with projects even when there is the risk (or reality) of some level of corruption, the extent of the graft in the Padma Bridge case justified total disengagement. If the World Bank were to continue its involvement upon discovering a corruption scheme on this scale, it would actually be hindering development, as well as the image and reputation of the World Bank.
Going forward, the World Bank has announced its intent to avoid total disengagement, and instead focus on “stronger integrity safeguards.” However, in this case, and in other future cases with massive corruption, the credible threat of total disengagement remains a strong and essential tool to emphasize the Bank’s commitment to fighting corruption.
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I agree with you and think your analysis is spot on. The signals sent in this case are strong, unequivocal, and lend weight to the World Bank’s commitment to fighting corruption. Even though the concerns on the opposing side are, as you note, compelling, the level of oversight and prevention of future graft that the may be possible in future projects might at least mitigate the first argument you mentioned for continued World Bank involvement in the bridge. It seems there could be an implied test in this case, where once large-scale corruption has been revealed, apparent noncompliance with a set of requested corrective measures was the trigger that led to revoking World Bank involvement. Do you think that would a helpful or applicable triggering condition in other situations?
While I agree with your assessment that this was the right decision for the Padma Bridge, I do have concerns about attaching conditions to international organization funding. This is particularly so if those conditions are set (directly or indirectly) by members with weighted voting power. It looks like the Padma Bridge funds came from the World Bank International Development Association, in which the U.S. apparently has 10.38% of the votes, significantly more than Bangladesh (0.55%), India (2.93%) or even China (2.10%). (I am referencing the Voting Powers tables here: http://www.worldbank.org/en/about/leadership/VotingPowers). While I don’t think the World Bank and IMF can or should change their weighted voting structures, to me there are bigger questions here about the role developing countries should play when choosing the development and anticorruption efforts undertaken by the international community. If the World Bank were to choose some triggering condition for revoking funding in future projects, I would hope there could be input from the countries who might be funding recipients.
I think that your first point is right, insofar as the World Bank would be unlikely to simply disengage without offering some sort of conditions or opportunity to address the corruption first. It should also be stressed, however, that this case was in every respect extreme, so it will likely not serve as a meaningful test for most cases going forward.
I am not sure I agree with your second concern. Certainly, there is a strong argument that developing countries should play a greater role in crafting the development efforts and strategies undertaken by the World Bank and similar organizations. However, in my view, that argument is distinguishable from cases like this. In situations where a recipient country government is directly implicated in a corruption scandal, or is refusing to take adequate steps to address corruption, there would be an overwhelming conflict of interest in allowing that government to have a greater say over the management of those funds.
I am not sure that I agree that the extremity of this case means it has limited applicability as a test case going forward. Instead, it may serve as a deterrent for corrupt actors in future large World Bank funded projects. At the very least, had rampant corruption been discovered and had the World Bank NOT taken any action in response, it would have been a green light for corrupt actors to move ahead with stealing from other World Bank projects. To the extent that you are right and similar situations will arise rarely, that is in part thanks to the reaction that the World Bank had when discovering it here.
I agree with another point raised further down in the comments: while giving the government a chance to redeem itself makes sense from a policy perspective, I am unconvinced that it will have much effect on the popular opinion towards the World Bank in Bangladesh, given that ordinary citizens are unlikely to be following the ins and outs of the bureaucratic process.
I totally agree with your first point, and I think that this case certainly sets a very useful long-term precedent, even if that usefulness takes the form of deterring similar situations rather than serving as an actual applicable triggering condition.
On the second point, I must say that I do not have enough knowledge of Bangladesh to really know how much effect this decision will have on popular opinion of the World Bank. My basic understanding is that the World Bank is actually quite a prominent actor in Bangladesh (certainly when compared to its status in developed countries), and given the colossal scope of the Padma Bridge project, I imagine that this case is relatively well-known. That said, it likely is the case that the details and intricacies of this case are not closely followed by the average Bangladeshi citizen, and some may view the World Bank as simply having capitulated and abandoned the development of a very necessary project.
This case is extreme, but I wonder how extreme cases of corruption (perceived/alleged/discovered) must be to justify pulling out of financing of a project when doing so would have real human costs. To the extent that this case serves as a deterrent for future corruption, that deterrent effect might be limited only to egregious corruption. I wonder whether drastic action could have an effect one way or another on government actors and whistleblowers in their willingness to raise corruption to the bank or public. Further, whenever there is a threshold level of non-egregious corruption the World Bank might be willing to accept (if there is one), it’s unclear how the organization would proceed when those lower levels are discovered–might those kinds of discoveries are as or similarly detrimental to the image/overall goals of the organization? If we do reject a zero tolerance type of policy, then how much of a difference between the lower levels and egregious corruption in terms of deterrent effect, reputation, etc, is sufficient to justify canceling a project in one instance and not another?
