Don’t Bank on Corruption

By Rachel Ehrenfeld @ Washington Times, Dec. 29, 2000
Friday, May 15th, 2020 @ 7:25PM

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Four years after the war on corruption was launched by James D. Wolfensohn, president of the World Bank, and after many international conventions, multilateral and international agreements against bribery and corruption, corruption still appears to be on the rise. Understandably, Horst Kohler, managing director or of the International Monetary Fund (IMF), recently remarked that “fighting corruption is as difficult as it is essential.”

Capital flight — billions, most of it stolen from formerly government- owned entities — has occurred in Russia, and the IMF was required to pump $15 billion back into the Russian economy to prevent its collapse. Last November, the Russian Public Opinion and Market Research Center (ROMIR) and Gallup International survey found that as many as 27.8 percent of Russian elite groups regard corruption as the biggest threat to the country’s security. The government’s historically weak grasp on moral authority now hampers its fight against corruption, a failing for which the Russian people pay a high price.

The billions that former Indonesian President Suharto stole from his country now poison relations between that country and Singapore because the current Indonesian president, Abdurrahman Wahid, seems to believe that Singapore has helped “launder” the missing funds. In the meantime, the IMF is under pressure to forward payments of a $5 billion loan to Indonesia, despite serious setbacks in its reform programs, for fear of further destabilization.

The Philippines’ stability is threatened by accusations that former movie star President Estrada has stolen millions, aping his predecessor, Ferdinand Marcos. And according to Clay Westcott from the Asian Development Bank (ADB), “as much as one-third of public investment in many Asia-Pacific nations is squandered on corruption.” Mexico’s new reforming President Vicente Fox faces the monumental test of ending the “mordita,” the traditional bribe that has penetrated every institution in Mexico.

The long list of countries looted by their governing elite, sometimes elected democratically, makes it apparent to all those who participate in public life that corruption has become a grave concern of the post-communist world. It can undermine the foundations of civil society, and unchecked, it can endanger the stability and legitimacy of democratically elected governments. Over time, it could lead to the breakdown of market economies and undermine economic growth.

The fight against corruption is failing for the following reasons: There is no clear definition of corruption, nor is there an objective uniform standard to identify countries that are vulnerable to corruption and to measure their resilience. Also, since there is no firm agreement on what constitutes corruption, the surveys, indices, and analyses that have been developed to assess the phenomenon are not comprehensive enough. They are mostly based on perceptions and anecdotal information.

Furthermore, most international agreements on corruption lack teeth and are impossible to enforce. Not surprisingly, all international conventions and programs fail to make even a dent in this scourge. Thus, the millions of dollars spent on anti-corruption programs yield very little in the way of improvements. Clearly there has to be a better way to deal with this problem.

Large amounts of IMF and World Bank funds made available to countries vanishes as a result of corruption. The IMF and the World Bank have explicitly voiced their increasing concern with the spread of corruption in their member countries. It is time that these two powerful lending organizations build into their lending conditions specific requirements for effective, anti-corruption policies, rules and practices that countries would have to introduce in order to be eligible for funds.

In order to apply conditions of this sort, there has to be an objective benchmark, against which a country’s performance can be assessed. Recently, the IMF and the World Bank have started to assess countries’ compliance with standards having to do with the stability of the countries’ financial sectors. That means relying on the internationally accepted “Basel Core Principles” for effective banking supervision, and similar sets of standards for assessing the quality of securities and insurance oversight, issued by the International Organization of Securities Commissions and the International Association of Insurance Supervisors.

Similar basic standards can be developed against corruption. The IMF and the World Bank should develop such standards, based on the key elements of the existing international agreements and “best country practices.” This standard, which could be called the International Integrity Standard (IIS), would form the benchmark against which countries’ actions to fight corruption can be tested. The IMF and the World Bank, reinforced by independent and specialized anti-corruption experts, are ideally placed to perform these evaluations. By insisting on applying such conditions to their loans, they can negotiate the strengthening of anti-corruption policies and practices in their member countries.

Using the IIS to help rid the world of the scourge of corruption, these organizations can better fulfill their mandate to foster economic growth and fight poverty. The United States, as a major shareholder in both organizations, should use its leverage to insist that the organizations do so and soon.

*This commentary was published by the Washington Times, on December 29, 2000.

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