Affordable Housing Institute : US

[Continued from Part 1 yesterday}

 

In yesterday’s thrilling blog post, worthy of Ripping Yarns, we saw how the World Bank structured its investment to reduce the risk of Chadian officials immediately absconding with the developmental funds.

 

 

“You can’t pull that on the World Bank, you two-bit honcho!”

  

And behold! The pipeline was built, and the oil (and money) began to flow.  Unfortunately, there are more risks than just light-fingered recipients:

 

Now that the oil has been flowing for two years, the wisdom of the bank’s gamble is coming under renewed questioning because the government is threatening to unilaterally change the terms of the deal.

 

Out of cash for its regular budget

 

Now, where did I drop those oil millions?

 

amid mounting security problems involving army deserters and refugees on the border with Sudan, the government announced in October that it intends to amend the law governing the petrodollars so it can use a larger chunk of the money for any purpose it likes, including its security forces. Under the proposed new law, the government would double, to 30%, the amount of oil money that it can spend without oversight.

 

Of course, the 30% figure is (a) arbitrary, and (b) merely a way station.  If this demand is acceded to, there will be another. 

 

That’s a feature of extortion: it never stops.  The 30% raise is a shrewdly chosen ruse to make it appear that this is the last time and to avoid the fate of the abrupt 100% nationalization, such as Gamel Abdel Nasser’s nationalization of the Suez Canal, which was sparked by Nasser’s anger over the World Bank’s conditions attendant upon Egypt’s plans to build the Aswan High Dam:

 

Relations between Nasser and the West reached a crisis over plans to finance the Aswan High Dam. Construction of the dam was one of the earliest decisions of the Free Officers. It would increase both electrical generating power and irrigated land area. It would serve industry and agriculture and symbolize the new Egypt. The United States agreed to give Egypt an unconditional loan of US$56 million, and Britain agreed to lend Egypt US$14 million. The British loan was contingent on the American loan. The World Bank also agreed to lend Egypt an additional US$200 million. The World Bank loan stipulated that Egypt’s budget be supervised by World Bank officials. To Nasser these conditions were insulting and were reminiscent of Europe’s control over Egypt’s finances in the 1870s.

 

“Do I look like somebody who’d nationalize private property?”

 

If nationalization is the breach of international eco-politics, then the counter-breach is the military coup.  When Iran’s early-Fifties prime minister, Mohammed Mossadegh, unilaterally breached Iran’s agreements and threatened to nationalize Iranian oil, the CIA staged a coup that brought in the Shah of Iran.  [Oh, yeah, everything thereafter worked out just fine, didn’t it? — Ed.  Look I said it was a counter, I didn’t say it was wise.]  And Nasser’s gambit was trounced by the 1956 British/ French/ Israeli paratroop Suez Canal seizure, Eisenhower’s order for them to cease and desist, the World Bank’s refusal to fund the Aswan High Dam, and Nasser’s happy acceptance of Soviet aid to build it.

 

 

The Aswan High Dam, funded with rubles after Nasser nationalized the Suez Canal

 

Chad’s would-be extorters have also played another time-honored card:

 

The government would also halt the diversion of 10% of the oil money into a “future generations” fund that is to be spent only after Chad’s oil wells run dry.

 

Taking the beneficiaries economically hostage is, unfortunately, an all-too-common ploy.  Bad affordable housing owners do it by demanding new resources to fix up a property made bad by their bad management.  And it’s one of the first refuges of the kleptocratic despot because the beneficiaries make telegenic journalistic human shields.  Taking the poor hostage is not just cynical social politics, in our complex, interdependent world, it can also carry a further tacit threat:

 

In Chad’s case, a cutoff of bank money raises serious geopolitical concerns as well, because it might increase the risk of a financial collapse for the government that could lead to Chad joining other neighboring countries as a failed state and a haven for terrorists.

 

The idea of property, ownership, and wealth as the antidote to terrorism is one that I will develop in future posts.  But for now, back to Mr. Wolfowitz’s dilemma:

 

A low point for the bank came several weeks ago after repeated phone calls from Wolfowitz to Chad’s president, Idriss Deby, went unreturned, according to bank officials, who said the episode aroused considerable consternation in their ranks. Deby has taken a defiant public stance in response to the bank’s protests against the proposed legal changes, declaring last month, “I will not allow anyone, even if they are a partner, to violate our national sovereignty.”

