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Posted: February 19, 2003 1:00 a.m. Eastern

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By Martin Edwin Andersen © 2003 News World Communications Inc.

Yellow police tape sealed off a sixth-floor office in the exquisite headquarters of the Inter-American Development Bank, or IDB, just two blocks from the White House. The tape barred entry to the room, but it could not contain the horror within, where a former official of an IDB Central American office, reportedly distraught over misconduct at the multilateral development bank, had slashed throat and wrists. While doing so, say IDB insiders, the former official wrote in blood on an office wall: "The bank is corrupt!"

The tragedy is reported to have occurred after the official blew the whistle to superiors concerning alleged abuse of power affecting IDB projects in the field. In response, the official had been transferred back to Washington. According to a former IDB officer familiar with the case, the official's "grade [job rank] was lowered" and the whistleblower "was assigned to a small windowless office – something very important to bank staff – and given no responsibility." Then the "silent treatment" began.

Four other sources, including a highly placed bank official, have confirmed part or all of the story. Contacted at home by Insight, the recovering bank officer had been on leave since the July 18, 2002, incident and continued to be under a physician's care. The officer would not comment on what had happened, nor would the IDB.

The incident offers emblematic and tragic evidence of what some officials at the multilateral development banks, or MDBs, tell Insight are the risks they face in speaking out against wrongdoing at these institutions supported by U.S. taxpayers. Not only can doing the right thing lead to losing one's job, but foreign hires dependent on bank-sponsored work visas face additional risks.

"Everybody is afraid," a well-placed IDB source tells Insight. "Of course, they fear losing their jobs, but another way [the bank] keeps them in line is by threatening to take away their visas. If they lose their visas, they have to go home."

Similar concerns, say advocates for bank reform, are heard from inside the World Bank, the Asian Development Bank and the African Development Bank. "Experts I work with at the World Bank say that if they make comments critical of the bank's position, they do so at what they have described as 'great risk,' and they end up not being listened to anyway," says Korinna Horta, a senior economist at Environmental Defense, a citizen watchdog group. "I have firsthand knowledge that this happened in the case of the Chad-Cameroon oil-pipeline project."

According to a recent study by Northwestern University political scientist Jeffrey Winters, in the last five decades corrupt officials from Third World countries have skimmed an estimated $100 billion from World Bank loans. Not until 1996 did the World Bank institutionalize a strategy and mechanism for combating the corruption inside the institution, which next to the federal government is the largest employer in Washington. The years passed. In 2000, the bank shifted the chairs on the deck of what seemed to some like the Titanic, merging its corruption-and-fraud-investigations unit and its office of business ethics into a department of institutional integrity. That same year the General Accounting Office, the U.S. congressional watchdog, issued a report calling on the World Bank to make greater efforts to control corruption.

But the U.S. Treasury Department is the executive-branch overseer of the development banks. And in November 2000 it successfully killed recommendations to Congress proposed by the U.S. Agency for International Development that greater public disclosure of the banks' operations be mandated and a better process of external and internal review be established to prevent potentially illegal loans from being approved.

More recently, the International Financial Institution Advisory Commission, a congressionally mandated 11-member panel on the role and effectiveness of several international institutions, was created. Known as the Meltzer Commission, it was created amid growing bipartisan discomfort about the slowness of these banks to reform. Those demanding action ranged from the late Sen. Paul Wellstone, D-Minn., to former House Majority Leader Richard Armey, R-Texas. Few were surprised when the commission called for major reform to ensure a more efficient use of U.S. funds – such as the more than $1 billion provided in the fiscal 2003 foreign-operations bill.

Within the last year, allegations of endemic corruption at the IDB have been accompanied by complaints heard at sister institutions alleging gross mismanagement and violations of U.S. law. In addition, U.S. watchdog groups have charged that all the banks still are reluctant to heed calls for greater transparency and public disclosure concerning the use of public funds for development objectives such as poverty reduction.

