World Bank criticized for not doing enough to counter corruption in Cambodia.

Source: Asia Times—“If a tree falls, does the World Bank hear it?”

Cambodia is a country in which the World Bank has made a significant investment over the years. It is also a nation that continues to struggle with corruption at the highest levels, as typified through illegal logging operations in Cambodia. A Britain-based NGO, Global Witness, has released a report documenting how Cambodia’s political elite have continued to harvest the profits of the nation’s natural resources for themselves through these logging operations.

However, the report expresses disappointment at the apparent timidity of the World Bank in speaking out strongly against this type of corruption. In particular, it bemoans the fact that Robert Zoellick, the former US Trade Representative who took over as Bank President after Paul Wolfowitz stepped down at the end of June 2007, is taking the same almost unassuming approach to talking about—and reprimanding the government for—continued corrupt practices.

In talks with Cambodian Prime Minister Hun Sen, it is reported that the issue of continued illegal logging was mentioned and that the Prime Minister conceded that it had to come to an end, but the question remains as to when. In only five years, 30% of Cambodia’s forests have been wiped out at an estimated profit of US $13 million each year, a sum that disappears into the pockets of the wealthiest and most powerful while the vast majority of the population lives in abject poverty.

Observers claim that while the Bank has responded to problems in the past—for example, last year the Bank froze funding for a water supply and sanitation scheme in response to corruption—it will not do more because it has too much invested in Cambodia to risk pulling out now. Additionally, the Bank is not Cambodia’s only donor. It is not clear form this report whether those countries and multinationals providing funds to Cambodia are collaborating closely or not and whether together they could effect positive changes in the nation that would support rather than undermine the principles of good governance.

FOR DISCUSSION:

How involved should lenders (e.g., multinational institutions, countries that provide foreign aid) be in demanding that borrowers abide by certain conditions as a prerequisite to receiving funds?

If a borrower country commits to certain conditions and then fails to abide by them, what should the lender do?

How might different responses (e.g., freeze or withdrawal of funding, demand for accelerated repayment) affect that nation’s economy and life for the general population?

In U.S., Increasing market instability prompts predictions of action by the Fed.

Source: Forbes—“Market Prepapring for 2007 Fed Easing, but Economists do not Expect It Tomorrow”

Slipping stocks, diminished access to credit, and shrinking home values which could damage consumer spending are prompting speculation by market watchers that the U.S. Federal Reserve will move to cut interest rates in the near future.

There are other observers who claim that continued moderate growth—despite the “painful” aspects of the current credit crunch—mean that rates will not be lowered…unless inflation becomes a problem.

The Fed will be meeting tomorrow—on August 7—and is then only expected to note the ongoing uncertainty of markets. Analysts believe that a rate cut is not likely to be announced before October.

Likewise, commentary on the threat of inflation in this market environment is mixed. An analyst with Bank of America contends that the tight domestic labor market indicates that concern over the possibility of inflation is high. On the other hand, an analyst with Merrill Lynch asserts that “inflation pressures have slackened.”