In its September 20, 2012 statement, the World Bank (WB) expressed its intention to reinstate the previously cancelled Padma Bridge (PB) loan subject to a series of measures agreed to by the government of Bangladesh (GOB). At this critical juncture, it is worthwhile to reflect back on the preceding stalemate between the WB and the GOB so that similar pitfalls can be avoided in future.
The PB has the potential to significantly expand and accelerate the pace of productive activities in the country, especially in the south central region. Politically, construction of the PB would fulfill a key election promise of the current governing party. For the WB, the PB would be its largest ever infrastructure project and could expand its future development activities in Bangladesh. It is thus puzzling that the differences between the two quarters were not ironed out for so long. So let us try to understand the critical elements in the making of this stalemate.
First, once the alleged corruption schemes were brought to the attention of the WB and the RCMP of Canada concluded that the allegations were credible enough to merit a trial, the WB had to cancel the PB loan and could not afford to reinstate it as the GOB did not quite fulfill the stipulated remedial actions. Otherwise, the WB would be violating its own governance policy, creating a bad precedence of lax implementation of its governance standards, and also facing severe backlash from its governance-weary major donor countries.
Second, a scheme to engage in corruption is not an act of legally punishable corruption according to the operational definition of the GOB. As such, the prime minister and some GOB officials believe that no corruption was perpetrated since no bribe actually changed hands. However, any corruption scheme by itself is considered a legally punishable crime by the WB and its major donor countries.
Third, the WB publicly encouraged the GOB to release all of their shared information and communications, but the GOB released only some of its communications to the WB and none from the WB to the GOB. The often changing and conflicting statements of the GOB ministers and officials only deepened this dire information crisis. Consequently, instead of standing firm and united behind a consensus, the nation seemed more polarised and fractured than ever before. From a negotiation point of view, the credibility deficit of the GOB's position and actions loomed large in favourably reversing the hardened negative opinion of the major donor governments and hence the loan cancellation decision of the WB.
Fourth, the GOB followed an incremental and minimalist approach to address the concerns of the WB, perhaps believing that the WB stipulated a set of conditions that was broader than it was ultimately going to settle for. Also even a partial enactment of WB's recommended set of actions was likely seen by the GOB as over-accommodating given its operational definition of corruption. Further, perhaps the GOB felt that implementing the entire set of actions prescribed by the WB and doing so at once in a prompt manner might unduly extend the reach of external interference in the internal affairs of Bangladesh. As the events unfolded, it was apparent that the GOB grossly miscalculated the resolve of the WB in pursuing the entire set of remedial conditions.
Fifth, the GOB followed incoherent and sometimes quite contradictory paths of managing the PB financing crisis, for example, seeking other development assistance, self-financing, partnership with China and/or Malaysia, and on-again and off-again pursuit of reinstatement of the WB loan. Perhaps the GOB wanted to keep open alternatives routes to ultimately financing a PB, if not the PB. The inevitable consequence, however, was an overall sense of confusion, a lack of credibility for the restarted negotiations with the WB, and a widely shared perception that the government was in disarray.
Sixth, many in Bangladesh believe that the WB had an ulterior motive behind its PB loan cancellation. Among the competing theories, the one that became most popular and enjoys the support of the PM is that the foreign friends of Dr. Muhammad Yunus were exacting revenge for what they perceived to be a grossly unfair treatment of the Nobel laureate by the PM and her government.
Even if the revenge theory were true, it is unfathomable how such accusations by the GOB leaders could help the reinstatement of the PB loan and future economic interest of Bangladesh. Further, with no remedy for the perceived unfair treatment of Dr. Yunus, the GOB's recent Grameen Bank Ordinance could have only hardened the stand of his foreign friends on the PB loan.
Now, for the revenge theory to be valid, Dr. Yunus would have to promote the political and/or business interests of his foreign friends controlling the WB affairs. This sounds rather absurd. No political regime has ever complained about him acting to enhance the interests of any political party or ideology. Financially, microcredit institutions like the GB are arch competitors of the large multinationals and financial institutions based in the major donor countries funding the WB. Further, the social business model of Dr. Yunus could only mean stiffer competition and lower profits for the multinationals and big businesses in those countries. Thus, the Dr. Yunus revenge theory lacks a defensible foundation and of course tangible evidence.
To conclude, it is hoped very much that the above pitfalls in managing the PB loan crisis that led to the nearly fatal stalemate will be avoided in the days to come now that the WB has revived the PB financing deal.