The probe centers on alleged losses of more than $41 million in 2002 at the IIC and a financial pass-through mechanism allegedly set up by the IDB that one observer called "robbing Pedro to pay Paulo."

The IDB, as well as the IIC, are recipients of U.S. taxpayer funds and thus subject to congressional and federal scrutiny.

Reports about the IIC's alleged losses follows reported shortfalls of more than $15 million in 2001, according to sources who have contacted Insight on condition of anonymity.

These sources, along with congressional officials, point out that in times of budget cutbacks and war in Iraq, losses such as those alleged at the IIC must be reviewed and U.S. policy must be adjusted accordingly.

Congressional investigators tell the magazine that they have received "credible reports" that money appropriated by the Senate for the IDB's Multilateral Investment Fund (MIF), created 10 years ago to encourage growth in the private sectors of Latin American and the Caribbean, is allegedly being used to bail out the IIC.

A letter obtained by Insight, which was written to the Capitol Hill investigators by two-well placed IDB sources, raised substantial concerns about the funding of the IIC: "We have heard from reliable sources that the IDB is going to use money from the MIF to strengthen the IIC, something similar to what they did a few years back with a loan from the bank."

The letter went on to state: "The people at the IIC seem to be quite happy with the U.S. monetary aid they will be receiving via the MIF, [and] thus are making plans for their 'wonderful' trip [to the IDB's annual meeting held in Milan in late March], since they have nothing to worry about."

"The question is," the sources wrote: "do we really want the U.S. to keep pouring funds, directly or indirectly, into a bankrupted IIC?"

The magazine has been told that this letter, along with substantial volumes of internal IDB and IIC documents, have been obtained not only by Insight but also independently by congressional and federal audit investigators.

Insight has been reviewing IDB and affiliated bank operations that have been under increasing scrutiny and criticism from within and among congressional investigators and U.S. officials.

For example, in a recent story ("The IDB's Nicaraguan Piñata," March 4-18), the magazine unearthed a closely held internal evaluation of IDB Nicaraguan programs during a 10-year period in which an estimated $1.5 billion was spent that evaluators said they doubted was effectively used.

In another recent story about an IDB project called the Fundacion Felipe Herrera in Chile, documents and interviews raised serious allegations of gross waste and fraud (see "Friends of Enrique Enjoy Advantages," April 1-15).

IDB President Enrique Iglesias recently told a conclave at the IDB annual meeting in Milan that he was aware of growing or varied criticisms and had instituted a number of reforms to bring various programs into line. He has declined to speak directly with Insight on such matters, and spokesmen for the IDB have declined to answer many questions on a wide variety of issues raised by current and former officials and internal documents obtained by the magazine.

Concerning the IIC issues, neither Iglesias nor his spokesmen would comment about the latest allegations of financial problems and the previously unreported congressional investigation.

Martin Edwin Andersen is a reporter for Insight.