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.