In response, there have been increasing calls for greater congressional oversight of the banks. Proposals range from requiring the State Department and the Justice Department to review more actively MDB-funded activities and report to Congress every year, to holding the MDBs' feet to the fire by authorizing their budget only on a yearly basis, at least for the next year or two, rather than on the current three-year schedule. As one congressional source observes, "The banks come up for their money every three years, make a lot of promises, then basically thumb their noses at us until the next appropriations cycle is near."

Rep. Steve Israel, D-N.Y., a member of the House Financial Services Committee, tells Insight: "The multilateral development banks are critical instruments for reducing poverty around the world and making life better for billions of people. The U.S. makes significant contributions to these banks, and it is essential that the Congress finds out if we are getting what we pay for. These banks shouldn't be making people rich. They shouldn't be used as personal fiefdoms. They are a public trust, and the people who run them must remember that. If they don't, the Congress should remind them, in the strongest possible terms." And, according to Israel, "We must put their very existence at risk if we are going to get any results."

Senate Finance Committee Chairman Charles Grassley, R-Iowa, emphasizes: "We need to make certain that these development banks are being operated for the common good and are not above the law. Just as the banks require loan recipients to be forthcoming about information, so Congress expects the banks to be responsive and candid to requests for information."

Oversight of operations at the World Bank, says John Ruthrauff, senior policy adviser for Oxfam, is still a hit-and-miss proposition, despite improvements instituted during the 1990s by current bank president James Wolfensohn. Ruthrauff notes that the bank's directors do not see their oversight responsibilities extending to operational issues and, even if they did, they are hamstrung by small staffs and a system of rotation in which most directors last only a few years because 26 executive directors and a similar number of alternates represent 180 countries.

"They just don't have the time to look into issues themselves – there are just too many projects," Ruthrauff adds. "So oversight, where it exists, is left to the staff."

The situation is even worse at the regional development banks, insiders say. "While at the World Bank you might have a Pakistani in charge of programs in Venezuela, in the regional banks it pretty much boils down to an elite group that works with its friends," says one insider. "It is tougher to have an arms-length relationship between borrowers and bank staff, or among the latter, because the regions are smaller and there is a lot of opportunity to develop networks and special friendships."

Most observers agree that, of the international financial institutions, the World Bank appears to have the best internal-review policies, an image carefully bolstered by a first-rate press office. "The World Bank takes its fiduciary and audit responsibilities very seriously," bank spokeswoman Caroline Anstey, says. "To this end, we encourage anyone with a complaint of fraud or corruption involving a World Bank financed project to come forward and report these allegations to our fraud and corruption investigations unit. ... Our experience over the years has shown that a transparent management of public funds represents a key element of good governance, and this, in turn, is indispensable for sustained growth, poverty reduction and a country's overall development."

Treasury's role in the oversight process continues to be controversial. Sources on the IDB board tell Insight that U.S. Executive Director José Fourquet has not provided leadership needed to curb alleged corruption at that bank. Fourquet has not responded to several requests for comment.

On Feb. 3, Rep. Barney Frank, D-Mass., a longtime proponent of greater oversight of the banks and a supporter of their development mission, wrote to Rep. Jim Kolbe, R-Ariz., chairman of the House Appropriations subcommittee on Foreign Operations, complaining about Treasury's resistance to outside oversight.

"I was very disturbed to learn recently that the Treasury Department reproached some officials at the World Bank for engaging in some detailed, high-level discussions with my office about [funding issues] without Treasury's approval," Frank said. "I think these actions speak to the need for continued, assertive congressional oversight."

Critics contend that without conditions placed on the banks, passage of the omnibus appropriations bill by Congress will result in continued abdication of responsibilities in monitoring institutions that lend tens of billions of dollars each year. Not only are U.S. taxpayer dollars in danger of being squandered, they warn, but less-developed nations continue to be saddled with unwanted debt that all too often ends up in the hands of greedy local politicians or is spent on projects that exacerbate economic and environmental problems.

