Can the Global Fund weather the corruption storm?

Until a few days ago, the Global Fund to fight Aids, TB and Malaria had the enviable reputation of being one of the cleanest and safest channels of donor money to the poor in the developing world. Everybody knows there is corruption in Africa - but it never tainted the Global Fund. But now Germany, the third biggest donor to the fund after the US and France, has suspended the €200m it pledged for 2011, asking for an investigation into the fraud and misuse of money in four countries - Mauritania, Mali, Zambia and Djibouti. Ireland has also put its wallet away for the moment, delaying a decision on whether to continue its donations to the fund.

What a difference a few days makes - and how fragile is reputation. The fund now fears a domino effect. As bank crashes have taught us, loss of confidence can do terrible things. And at a time of economic recession, revelations like these can give donor governments just the excuse they need to pull the plug.

So the consequences are potentially very serious. But what has happened to cause the first dominoes to tumble? You'd think it must be some new and terrible revelation. In fact, it was a story on an agency newswire based on a report from October that is on the Global Fund's website. Although the fund does well in preventing its money being misused, it can't stop it entirely. The report of its inspector general detailed the corruption that had been found in a number of countries - and the steps that had been taken to root out the corruption and get the money back. The total amount of money involved is US$34m. That is 0.3% of the $13bn the fund has dispensed for disease-fighting programmes since 2007.

The frauds were not a secret. The fund, which has in the past been praised for its transparency, issued a series of press releases - the first one in September 2009, when it suspended grants to Mauritania. In June 2010, it announced that action had been taken against Zambia, which I wrote about. In December, the fund announced it had suspended grants to Mali.

So given that 0.3% ended up in the wrong hands is pretty good going - as many an NGO or business working in Africa will tell you. This should have been a storm in a teacup. But the agency story was followed up by Fox News, which laid into the fund with both fists.

Germany's decision may have much to do with disagreements between development minister Dirk Niebel and chancellor Angela Merkel over how to prune the aid budget. Ireland's is inevitably connected with its financial problems. Ironically, Sweden, which suspended its grant to the fund last October after seeing the inspector general's report, was thought to have been completely satisfied by the explanations it was given and be about to announce its reinstatement, but is unlikely to do so until things quieten down.

But the real fear for the fund's supporters will be that the storm may have been whipped up by those who want the US to slash its spending on foreign aid and will not only have the Global Fund in their sights, but also the UN. The Global Fund is already short of the money it hoped it would have to pass on to developing countries in the next two years. If the US cuts back, there can be no doubt that the cost will be measured in lives.