World Bank probes internal handling of Chinese loan

The World Bank is investigating the handling of a USD 1 billion loan from China to help fund poor countries, sources familiar with the matter said today.
The global development lender was quick to stress that the probe did not implicate Beijing, which increasingly is an important force in the bank's activities.
But the probe will examine how key bank units, including the International Development Association and International Finance Corporation, created an unusual structure to accomodate the Chinese loan.
World Bank President Jim Yong Kim confirmed the probe in an internal message to staff yesterday that was obtained by AFP.

He noted that some staff "have raised concerns over the handling of transactions related to a concessional loan."
"Management took these concerns seriously and promptly retained an outside law firm with expertise in conducting internal reviews, to ensure a careful and impartial fact finding," he wrote.

Kim stressed that the review is looking at internal processes and policy compliance, with "no suggestion" of staff misconduct.
"The concerns expressed also did not question the intentions of any donors that provided concessional loans," he added.
The probe, to be conducted by the Locke Lord Edwards law firm, will come on top of months of turmoil within the bank over the reforms Kim has introduced since becoming president in July 2012.

The bank's treasurer, Madelyn Antoncic, first raised questions in December over the handling of China's decision in 2013 to loan USD 1 billion to the IDA, the bank's funding arm for the poorest countries.
Because China's government did not have a formal mechanism for granting interest-free loans to an institution like the World Bank, Beijing added a USD 300 million grant, of which USD 179 million was to cover the interest payments for the loan.
The bank then created a structure for the IDA to service the loan: it combined the Chinese funds and bought a USD 1.179 billion bond issued by the IFC, which is the bank's arm to finance private sector development activities.

The probe into the handling of the Chinese loan comes on top of tensions created in the bank by Kim's restructuring, which has included cutting staff and the departure of a number of top aides to his predecessor.