IMF, WB declare war on corruption

IMF, WB declare war on corruption

By Vincent Lingga

HONG KONG, China (JP): The World Bank and the International
Monetary Fund, which together hold more than US$300 billion in
lending assets, are geared up to escalate the war on corruption
during their annual meetings starting here next week.

"We have been pushing this line on corruption since last year
and we will again reaffirm to our board of governors that it is
an area we will not withdraw from," World Bank President James D.
Wolfensohn said here yesterday.

Wolfensohn said corruption not only resulted in moral problems
but also social and economic problems because graft practices
hindered economic progress and diverted resources from the poor
to the rich.

The IMF puts the issue in a broader context of what it calls
good governance which refers to the need for honest officials who
do not take bribes as well as to cost-effective management
systems in the public sector and fair and open laws.

"Good governance is a key element of what we like to call the
second generation reform to maintain economic growth," IMF
Managing Director Michel Camdessus said here Thursday.

Camdessus said if the first generation reform covered
macroeconomic equilibria and structural reforms to jump-start the
engines of growth, second generation reform was needed to
maintain growth and enhance greater equity in income
distribution.

The IMF chief cited the quality of fiscal adjustment, bolder
structural reforms, stronger banking system and increased focus
on education and health spending as the other key components of
the second generation reform.

Wolfensohn said the issue of corruption had been gathering
momentum as it was recognized as a barrier to development.

"Eighteen months ago we never mentioned corruption. Now you
can discuss it with everybody," he added.

According to a World Bank study, corruption cripples
development by undermining the rule of law and weakening the
institutional foundation on which economic growth depends.

The study says the harmful effects of graft are especially
severe on the poor, who are hardest hit by economic decline, are
most dependent on the provision of public services and are least
capable of paying the extra costs associated with bribery, fraud
and the misappropriation of economic privileges.

The World Bank also warned that widespread corruption could
discourage development assistance from donors.

"Perception of widespread corruption in developing countries
seriously undermines public support in donor countries for
development aid and deters the confidence of private foreign
investors, thereby diverting much needed capital," the study
says.

Another study on corruption made by Paolo Mauro, an economist
at IMF, which was issued here yesterday came up with similar
findings. The study says corruption lowers investment and retards
economic growth, diverting talent to rent seeking, distorts the
composition of government expenditure, bringing about losses of
tax revenues, and lowers the quality of infrastructure and
public services.

The World Bank and IMF acknowledge that corruption is a
complex problem, transcending the public sector, and the success
of antigraft efforts depends primarily on the resolve with which
they are pursued domestically.

Wolfenshon said the World Bank and IMF are cooperating with
the International Chamber of Commerce, the United Nations, the
European Union, the Organization of Economic Cooperation
Development and the Council of Europe to curb transnational
bribery and money laundering because corruption is a global
problem.

Wolfenshon reaffirmed yesterday the World Bank's offer of
assistance to member governments to combat corruption through
economic policy reform and public institution development.

"Deregulation and expansion of markets, for example, not only
improves efficiency but also creates greater competition and
transparency and eliminates many sources of bribery and other
forms of corruption," Wolfensohn said.

He warned that corruption would be directly taken into account
in country risk analysis, lending decisions and portfolio
supervision if it affects projects and the government's
commitment to dealing with the problem is in question.

Camdessus also reiterated Thursday the IMF's capability in
helping its 181 member countries promote good governance through
policy advice, technical assistance and enhancement of
transparency in financial transactions.

The IMF board of directors approved early last month policy
guidelines on good governance, stating that financial assistance
from the IMF could be suspended or delayed on account of poor
governance if there is reason to believe it could have
significant macroeconomic implications.

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