Thanks for sharing your thoughts on this topic. I had read that after the World Bank withdrew its support and before the government brought on the Chinese contractors, the Bangladeshi government made a series of aggressive borrowing decisions that caused rampant inflation and weakened the economy. Further, the prime minister also directed local officials to divert funds previously allocated to essential services like health and education to the bridge self-financing endeavor. Obviously, we can’t blame the World Bank for these consequences, but I wondered whether there was anything the organization could do to mitigate results that seems so antithetical to its mission. I then heard that as an unofficial mitigation measure, that same year the World Bank withdrew its support, it also tried to reallocate part of the loan amount to fund other projects in Bangladesh. Do you think these mitigation measures, while laudable, could send an implicit message that undermines its anticorruption principles?
You raise some great insights, to which I don’t think there are any clean responses. On the first point, the World Bank must respect a country’s sovereignty over domestic affairs, and is therefore handicapped to do anything directly about government officials’ decisions, other than the extreme measures such as the ones detailed in this case. There is certainly an ongoing tension between the anticorruption and development principles in the Bank’s aims that will continue to challenge the Bank moving forward, but I don’t think there are any easy fixes to mitigate circumstances like those you describe.
This is a great case study in how the World Bank can and should handle corruption in projects its funds—particularly in large projects. I wonder about your point that by giving the Bangladeshi government an opportunity to correct its ways through the conditional disengagement, the World Bank was able to preserve its reputation with the Bangladeshi people, presumably in ways it would have been unable to do had it turned a blind eye or withdrawn from funding the project immediately upon discovery of the scheme. Specifically, I wonder how much ability the World Bank has to craft and maintain its image in the developing world.
The World Bank typically lacks the media resources that a government can bring to bear on framing an issue of corruption such as this one. Even if the citizens in a country such as Bangladesh do not trust the government, or state-run media, it is not clear to me that the World Bank can either disassociate itself in the eyes of the people or craft and disseminate a counter message explaining that the World Bank is not the cause of or involved in the government’s corrupt acts. In short, what is to prevent the government of Bangladesh or any similarly situated country from arguing to its citizens that the reason for the cost overruns, high inflation (as Cindy mentioned) and two year delay is because the World Bank did not keep its word?
It would be interesting to know how much the World Bank considered the potential impacts on its image in the developing world—and specifically in Bangladesh—in crafting its response to the scandal, and how that image has improved, worsened, or remained the same—both in Bangladesh and throughout the developing world—since the World Bank stopped its involvement in the Padma Bridge project.
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Your ideas make sense to me, but on the whole I am having trouble getting past the second counterargument you raise, about the human cost of decisions like this one. Even if this choice was an important one in the context of the World Bank’s evolving mission, and even if it served the purpose of signaling a credible commitment to discontinue work with corrupt partners, it still seems to me that the Bangladeshi people are bearing only the costs and not the benefits. As you mentioned, the ultimate inflated cost of the project shows that the Bangladeshi government did not wash its hands of corruption after the World Bank pulled out of the project, but if anything that corruption took even stronger of a hold. Any deterrent effect seems to be focused on other countries, not Bangladesh itself, with the human cost borne by Bangladesh, not the rest of the world. Given the vote distribution that Kait mentioned in a comment above, I would worry about developed countries’ ability to direct the corruption agenda at the expense of economic development in countries with large proportions of extreme poverty like Bangladesh going forward.
I agree that the human cost is certainly the strongest argument against the Bank disengaging from this project, and it certainly seems that the benefits from the Bank’s actions are in no way accrued to the Bangladeshi people. Taken in isolation, from a purely economic point of view it would seem that it is in everyone’s best interest for the bridge to be constructed as soon as possible. However, I think that disengagement’s long-run benefits, though spread diffusely across all recipient countries of World Bank funds (including, but obviously not limited to Bangladesh), outweigh even the resultant delay as disengagement may serve as a deterrent to such egregious corruption in the future.
I wanted to raise a slightly different but related question to the points others have made. When corruption of this magnitude is revealed, what does that mean for different World Bank projects in the same country going forward? If the World Bank has chosen to disengage from this project, it seems difficult for them to open another project in Bangladesh — at least with the same actors they were working with before — and could create difficulties for ongoing projects if there are any.
If cancelling a project would negatively impact other World Bank projects in that country, how would you fit that into your calculus? And what do you think it would take, on the part of the Bangladeshi government, for the World Bank to feel comfortable collaborating with them on other projects in the future?
The short answer is that I do not really know the full implications of this for other projects in Bangladesh. However, within a given country, many Bank projects’ timelines are several years long, and cover a wide range of sectors (i.e. public administration, education, finance, agriculture), which I think would make the spillover effects you suggest less acutely felt. I am certain that this case will not result in the World Bank disengaging altogether from Bangladesh, and if anything it will hopefully lead to more compliance with the Bank’s anti-corruption principles going forward.
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