Martin Edwin Andersen is a reporter for Insight. He worked as an international consultant for the IDB from 1997-2001.

www.washingtonpost.com Wednesday, February 19, 2003; Page E02

Oil Hits 29-Month Highs

Oil prices rose to 29-month highs as the United States and Britain pushed for a second U.N. resolution on Iraq that could open the way to war on the world's eighth-largest oil exporter. Light sweet crude oil for March delivery rose 16 cents, to $36.96 a barrel, in New York, the highest closing price since Sept. 20, 2000. In London, the April Brent crude-oil futures contract rose 62 cents, to $32.54 a barrel.

New SEC Chief Seeks Accountability

William H. Donaldson was sworn in as chairman of the Securities and Exchange Commission and called upon corporate executives "to create a new environment of integrity and accountability." Donaldson replaces Harvey L. Pitt, who resigned. Donaldson takes charge of the SEC under pressure from Congress to crack down on corporate misdeeds. "It is time that all those who manage and govern our corporate and financial institutions show true leadership," Donaldson said. "I will call upon them individually and collectively to create a new environment of integrity and accountability that goes well beyond adherence to laws."

MORE NEWS

Wachovia has agreed to acquire Prudential Financial's retail brokerage business, people familiar with the negotiations said. The transaction will bring about 5,000 brokers and $1.7 billion of capital to Charlotte-based Wachovia, which now has about 8,500 brokers. Prudential will have a minority stake in the new business. Prudential Securities has lost almost $300 million during the past two years. The transaction will be announced today, the people said.

Overture Services agreed to buy rival Web-search service AltaVista for $140 million. The current owner of AltaVista, CMGI , bought it from Compaq Computer for $2.3 billion in 1999. Overture, whose search service is used on the Web sites run by Yahoo and MSN, said AltaVista owns technology that will help it improve its search engine.

Duke Power said it received a subpoena from a federal grand jury seeking documents related to last year's audit of the public utility's accounting from 1998 to 2000. The audit, conducted at the request of regulators from North and South Carolina, found that the Charlotte-based utility planned to underreport earnings by $124 million in the three-year period. As a public utility, Duke Power's income is capped. If profits rise above a set level, the states can reduce consumer rates. Duke Power paid a $25 million settlement to the two states last year.

Adelphia Communications founder John Rigas, who is accused of accounting fraud, asked a federal judge to block plans by the bankrupt cable-television company to hire two top executives and pay them as much as $41 million over three years. Rigas and three of his sons joined other Adelphia shareholders and some creditors in trying to persuade U.S. Bankruptcy Judge Robert Gerber to reject or alter the contracts.

T-bill rates rose. The discount rate on three-month Treasury bills auctioned yesterday rose to 1.16 percent from 1.15 percent last week. The rate on six-month bills rose to 1.18 percent from 1.165 percent. The actual return to investors is 1.179 percent on three-month bills, with a $10,000 bill selling for $9,970.70, and 1.204 percent on a six-month bill selling for $9,940.30. Because of the snow storm, the Federal Reserve delayed release of its report on one-year Treasury bills until today.

Personal computer sales will rise 4.8 percent this quarter globally, market researcher Dataquest predicted. About 33.2 million PCs will be shipped in the quarter, and shipments this year may climb by 7.9 percent, to 138.7 million. Last year, global PC shipments rose 2.7 percent, to 132 million.

American Greetings, the second-largest U.S. greeting-card maker after, said Morry Weiss will retire as chief executive on June 1 and will be replaced by his son Zev.

United Airlines and Northwest Airlines matched a $3 fare increase on routes where they compete with American Trans Air, which blamed higher fuel prices. United and Northwest said their airlines added $3 each way of a flight in competing flights, mainly through Chicago. American and Continental were among airlines that tried to raise prices by $20 for all round-trip tickets on Friday and Saturday. Those increases were dropped after Northwest matched them only on some of its lowest fares.

Ford agreed to pay $244,000 to settle allegations that it failed to properly monitor hazardous waste at 14 factories in nine states. The Environmental Protection Agency's allegations involved pipes carrying paint, solvents and other chemicals to disposal sites from areas where cars are painted.

INTERNATIONAL

China overtook the United States as the world's leading exporter to Japan last year, said the Japan External Trade Organization, a government-backed trade group. Chinese exports to Japan in 2002 totaled $61.7 billion, up 6.1 percent from 2001. China accounts for 18.3 percent of Japan's imports. The United States accounted for 17 percent of Japan's imports at $57.5 billion, down 9.5 percent from 2001 for the second straight year of decline.

