THE old Padam Road, on the way from the regional centre of Birgunj, was resurfaced only last year, but you would not know it to look. Rutted and worn away in parts it seems like it has not been maintained in decades. An old man by the roadside, who laboured to build it from scratch during his youth, offered a few choice oaths to describe the resurfacing contractor, who was paid for this mess with funds earmarked for local development.
Further down Padam Road the badly jolted traveller reaches a set of concrete foundations known as Sri Ram Janki Primary School. It was also supposed to be built with local-development funds—provided by the government and Nepal’s permissive foreign donors—which were stolen outright before the building could be completed. Nevertheless money for the school’s operating budget was paid regularly to a bank account. It was withdrawn from the account too, on behalf of a school that existed only on paper, until a local journalist exposed the scam.
Such cases are legion across Nepal. Rampant corruption, at all levels of government, is becoming the definitive characteristic of the country’s rocky transition to peace, after a decade-long civil war between Maoist rebels and the state.
The process of writing a new constitution is stalled, with the deadline to complete the charter now postponed to September. The past year marked scores of killings, threats and beatings, linked to control of state resources and carried out by armed groups and political parties of all stripes. Corruption is thought to be at record-level intensity. Income inequality is already the highest in Asia (beating out China and the Philippines) and rising. Disillusionment with the political system runs high.
To many observers these problems seem to share a common cause: politicians enjoy freedom to plunder with impunity. The most visible abuses are in local government. Each year municipalities receive funds designated for development which are equal to about 10% of the government total budget. A group of 14 foreign donors, chaired by the Asian Development Bank and Britain’s Department for International Development (DFID), is contributing $200m over four years under a scheme called the Local Government and Community Development Programme (LGCDP).
Along the way of a road trip crossing seven districts, local officials, politicians, journalists and activists told a series of remarkably consistent stories. Each was marked by systematic fraud, the financing of political networks to benefit powerful local figures and, indirectly, criminal gangs. The accounts the storytellers gave of individual scams became repetitive: buildings paid for but never built, or simply repainted and passed off as new. The same roads were supposedly rebuilt—as if from scratch—every year. A commonly reported trick is to record as one item the construction of a road from A to B and then again, on a separate line, the road from B to A.
Local NGOs applying for grants are said to pay “commissions” of up to 50%. Gross irregularities are alleged everywhere in tendering processes, which sometimes involve violence between rival party cadres. Local governments often pass most of their annual budgets in the last two weeks of the financial year, the better to avoid scrutiny. Local development officers say auditing procedures are easily circumvented. Over and over they complain that “there is no effective monitoring”.
The donor-backed scheme depends on local “user groups” and “consumer committees” to provide accountability. But informants say these tend to be captured by political interests. Indeed, struggles between political parties for control of these bodies are a cause of violence in some districts.
The picture varies in different regions. In the southern plains, an area called the Terai, even senior officials estimate that as much as 60 to 90% of all funds are misused. “If I take action against corruption,” said the chief government officer in one Terai district, “there will be a mob outside and inside my office.”
Among the worst offenders in the Terai are the national and regional parties that formed the previous government, which was replaced in February.
In hill districts informants estimate that between 25 and 50% of all development funds are misused. Here the Maoist former rebels, who back the new government, are the strongest single faction. The misappropriations help pay for a constant cycle of political rallies as well as the upkeep of their paramilitary organisation, the Young Communist League. Accounts of rampant corruption from the provinces are echoed by officials at the finance ministry, at the government’s anti-corruption bodies and the National Planning Commission, and by members of the donor community who would only speak off-the-record.
The only sustained denial comes from some senior aid officers and donors who insist there is only “low-level”, “petty” and “isolated” corruption in local bodies. Their own auditing processes say as much. Officials at the United Nations Development Programme and DFID argue that accounts of widespread malpractice are merely anecdotal and unsupported by data. On the contrary, they say, their project is a relative success.
According to DFID, which has a £12.1m ($20m) stake in the scheme, Britain would not be supporting it if the abuses were as bad as alleged. Of the eight out of 75 districts that failed the donors’ minimum conditions last year, most were guilty of nothing worse than late completion of paperwork.
Yet the donors were concerned enough to request a series of meetings with the finance ministry last year. Nepali officials saw those as being unusually serious. If accounts of corruption in local bodies are true, the LGCDP may be in breach of the donors’ own Basic Operating Guidelines concerning transparency and contributions to political parties.
Corruption in the provinces mirrors the system at the centre, where it is also perceived to have increased during the peace process. Government and donor budgets have swelled thanks to a sort of peace dividend, while institutions remain weak and unaccountable.
There have been recent stirrings in the Supreme Court. In March Chiranjivi Wagle became the first former government minister to be jailed for corruption since democracy arrived in 1990. Mr Wagle’s case was an easy one—he had been living at large despite having been convicted in 2004.
More cases are pending, but the hard-charging chief justice has since retired and it is not clear the momentum will be sustained. Less encouragingly, the chief official at the finance ministry resigned in March, reportedly owing to political pressure from tax-evading businessmen.
Meanwhile the government’s anti-corruption body, the Commission for the Investigation of the Abuse of Authority (CIAA), has languished without a chief commissioner for four years; in the past year no commissioners have been appointed at all. Aid accounts for 22% of the government budget and half of government’s capital expenditure. Including aid not routed through government accounts, which is difficult to measure, total foreign support is estimated in the region of $1 billion per year and rising. In March Britain announced its support would increase by 80% to reach £103m ($170m) in 2014.
According to a former finance minister, Devendra Raj Pandey, donors face a dilemma: to withdraw from underperforming projects would require reducing aid, yet they measure their success mainly by their ability to expand and disperse their budgets. Similar arguments are privately made by other people who still serve in senior government posts and in donor agencies.
There is a well-recognised annual bonanza in Kathmandu, as agencies scramble to spend what remains of their budgets before the end of each year. Despite their profligate reputation most say they almost never detect malpractice in the projects they fund. Senior donor officials present their dilemma differently. They say working in such countries always involves the risk of further fraud and they claim it would be ineffective to push anti-corruption measures on the government harder than they already do. And for them to withdraw from a difficult working environment would betray the poor people who depend upon their support.