Memo to Jim Kim: Please Follow Results, Not Money

One of the biggest hopes people expressed about Jim Kim’s nomination to become president of the World Bank was that he would bring a fresh perspective, focused on achieving results, rather than reinforce the institution’s bureaucratic machinery. Unfortunately, President Kim’s recent remarks at the Council on Foreign Relations suggest that bureaucratic inertia is winning. His references to “following the money” and “zero tolerance for corruption” suggest that he is unaware of the direct and indirect costs of the Bank’s intrusive and prescriptive money-tracking technology or is being erroneously advised that they are an unfortunate but unavoidable burden.

Kim’s positive spin on the Bank’s procedures sounded like this:

And the good news about the Bank ... because we have safeguards in place, because we do auditing, because we’re so careful at following our money, we can at least tell our own governors where our money is going, and it takes a lot to do that.

The truth is that the Bank may know what its loan funds are buying but it rarely knows what benefits those funds provide, if any. Despite years of talking about improving data and accountability, for example, information about the number of children who know how to read and write is only recently available ... and not as a result of the World Bank’s support to education information systems.

Even the information from tracking the money is quite poor. One internal World Bank study looked at a sample of water sector projects and found that evidence of corruption was completely uncorrelated with the number of “red flags” – such as failure to advertise properly, low number of submitted bids, or two almost identical bids being submitted – that are supposed to help detect abuses.

Finally, the costs of all this money tracking is significant and hard to measure. A recent CGD working paper estimated that the World Bank spends about $30 million each year on the offices that audit and investigate fraud and another $180 million each year on its own procurement and financial staff. To this, one must add the time of borrowing country staff required to satisfy the Bank’s reporting requirements.

“Tracking the money” may protect the Bank from scandal but it doesn’t help countries deal with the hard slog of introducing, implementing and institutionalizing public financing management systems. That only happens as a result of domestic political change that is unlikely to be affected positively by heavy outside monitoring of funds.

Kim goes on to praise the World Bank for having a “zero tolerance” approach to corruption:

The best thing we can do when we go into a particular country, we make it clear that we have zero tolerance for corruption. On my first day on the job, my first major decision was whether to stop a bridge project because of evidence of corruption. … and we did it. So we’ve got to fight corruption, and we’ve got to do everything we can to try to help specific countries improve on their governance.

The problem with the rhetoric of “zero corruption” is that it is unrealistic. For one thing, the Bank cannot prosecute people for corruption because it has no authority in the countries which borrow its funds. It is limited to halting projects or blacklisting international bidders.

But the real problem is that the only way to have zero corruption is not to do a project. Period. So the World Bank has internal conversations about “managing risk,” which means recognizing that some money will be diverted, and an external conversation which is all about zero tolerance. Staff are caught between one set of directives (take risks and ‘manage them’) and another directive (don’t ever get caught approving something that might possibly ever turn into a scandal), which makes them excessively cautious.

The “zero corruption” rhetoric may feel good but it focuses people on tracking money rather than the effectiveness of spending. If the World Bank were to put as much effort into measuring outcomes as it has to tracking procurement, it would both restrict the opportunities for corruption (as explained in this Kenny and Savedoff paper) and help borrowing countries get information that is crucial for policy and accountability. And that, ultimately, is the best way to improve governance. By disbursing funds against results (preferably outcomes), programs can build government accountability to parliaments, civil society advocates, the media and citizens who will actually learn what their governments are (or are not) delivering. By contrast, a World Bank report assuring that money was spent according to procedural rules means little to a community that has just received a nonfunctioning hospital or a road that washes out after the first rainy season.

President Kim could have explained how he plans to promote the use of a new bank lending instrument – Program for Results (PforR) – that was approved by the Board in 2012. Unlike the World Bank’s normal investment loans, PforR loans disburse against indicators that measure progress on mutually agreed objectives, such as roads paved or children passing competency tests. The PforR modality makes it possible for the World Bank to offer loans with the advantages of Cash on Delivery Aid (COD Aid). President Kim could promote PforR loans that are linked to beneficial outcomes as a way to reduce transaction costs, build trust in local initiative, and control waste if he gave staff the message that results are what the Bank really cares about. In practice, the initial PforR loans are quite cautious, with most disbursement linked indicators looking more like inputs and activities than outputs and outcomes.

Corruption is almost always a symptom of a broader problem of weak systems of control, entrenched patronage, insider rents and privileges. It cannot be bludgeoned away by a country’s own governments, let alone by foreign pressures. And it will never be eliminated, as anyone knows from a cursory glance at headlines (such as here, here and here)  in countries that score well on international corruption indices.

Actually the best way to deal with corruption is to return to the original vision of focusing on what the World Bank is trying to help countries achieve. Loans that disburse against outcomes don’t have to verify where the money went; they only have to verify that the outcomes were achieved. Contrary to common misconceptions, results-based programs may actually be better at keeping corruption to manageable levels by making sure that the benefits are achieved before disbursing funds (as in Kenny and Savedoff). This kind of fresh thinking is what the World Bank needs, not repeating the rhetoric that continues to justify business as usual.