Serious problems found at World Bank

---

Krishna Guha and Eoin Callan,
FT Syndication Service
WASHINGTON: Paul Volcker, former Federal Reserve chairman, has blamed World Bank staff and directors for failing to take corruption sufficiently seriously and said this had been the root cause of strife over its internal anti-corruption watchdog.
Mr Volcker's comments come Wednesday ahead of Thursday's release of a report that concluded the Bank's anti­corruption unit should be stripped of responsibilities for minor staff misconduct and placed under new oversight.
Mr Volcker's comments will be seen by supporters of Paul Wolfowitz as a vindication of the former bank president who was forced from office in an ethics scandal, but present tricky challenges for his successor, Robert Zoellick.
In an interview with the FT last Wednesday, Mr Volcker said his inquiry had "reconfirmed" there was "ambivalence in the bank as to whether they really want an effective anti-corruption programme or not". "The board itself has been ambivalent."
He indicated this uncertainty extended to ministers and representatives of its leading donors. He saw "some parallels" with his prior investigation into the United Nations' handling of the oil-for-food programme.
While every bank official who talked to his committee claimed they took corruption seriously, he doubted this was always the case.
There were "legitimate complaints on both sides" about the anti-corruption unit. But he attributed the tension largely to those at the bank not sincerely committed to its anti-corruption efforts, saying this was the "underlying fundamental" problem.
While he had heard numerous complaints about the unit, headed by Mr ­Wolfowitz's ally Suzanne Folsom, he had not come across any evidence of "systematic" misconduct on its part or investigated the claims. Mr Zoellick said last Wednesday he planned to "keep Suzanne on".
Mr Volcker's analysis of the bank's problems drew criticism from current and former bank officials, who feared it would undermine support for the multilateral institution on Capitol Hill. They said he had not consulted widely enough but thought the recommendations of the panel appeared largely balanced.
The report will say "severe strains" between the unit and other departments led to "counterproductive relations between the bank and borrowers and funding partners". It will recommend the unit be stripped of key responsibilities and placed under new external oversight. The bank "should reassign" responsibility for probing minor staff misconduct to another department, share information better and set up a consulting arm to liaise with bank units.
Ms Folsom's "current role as counsellor to the president should be dropped in the interest of clarifying the [unit's] purpose and independence".
Mr Zoellick said the report contained "a good set of recommendations for us to follow up". But he emphasised that he was conducting a parallel review and would invite comments over the next 45 days before acting.
Mr Volcker cited as evidence of ambivalence over corruption a fight over Mr Wolfowitz's proposed anti-corruption strategy at the bank's annual meeting in Singapore last year.
Most European and developing country representatives give a different account, saying Mr Wolfowitz's proposal was badly thought through and gave the bank's president too much discretion.