Benn beats World Bank chief over corruption policy

Paul Wolfowitz, the head of the World Bank, suffered defeat over his flagship policy to fight corruption yesterday after member countries insisted they would take over control of the plan from its management.

In a significant victory for Hilary Benn, the UK's Development Secretary, the bank's development committee said it would take "oversight" of the plan and demanded a progress report in six months.

Mr Wolfowitz, who was US deputy defence secretary during the Iraq war, had wanted the bank to link its loans and grants with its fight against corruption.

Mr Benn launched a high-profile critique of the plan before the meetings in Singapore, saying it could lead to the bank "walking away" from poor people simply because of the venal behaviour of their leaders.

After a lively meeting of the committee of 24 development ministers, the communiqué said the "principal objective" of the bank was to help states deliver services to the poor. "Given the importance of this issue, we stressed the importance of board oversight of the strategy as it is further developed and then implemented," it said.

The strategy, which was already on its fifth draft, could have allowed the bank to cut off funds to countries deemed corrupt. Critics had argued this could lead to arbitrary decisions that worsened poverty. Yesterday Mr Wolfowitz agreed poor people should not be penalised for the abuses of their leaders. "We cannot abandon the poor because their governments or institutions are weak," he told the committee. "That would mean they would be penalised twice."

Mr Benn, speaking from Vietnam where he was visiting UK-funded projects, said: "I am pleased by the outcome. The bank will now have a balanced policy that will deal with both the problem of corruption but is also serious about promoting good governance and make sure we don't punish poor people in the process."

Oxfam welcomed the board's decision to oversee the fight on corruption but said it must be implemented in a way that put poor people first. Max Lawson, a senior policy adviser for Oxfam, said: "Corruption is too important to be politicised. It must be treated in a transparent way so countries know where they stand and there is proper oversight." The World Bank also agreed to provide evidence within two months that it had ceased to impose strict economic conditions to its grants and loans. Mr Benn said he will withhold £50m of UK funds until he sees the evidence.