South Africa informed mining companies of 19 conditions they must meet to renew their licenses. The conditions are part of a program to promote black ownership and include such things as ownership quotas and requirements for training workers. South Africa plans to compel companies to sell 26 percent of their assets to black investors within 10 years.

Exxon Mobil will resume loading oil today from Venezuela's Jose port. It will be the first U.S. company to take on a shipment since a strike began Dec. 2.The resumption is a blow to striking oil workers, who are trying to topple President Hugo Chavez.

Arcelor, the world's largest steelmaker, said protesters held six managers, including the chief executive from its Cockerill Sambre unit, captive for 23 hours over plans to close blast furnaces in Europe. Police officers weren't asked to intervene and there was no violence. The protesters included union members who were protesting plans to close six furnaces in Belgium, French and German factories.

EARNINGS

Wal-Mart Stores said its fourth-quarter earnings rose 16.3 percent, to $2.53 billion. Sales totaled $71.07 billion, up 10.7 percent from a year earlier.

Waste Management is cutting 700 full-time jobs and 270 contract positions as it scales down North American operations. The Houston-based company also reported its fourth-quarter profit climbed 49 percent, to $236 million. Revenue was flat at $2.8 billion.

sacramento.bizjournals.com 3:14 PM PST Tuesday 

Sacramento-based CalPERS, the nation's largest public pension fund, ruled out stock investment in Malaysia, Thailand, India, Russia, Morocco, Sri Lanka, Egypt, Pakistan, Indonesia and Venezuela.

The fund, which has about $133 billion in assets, also cleared the way for future investment in emerging markets like South Korea, Poland, Israel, Czech Republic, Hungary, Taiwan, South Africa, Chile, Mexico, Jordan, Peru, Argentina, Turkey and Brazil.

CalPERS began in 2002 to consider civil liberties, press freedoms and political risk in making investments after board members argued that investing in more stable countries with more liberal practices would yield better long-term results. The countries that were dropped scored lower than the threshold imposed by CalPERS, which were based on studies by an outside consultant.

reuters.com Tue February 18, 2003 05:16 PM ET (Adds background, details, quotes, byline)

By Michael Kahn

SACRAMENTO, Calif., Feb 18 (Reuters) - Calpers, the nation's largest public pension fund, on Tuesday ruled out stock investment in Malaysia, Thailand, India, Russia, and eight other countries and proposed an overhaul of its emerging market policies.

The board of the California Public Employees' Retirement System, or Calpers, backed a proposal by California state treasurer Phil Angelides that excluded stock investment from a total of 12 countries spanning the globe from Colombia to China based on a numerical scoring by an outside consultant.

The countries also include Morocco, Sri Lanka, Egypt, Pakistan, Indonesia and Venezuela.

Calpers, which has some $133 billion in assets, had been expected to put Thailand and Malaysia back on its list of approved emerging markets, but voted for tighter standards than its consultant had recommended. Under the revised standards, investment would be cleared for 14 emerging markets, including South Korea, Poland and Israel. The others are the Czech Republic, Hungary, Taiwan, South Africa, Chile, Mexico, Jordan, Peru, Argentina, Turkey and Brazil.

In another twist, the fund, which has about $1.8 billion in emerging markets, also said it would keep the Philippines on its target investment list pending a further review after officials from that nation appealed the recommendation that it be dropped.

Calpers officials also said the fund would consider a proposal that would allow for more flexibility in implementing its emerging markets guidelines.

'WATCHLIST' PLAN

Specifically, the fund, which has a reputation as a watchdog for corporate governance, said it would consider adding countries to a "watchlist" before it sold off from those markets, allowing governments to respond to perceived problems and saving transaction costs.

Calpers last year began to consider civil liberties, press freedoms and political risk in making investment decisions after board members argued that investing in more stable countries with liberal practices would yield better long-term returns.

