NCPA - National Center for Policy Analysis

Lending To Corrupt Regimes

March 19, 1999

The International Monetary Fund and the World Bank are reportedly increasing their scrutiny of developing countries which receive assistance. Specifically, they are reviewing possible corruption, military spending, government financial transparency and even human rights.

One reason for the attention is that the agencies lend money to the most corrupt countries in the world, as rated by Transparency International, and corruption is seen as a major obstacle to trade, investment and economic development in those countries. Thus, for example,

  • The IMF has dispersed half of a $220 million loan to Cameroon and the World Bank has agreed to lend it $200 million -- but has conditioned continued lending upon government action to clean up and improve its operations.
  • The bank dispersed $38 million to Paraguay last year and is said to be initiating an anticorruption program there.
  • In Honduras, the bank pledged $245 million last year and the IMF is coming across with $66 million in Hurricane Mitch relief -- but it wants to ensure that the hurricane aid isn't misspent.
  • Between them, the two agencies have dispersed $2.5 billion out of $3.2 billion in multiyear loans -- but the bank has launched an anticorruption program that includes training local investigative journalists.

As Nigeria changes over from a military to an elected government, the IMF is not yet lending. But the bank has 12 old projects with $224 million undispersed. Nigerian businesses and activists have asked for help in setting up a workshop which will include issues touching on corruption.

The World Bank has admitted ignoring corruption in Indonesia, even while it was promising the country $1.7 billion last year. The IMF has dispersed $3.8 billion of a $6.4 billion loan to Indonesia.

Critics say that asking for anticorruption assistance has become politically correct. They question whether it might not also be a way to get more money faster.

Source: Michael M. Phillips, "IMF Makes a Push for Good Government," Wall Street Journal, March 19, 1999.


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