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Indonesia becomes frontline in World Bank battle against corruption JAKARTA - Paul Wolfowitz, a key architect of America's invasion of Iraq and its ambitions to reshape the world, was President George Bush's controversial choice to take the reins of the World Bank last year. Mr Wolfowitz, despised by many for his policies but admired for his intellect, ignored the furore over his appointment, waiting 12 months to make his first major policy pronouncement. Its location, Indonesia, and his warning of rampant corruption undermining global aid and development efforts, was almost as ambitious and controversial as his attempts to re-engineer the Middle East.

Corruption was a "heavy anchor" holding back Indonesia, Mr Wolfowitz said. "We know that when governments don't work, the development assistance we provide to governments doesn't work either. "It means that children are denied the education they need - mothers are denied the health care they deserve - and countries are denied the institutions needed to deliver real results."

Just 10 years ago the World Bank was refusing to discuss corruption and working closely with the rapacious Soeharto dictatorship. The head of its Indonesian anti-corruption unit, Joel Hellman, concedes the bank shares blame for ignoring the regime's excesses and allowing billions of dollars to be syphoned off. "Our program had been so severely effected, our credibility as an institution in Indonesia had essentially plummeted because we engaged for years without ever talking about corruption or raising the problem," Mr Hellman says. "And when the regime collapsed because of corruption people said the World Bank was complicit in it.

"It led to absolute outrage," Mr Hellman says. "To recognise this is the key development issue in Indonesia we really altered our program. Our whole country program is designed around governance issues." Mr Wolfowitz says the tough anti-corruption measures being pioneered in Indonesia will provide a model for the rest of the world. This weekend he joins delegates at the G20 summit in Melbourne to debate the effectiveness of aid and how corruption erodes assistance vital to the world's most vulnerable.

The debate has particular relevance for Indonesia; the site of one of the world's biggest-ever reconstruction programs, with $US10 billion allocated to resurrect Aceh in the wake of the 2004 tsunami. Indonesia also remains one of world's the most corrupt countries, despite the concerted efforts of President Susilo Bambang Yudhoyono to tackle the "cancer" in his nation's heart.

With Australia contributing its largest single aid package - $1bn in grants and loans, motivated by the tsunami's devastation - to Indonesia, the spectre of corruption is raising a sweat at the highest levels in Canberra. After negotiations with Jakarta, Australia has agreed to direct most funds through Indonesian Government agencies, many still riddled with corruption.

Canberra barred AusAid officials from commenting to the Herald, but they have visited Mr Hellman's office in recent weeks, asking how to avoid corruption scandals. "We've been talking to AusAid about this," says Mr Hellman. "With its new program, a lot of its money will go into government projects, so they are going to go through the budget and support road building and other things, that means all the opportunities where government officials can take bribes. The project has to be structured in a way that guards against it, that's a perennial challenge.

"Now our projects have layer upon layer of extra safeguards to try and prevent bribery from happening, and even still we're constantly faced by the problem, by no means have we solved it." Although the Yudhoyono administration has formed anti-corruption bodies that have succeeded in putting senior police, businesspeople and one minister behind bars, it is locked in a standoff with the World Bank over bribes paid to win major road building projects.

An internal investigation found a large British consultancy firm had greased the palms of numerous Indonesian officials, making a series of payments at each stage of the tendering. Under Mr Wolfowitz's new anti-corruption guidelines, the bank wrote to the Indonesian Government four months ago, cancelling $10m allocated to three road projects and demanding $6m paid to the firm be refunded. Mr Hellman describes the Government response as "ambivalent". In fact, senior officials blasted the bank for making the revelations and have so far refused to hand back any funds.

Public Works Minister Djoko Kirmanto, declared "the World Bank must not make arbitrary accusations". The chairman of national planning agency Bappenas - which oversees all foreign assistance - dismissed the issue as a complaint from a disgruntled competitor. Indonesia has referred the issue to an anti-corruption commission investigation but Bappenas executive director Syahrial Loetan indicates the funds are unlikely to be returned. "The process has been two-way process. If they think something happened then the responsibility should be with both."

He says there were irregularities in the awarding of the project, but alleges World Bank personnel were involved. Loetan believes safeguards can protect Australia's $1bn Indonesian aid program. "We're in the process of increasing transparency. Everybody from very upstream to very downstream can see how much money allocated to where, to whom, to what." With unprecedented billions, and hundreds of disparate charities and agencies, flowing into the tsunami reconstruction the results in Aceh are being closely monitored.

The United Nation's coordinator of the recovery program, Eric Morris, spoke to the Herald from New York, shortly after a final briefing for the UN's special envoy overseeing the disaster response, former President Bill Clinton. Mr Clinton heard a sober analysis, highlighting the remaining challenges as well as the achievements, Mr Morris says. The scale of the disaster exposed "naive assumptions" by aid agencies and governments about how quickly you could construct more than 100,000 houses - they were to be completed this year, but just over 20,000 have been built.

"There were intense challenges in land acquisition, materials and the capacity of agencies to implement," Mr Morris says. "Co-ordination is the hardest part of the job, and it is still difficult to get so many actors to cooperate. "On corruption, Clinton doesn't believe the monitoring and evaluation mechanisms are in place to really get on top of this and that is pretty much correct, they do remain very, very weak.

Across Aceh stand testaments to incompetence and corruption. On the outskirts of the capital sits a deserted village of banana-yellow fibro shacks, held together with duct tape and built without water or power in the middle of a flood plain. International charities have desinged houses without water or sewerage and several have been forced to fire local staff for pocketing reconstruction funds.

According to CARE Australia head Robert Glasser, the unprecedented scale of the response exposed flaws in aid delivery. "It ranges from petty laziness and poor supervision, substitution of poor quality materials and bigger procurement issues. The best answer, says Glasser, is "fully engaging the local communities to identify what they need and have oversight of what happens."

What many locals want is the chance to sustain themselves, rather than remain aid dependant. There are some success stories. With grants of just $10,000 to cooperatives of village women, AusAid and the International Organisation for Migration provided funds to re-establish village markets.

From behind a stall creaking with fresh produce in Peudada village, 41 year-old Rosdiana boasts that "here I've got vegetables and on the other side of the market I am selling cakes and sweets. My children are going to school with new clothes and I have even managed to send my oldest boy to a good high school."

The World Bank's Hellman agrees that local involvement, as well as external oversight, reduces the risk of funds being diverted. Direct funds to the local communties and encourage them to directly monitor the project, he says. "Our view is they have the strongest incentive to ensure to ensure they get the money.

"With housing and infrastructure, those projects have a significantly lower procurement prices, which is a very good indicator of corruption. For example, how much do you pay per kilometre of road? On a kilometre of road built through these community projects you can save 30 per cent on the procurement alone."

There was no "magic bullet" against corruption, with a "constant battle" against fraud even at the village level, Mr Hellman warns. "Corruption has not been eradicated by far in Indonesia, nobody is that naive. When you find it not only do you have to act in it, you must learn from it as far as how you structure your projects."

Posted in Economy @ 18 November 2006 by Jeroen · 'Blog' RSS feed · permalink

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