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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