Burning Bridges To and From the World Bank

Following up on the topic of economic and political ties between Africa and China in the post below this one, the World Bank and Chad are having troubles over oil revenues from a World Bank sponsored project intended to ease poverty, and there are indications this may result in Chad abandoning the World Bank agreement and forging deals with China instead:

Why a World Bank oil project has run into the sand, by David White, Financial Times: It was touted as the formula all future projects of its kind would follow. The conditions put in place for an oil development and pipeline project in central Africa were hailed by the World Bank as a pioneering breakthrough, a way of tracking where the money went and making sure it helped the people who needed it most. Yet two and a half years since oil for export started pumping ... the triumph rings hollow.

The deal, which obliged Chad to account for most of its direct revenues from the $4.2bn (£2.4bn, €3.5bn) project, was meant to overcome the sorry history of mineral exploitation in developing countries – the “resource curse” that, instead of bringing development, gets in the way of it, favouring corruption, self-serving elites, waste, poverty and unrest.

But the World Bank took a gamble setting its test case in a fragile country held back by war, with no record of good governance and little experience of budget management. Always questionable, the experiment is now at an impasse, a victim of mutual misunderstanding and the desperation of a shaky regime needing to shore up its rotting power base.

The breakdown is a significant early test for Paul Wolfowitz, who took over as World Bank president last June... Chad had defied the bank by changing its law on managing petroleum revenues, to gain more freedom in spending its money. ...[T]he outcome will have important implications. It could demonstrate how any country can bypass international attempts to impose standards on it. It could also leave one of the world’s poorest countries ... even worse off than before.

The government seems not to have reckoned with the full consequences. For the moment it has no access to further funds either from its main creditor or from its oil. A cornerstone international institution is sticking to its principles but at a potential cost, both to the people the scheme was supposed to benefit and to its reputation.

“It’s a paradox, when the World Bank is an organisation that presents itself as the high priest of the fight against poverty, and its first reflex is to close down projects of social benefit,” says Mahamat Ali Hassan, Chad’s economy minister. Chadian officials’ charge of “blackmail” has a resonance in other developing countries. ...

The differences between Chad’s new legislation and the 1999 original would seem to leave room for negotiation but both sides have dug in. ... In an exercise in brinkmanship, Idriss Déby, Chad’s president, had the law approved by parliament in late December. A week later ... he had a two-hour telephone conversation with Mr Wolfowitz. Next morning, the World Bank chief called in board members. The bank’s loans to Chad, destined mostly for non-oil projects, were suspended...

Chad’s government received the notification only five days later. Mr Déby, who still had the possibility of sending the law back to parliament, immediately signed it. The bridges were now burnt. Each side appears to have underestimated the other’s determination.

The freezing of funds has created bewilderment in Chad’s government, which by its spokesman’s admission “has its back to the wall”. ... “If it’s crunch time, Chad could turn its back on the international community,” warns Chris Melville of Global Insight... Officials hint at alternative oil deals with China, already the dominant client for oil from neighbouring Sudan. Chad may seek bridging finance from other African oil producers – possibly Gabon or Equatorial Guinea – or elsewhere. That could sustain the regime for a year until taxes from the oil venture begin flowing in. Chad may be able to cancel its World Bank debt on the oil project and go its own way. ...

Chad was supposed to establish a model of good practice. But, as a western observer in the country puts it: “The risk is that it will become an example for the worst pupils.” ...