 

Another standard ploy: act as if adherence to a contract is somehow a violation of your freedom of speech, or some other intrinsic right.  Yet you exercised your national sovereignty when you took the money and obligated your country to certain actions.  Reneging on your contract has nothing to do with a reassertion of nationhood and everything to do with demonstrating that the theoretically unbindable sovereign will allow itself to be bound.  But as that previous post concluded:

 

Since none of these [Eleven ways listed. — Ed.] work perfectly, the most common strategy is in fact, all of the above, plus keep your fingers crossed.

 

This the Washington Post echoes in much more refined prose:

 

All this poses a tough dilemma for Wolfowitz, the former U.S. deputy defense secretary who took the bank’s helm last June pledging to put a high priority on intensifying the bank’s anti-corruption efforts.

 

The bank has the legal right to take punitive measures in response to any action by the Chadian government to change the agreement, which so far has generated more than $300 million in revenue for public purposes in Chad.

 

Thus this contract, like Mr. Owens’, contained the sort of remedies capital demands in PBP situations.

 

The measures could include barring new aid to the country and insisting on immediate repayment of the loans it made for the pipeline.

 

Still, even without a shakedown, Chad might not be a place to reward by giving it more aid:

 

Chad tied with Bangladesh for the worst corruption rating among nations in the most recent annual survey by Transparency International. The government’s cash squeeze suggests that misappropriation of public resources is continuing apace. Normal budget accounting is nonexistent, and bank officials cannot understand how the government can be broke, especially since it has directly received some of the oil money, about $38 million, for its general budget.

 

“The $38 million must have fallen out of our pockets on the way

 

Allowing the government to take money from the London escrow fund might only invite further waste and would set a terrible precedent for future projects in the oil and mining sector, bank officials fear, by signaling that such “ring-fencing” arrangements don’t work.

 

Just as in Mr. Owens’ case, the dispute is not simply between two parties, there are huge observant herds ruminating upon their cud:

 

1.       Recipient nations’ leadership.

2.       Major donor funders.

 

 

“Just thinkin’ about Chad, just thinkin’, just thinkin’.”

 

They too, perhaps even more than Chad’s irresponsible leadership, are more-than-interested bystanders. 

 

So far, Wolfowitz has limited himself to a statement expressing “serious concern” about the proposed changes in the law, which “threaten to undermine the objectives of socio-economic development, poverty reduction, accountability and transparency,” according to the statement.

 

By the way, here’s where Live Aid and similar well-meaning initiatives are na√Øve beyond reasonable measure.  You can pump all the money you want into Africa, and with breathtaking speed it can be pumped right back out into limousines, palaces, foreign holdings, and Swiss bank accounts.  Pumping in the money and making systemic change is the twenty-first century’s great anti-poverty challenge.

 

Bank officials declined to go beyond the statement, or speak on the record at all, citing the delicacy of negotiations with the Chadians.

 

The bank’s statement, issued Dec. 8, is viewed as too timid by many antipoverty activists, both inside and outside of Chad. The bank’s difficulties, they contend, shows that their doubts about the project were well founded.

 

“I’ve tried not to say ‘I told you so,’ ” said Ian Gary, a policy adviser for Oxfam America who is a longtime critic of the pipeline.  “We had always feared that the leverage of the World Bank and other donors would decrease substantially once these oil revenues started to flow, and that’s what’s happening.”

 

“But there’s no good solution right now,” Gary said, adding that although he thinks the bank should respond very sternly if Chad violates the terms of its agreement, “I wouldn’t want to be in their position.”

 

I have previously predicted that Mr. Wolfowitz will make a great — not good, great – World Bank president.  Now he gets his first chance to prove it. 

• He must hold Chad accountable.


• He must do so in a way defensible to both observant herds, and that properly encourager les autres.

And the moral of the story is …

 

Why have I told you this story? 

 

 

“Your honor, Mister Smith is on another of his well-known blog fishing expeditions!”

 

Because it offers lessons about affordable housing program design lessons in three important arenas:

 

1.       It illustrates the perils of Pay Before Performance funding arrangements, which are the most common form of government.

2.       It highlights the impossibility of erecting magnificent housing finance edifices upon the unstable sands of a rotten and corrupt government.

3.       It illustrates the challenges not just of rule creation but also rule administration and enforcement.

 

On Monday, I will connect all this up and show its links to the Terrell Owens saga:

 

 

“Really, I’m going to be mentioned in the AHI blog again?”

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