Wednesday, August 1, 2012

Spanish Trust Fund: - Did UNDP loundered money for Partido Socialista Obrero Espana (PSOE)?



"Brand Spain" Questioned Following Corruption Scandal with Spanish Trust Funds at the IDB

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*Este blog está en español debajo de la versión ingles.Nota: El artículo ofrece hipervínculos para visión y descarga de documentos.

On July 12th, the occasion of the swearing into office of the High Commissioner for Marca España (“Brand Spain”), Spain’s President Mariano Rajoy underlined his determination to strengthen Spain’s image abroad. The international reputation of the Spanish government has been damaged by a scandal over the corruption affecting the Spanish Trust Funds at the Inter-American Development Bank (IDB). The continuing scandal, which first broke in October 2011, raises questions about the passive stance of the current Spanish Government (particularly the Ministry of Economy). The ministry has yet to hold those at fault accountable and restore transparency, efficacy and accountability to the $695 million Funds.

In previous postings here, we’ve covered the dubious dealings associated with these funds (first reported by Spanish whistleblowers at IDB in October 2011), particularly the close association between the last ruling party in Spain and IDB management of the funds. It was a convenient arrangement – the Partido Socialista Obrero Espanol  (PSOE) contributed hundreds of millions of Euros to the IDB, where national oversight bodies could hardly reach, and PSOE representatives abroad managed the money, doling it out to themselves and their friends as they saw fit. But then this cozy relationship suffered a setback: the PSOE lost the election in Spain last November.
The allegations of mismanagement of Spanish Trust Funds at IDB are so well founded and documented that the Spanish Tribunal de Cuentas (the equivalent of the US Government Accountability Office) decided last February to investigate and audit Trust Fund activities from 2008 onwards, especially those of the $50-million Spanish General Trust Fund (FGE) at the IDB.
SpanishBlog1Luis Alberto Moreno, IDB President, courting Jose Luis Rodriguez Zapatero ,Spain’s President, at La Moncloa in October 2009 Nonetheless, on July 6, 2012, the IDB formally transferred its European office from Paris to Madrid. It seemed a counterintuitive maneuver – typically the rat swims away from the sinking ship, and Spain is apparently still sinking in the face of an unprecedented economic and banking crisis. The country has figured prominently in the financial news most days this month, and probably will continue to do so for a while, as the Rajoy government struggles with the legacy of an enormous deficit and national debt.

However, on closer inspection, the IDB’s office transfer from Paris to Madrid makes sense when you realize that, despite Spain’s deepening economic problems, the government in Madrid has been generously funding the IDB, as well as the United Nations Development Program, since 2008.

Of all the donor countries to the IDB in Washington, DC between 2007 and 2011, the Spanish government has been far and away the most openhanded, when it came to “trust funds.” Spain showered close to $700 million on the IDB through these funds (the second largest such donor – Japan – gave less than half that much: $278 million). Moreover, Spain’s donations to the IDB alone are greater than the sum of the other member’s donations (Japan, US, Korea, EU countries, etc).
SpanishBlog2Fernando Jiménez Latorre, Spain’s current Deputy Minister of Economy with Carlos Jarque, IDB Representative in Europe, in June2012. It’s curious. Given the sharp budgetary cuts ($65 billion Euros) approved by the Spanish Government in July, you would expect that Spain’s donations to the IDB would also be slashed. But you would be wrong.

And it’s not as if these funds are producing groundbreaking development advances in Latin America. On the contrary. Let’s consider one of the “Best Case” projects financed with the Spanish General Cooperation Fund and see what the taxpayers of Spain are getting for their money, shall we? The project was called “The Promotion of Value-added Production Chains in the Province of Mendoza”, and one of its objectives was to help develop the olive oil industry in Argentina. Now, you might ask, why is Spain (the largest producer of olive oil) financing competitiveness studies for another (rival) olive oil producer?

Drilling down into this effort, we find that it focused on a “pilot cluster” in Mendoza’s “niche” olive oil industry. Predictably, it produced a couple of studies, a conference or two and some lessons learned. So, seven years later, how is the olive oil industry in Mendoza coming along?

 The industry is going through a very difficult time,” Armando Mansur, president of Asociación Olivícola de Mendoza (ASOLMEN), told local newspaper Los Andes this week. “We have falling international prices and rising production costs, which leaves us with very little profit margin.

 I’m guessing that the IDB’s analysis of the international niche market for Mendoza’s olive oil industry was a just a bit off. So exactly how bad was it?

Mansur reminded reporters that this is not the first time Mendoza’s olive producers have experienced hardship. “We’ve been trying to get aid to help us alleviate the situation. On September 27 we urged the Government of Mendoza to declare an emergency in the sector, and we reiterated that request on February 8 of this year.”

It’s a disaster, actually; that’s what it is. Apparently, the IDB study and expertise neglected to account for the fact that Argentina has only 2 percent of the international olive oil market but must export about 70 percent of its production. In other words, it has absolutely no control over the market price of the product globally and is heavily dependent on exports. So, if the international price falls, the industry collapses in Mendoza. Poof!

Of course, we cannot blame the IDB for the price of Argentina’s olive oil, and we don’t. We can blame the IDB, however, for using Spanish money to fund pointless and bogus studies that no one with any sense would pay attention to.

Which brings us back to the new IDB office in Madrid. The stark political fact is that, when you’ve got project results like this Mendoza thing, you’re going to have to bring out your big guns to save your trust funds. So that’s what the Bank did, on July 6, 2012.
SpanishBlog3Here, in fact, is IDB President Luís Alberto Moreno whispering to the Spanish Minister of the Economy Luis De Guindos at the official opening of the IDB headquarters in Madrid. So what could these two be worried about, do you suppose? Our guess is money. Trust Fund money. In Madrid, the scandal about mismanagement of the Spanish Trust Funds has received relentless coverage on television and in newspapers during the past months. Moreno would therefore be trying to shore up the reputation of his Bank and guarantee Spain’s continuing donations. For his part, De Guindos would be acting on his misplaced loyalty to the civil service corps that produced him – the Técnicos Comerciales del Estado – the same group that produced the IDB officials who have abused the Trust Funds.

As Spain is forced to face an increasingly unmanageable debt, as well as fund the luxurious new IDB office in Madrid, we can think of a couple of ways the government might economize. It might just want to keep some few hundred million in IDB trust fund dollars at home. In addition, Minister De Guindos might consider demanding that the IDB repay the Spanish Trust Funds for money wasted and misused in violation of the Bank’s Code of Ethics. That’s what the Norwegian and Canadian governments did when they found that the IDB’s corrupt “Ethics Guru,” Bernardo Kliksberg, had used their funds for his own purposes.

So that’s the question, in the end. Will the leadership at the Spanish Ministry of the Economy have the courage to clean up trust fund management at the IDB and hold compromised officials accountable? The credibility and moral gravitas of Spain’s new leaders are at stake, as well as the respectability of Marca España.

 Bea Edwards is International and Executive Director for the Government Accountability Project, the nation's leading whistleblower protection and advocacy organization.

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