Its investment in the markets that made the grade according to a composite score prepared by Santa Monica, California-based Wilshire Consulting underperformed a broader measure of emerging markets since the policy took effect in April last year.

In its report to Calpers this year, Wilshire argued that the policy had limited the benefits of diversification and concentrated the fund's "exposure to the more risky economic sectors" of the markets in which it did have a stake.

While Wilshire had argued for allowing investment in a total of 20 emerging markets, the Calpers board opted to continue its tougher standard under which just 14 qualified.

"I don't see any compelling reason right now to change the policy," Angelides said.

But the Calpers board listened to a presentation from Philippines Finance Secretary Jose Camacho in which he argued that the country deserved better marks in areas such as investor protection, political stability and judicial reform.

Calpers had initially ruled out investment in the Philippines last year, only to reverse course after admitting that decision had been made on the basis of mistaken information about market settlement practices there.

"I do not want to cast any clouds on the Philippines," said Angelides.

Calpers' investment committee will reconsider how to treat lagging countries on its list and the status of the Philippines when it meets again in 60 days.

www.cantonrep.com Tuesday, February 18, 2003 By The Associated Press

Excerpts of recent editorials of statewide and national interest from Ohio newspapers:

The Cincinnati Post, Feb. 15:

Americans are peeved at France: for its obstinacy on Iraq; for the patronizing incoherence of its foreign minister; for its double-crossing of NATO ally Turkey; for simply being France.

House Speaker Dennis Hastert is considering striking back by slapping trade restrictions on imports of French wine and bottled water. As satisfying as it might be to annoy our oldest ally, the speaker should drop the idea. It’s petty, and it won’t do any good.

So how should Congress deal with the French? Ignore them. We’re bigger people than these petty reprisals, and if the French think they’re getting to us, they’ll keep it up because France’s claim to great power status lies largely in its nuisance value.

————

The Marion Star, Feb. 16:

We suspect residents wonder what a gallon of gasoline will cost if and when the United States goes to war with Iraq.

After all, it jumped to more than $1.70 a gallon at stations this week, and we are in the dead of a cold winter where demand is far from peak.

The experts tell us talk of war, terrorism, unrest in Venezuela, an unusually low supply of fuel and other complicated factors have pushed the price of oil on the world market.

These explanations have merit to a point, but we also note that energy giant BP posted an amazing 49 percent growth in profits for the final quarter of 2002. High oil prices were cited as one reason for BP’s strong financial performance, which actually reversed a negative trend.

Although many residents get frustrated with typical mid-week price fluctuations in our free-market economy, the recent trends warrant real concern.

The American Automobile Association has expressed concern about the recent gasoline hikes. While the group acknowledges the oil issues cited by the major gas suppliers, it added that “nothing fully justifies the dramatic increase experienced across the United States in the last month.”

The AAA spokesperson didn’t come right out and use the phrase “price gouging,” but the message was clear.

Our government should keep a close eye on the oil industry to make sure it does not exploit world tensions to boost bottom lines. Every penny or dime they charge takes money from people who might spend it elsewhere and help stimulate the economy.

————

Warren Tribune Chronicle, Feb. 13:

Gov. Bob Taft has opened the door — just a bit — to the idea of supporting a temporary sales tax to balance Ohio’s budget. But the one-penny sales tax hike would have to be in place by April 1, sooner than House Republicans believe is possible, to balance the budget by June 1.

House Speaker Larry Householder said Taft’s sales tax proposal came too late to be included in the bill approved late Tuesday by the House Finance Committee.

Should Ohio’s lawmakers approve a 1 percent increase by April 1, the state could raise $195 million by the end of the fiscal year on June 30, said Tom Zaino, the state tax commissioner.

Accelerated tax collections also can raise an additional $288 million, but Taft believes any further cuts in state agencies are not acceptable.

But there does appear to be a consensus growing in Columbus about how to handle the state’s deficit although it has not yet jelled. We hope the lawmakers will find a way to do so without any more tax increases — even temporary ones.

Should lawmakers decide to agree to temporary increases, they will have to spell out a date when temporary increases will be removed. Unless that is done, temporary tends to become permanent.