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January 13, 2009

Is World Bank Move Counterproductive for Development?

In another blow to India's already-reeling technology industry, the World Bank disclosed it had barred two Indian outsourcing firms, Wipro Technologies and Megasoft Consultants Ltd., from doing work with the bank's headquarters....

The World Bank said Wipro Technologies, a unit of Wipro Ltd., had been banned in June 2007 for four years for "providing improper benefits to bank staff." World Bank staffers said the benefits included stock offered to the bank's former chief information officer, Mohammed Muhsin, who left the World Bank in 2005. Bank officials said Satyam was also debarred because of offers of stock to Mr. Muhsin.

Joshua Hochberg, an attorney for Mr. Muhsin, said his client did not determine which companies were awarded contracts and the World Bank didn't find that Mr. Muhsin "interfered with Bank contracting."

"Mr. Muhsin made all financial disclosures required of him by the Bank," Mr. Hochberg said. "He paid for all shares he purchased and reported them in line with the Bank's disclosure policy."
A World Bank spokesman declined to comment on Mr. Muhsin. He said that World Bank rules prohibit employees from using their positions for personal gain.

Wipro said its representatives had offered the World Bank, through the bank's chief information officer and staff, shares in Wipro's initial public offering in 2000. Three World Bank staffers purchased a total of 1,750 shares for approximately $72,000 at the IPO price, Wipro said.
Wipro said the stock was part of what's called a directed share program, which allowed Wipro employees and clients to purchase its American depositary shares, which trade on U.S. exchanges.

"If we knew about [the World Bank's debarment policies], we wouldn't have done it," said Suresh Senapaty, Wipro's chief financial officer.

Megasoft Consultants, a unit of Megasoft Ltd., was banned in December 2007 for four years, the World Bank said, for "participating in a joint venture with bank staff while also conducting business with the bank." Bank officials said Mr. Muhsin was not involved in that case.

G.V. Kumar, chief executive of Megasoft, said the company hasn't done any business with the World Bank since 2004 and it doesn't anticipate any financial impact from the announcement.

Wipro defends the IPO allocation:

Wipro’s co-chief executive Girish Paranjpe said the alleged “improper benefits” were not any form of illegal inducement and were in keeping with US law.


“When Wipro listed its ADR (American depository receipt) on the NYSE in 2000, we allotted shares to several people including (some employees) of prospective clients as advised by our managers to the issues Morgan Stanley and Credit Suisse,” Paranjpe said. “This was not barred under the SEC (Securities and Exchange Commission, the US stock market regulator) regulations and this is standard practice in the US.

(I'd be interested in hearing from others on whether this is a standard practice in the U.S.)

Of course, these companies should have been more careful about having financial relationships with bank employees.  The wrong of allowing a Bank executive to purchase shares in the WIPRO IPO--at the IPO price--dealt with an action in the year 2000.  One might have thought that 7 years without any further improper behavior might have led the Bank to a tad bit more forgiving about the sanction. 

The President of the World Bank during many of those years intervened directly in arrangements affecting the employment (and salary) of his paramour--and was sent off with praise from the World Bank's board: "He assured us that he acted ethically and in good faith in what he believed were the best interests of the institution, and we accept that...   We are grateful to Mr. Wolfowitz for his service at the bank. Much has been achieved in the last two years...  This sense of duty and responsibility has led him to his announcement today.  We thank him for this and underscore our appreciation for his commitment to development and his continuing support for the World Bank and its mission. "

Given the far graver scandals among corporations around the world, which have never led to the public disbarment of relations with those corporations--consider Siemens, which just paid more than a billion dollars to settle allegations of corruption in public contracting around the world--this public sanction lasting 4 years of enterprises in the developing world seems unwise. Certainly some of the projects around the world that the Bank has funded have been exposed as being influenced by corrupt payments--yet those firms (consider Enron) have not been disbarred by the Bank, their integrity called into question by a multilateral development institution.

Corruption is one of the gravest problems in the developing world. But to fight it one has to have a sense of proportion in exacting penalties. To make an example of Wipro on the thin reed here seems counterproductive to the goal of development.

The World Bank also sanctioned Satyam, which we now know was in fact cooking its books, but it is unclear what the basis of the sanction of Satyam was.

Update: The World Bank has released a list of approximately 100 firms and individuals from around the world, who are to be barred temporarily or permanently for alleged ethics violations. The World Bank cites transparency as the reason for such a public release, but given that the administrative process offered by the World Bank is not exactly tantamount to a judicial process, there is reason for caution with respect to such disclosures. Being "barred for life" by the World Bank will certainly be a mark of shame--perhaps it should be, but questions remain as to whether the judgment is justified.  If the Bank is concerned about transparency, perhaps it should also release its grounds for these judgments.  Otherwise, the business prospects of the entities so targeted will be greatly reduced. 

Note that at the moment the market seems to be shrugging off the Wipro debarment--Wipro's stock is up since yesterday.

Posted by Anupam Chander on January 13, 2009 at 08:54 AM | Permalink | Comments (0) | TrackBack

January 11, 2009

Does Barack Obama Speak Indonesian?

In an interview with the Obama's in 1996 with Le Monde, First Lady-to-be Michelle Obama says of the President-Elect: "It's not every day that a girl from the South Side of Chicago meets someone who speaks Indonesian..."

A 2007 Time magazine story affirms this:

When prominent Indonesians visit the U.S., the first person they want to meet is Obama, says Parnohadiningrat Sudjadnan, the Indonesian ambassador to the U.S. "Back home people think of him as one of us, or at least one who understands us," he says, adding that they are delighted to find that Obama speaks passable Bahasa, the language spoken in Indonesia and Malaysia.

Certainly an unusual language for a U.S. president to speak.  It will be interesting to see whether he decides to use Bahasa in public.  It would certainly endear him to the millions of the world's most populous Muslim nation, but it might also subject him to the attack of nativists back home.

Posted by Anupam Chander on January 11, 2009 at 10:41 AM | Permalink | Comments (3) | TrackBack