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The 9th International Anti-Corruption Conference
The Papers
The World Bank's Anti-corruption Agenda
Cheryl Grey
Introduction
" The causes of financial crises and poverty are one and the same . .
. if [countries] do not have good governance, if they do not confront
the issue of corruption, if they do not have a complete legal system
which protects human rights, property rights and contracts . . . their
development is fundamentally flawed and will not last."
James D. Wolfensohn Address to the Board of Governors
September 28, 1999
This is a very exciting and promising time for anyone interested in
governance and anti-corruption. Over the past few years the attention
of the world has shifted dramatically, in part because of historical
events (including the end of the Cold War and the opening up of
political discourse and democracy in many countries) and in part
because of the growing body of evidence that poor governance and high
levels of systemic corruption corrode development and impair economic
growth.
Governance and anti-corruption are at the top of the World
Bank's development policy discourse more than ever before. Of course
the Bank has always been concerned with the integrity of its
operations. Its Articles of Agreement require that its resources be
used efficiently and appropriately for development purposes, and
procurement procedures in Bank projects have long been focused on that
goal. In terms of its development strategies, however, the Bank did
not explicitly talk about "corruption" as such before the mid-1990s,
in part because of its political sensitivity and the Bank's explicit
non-political mandate. (This was also true for the vast majority of
other development agencies -- bilateral and multilateral.) The Bank
did, however, raise the issue of corruption in discreet but direct
ways with certain governments.
In the 1980s, as the nature of the
Bank's business evolved from "hard' infrastructure projects to policy
frameworks (with the advent of adjustment lending), the Bank began to
help countries reform trade regimes, financial sectors and investment
laws to help mitigate the effects of "rent-seeking" behaviour.
Increasingly, it also began to address the need for institutional
strengthening, public sector reform, and good governance in its client
countries. Landmark documents include the 1983 World Development
Report on Public Management; the Africa Long-term Perspectives Study
in 1989, and two Governance reports in the early 1990s.
Corruption as
a development issue was explicitly addressed by the Bank for the first
time when Mr. Wolfensohn became President in 1995. During the 1996
Annual Meetings, Mr. Wolfensohn captured the world's attention when he
vowed to fight the "cancer of corruption" that undermines development.
The 1996 and 1997 World Development Reports (on transition and the
role of the state, respectively) both discussed the issue of
corruption. In the summer of 1997 the Bank's procurement guidelines
were amended to specifically address corruption in Bank projects.
Most notably, in September 1997 the Board approved a comprehensive
anti-corruption policy framework for the Bank.
The framework envisions action on four fronts:
- First, the Bank will make every effort to prevent fraud and corruption in
projects it finances. This has always
been a concern, but we are strengthening our efforts.
- Second, the Bank will assist countries that ask for help in curbing corruption.
All regions are now receiving requests, and our challenge is to
respond meaningfully while ensuring government commitment and
leadership.
- Third, the Bank will mainstream a concern for
corruption in its country analysis and lending. The contains the
explicit statement that the extent and nature of the Bank's activities
in a country will be affected by the level of corruption, its impact
on development and/or Bank projects, and the willingness of the
government to address it. Explicit attention to governance has been a
feature of IDA allocations for some time, and diagnosing addressing
governance concerns is now an explicit requirement in the preparation
of country assistance strategies. As stated in the 1997 Bank
strategy, Helping Countries Combat Corruption: The Role of the World
Bank, "Corruption should be explicitly taken into account in country
risk analysis, lending decisions, and portfolio supervision if it
affects project or country performance and the government's commitment
to deal with it is in question."
- Fourth, the Bank will participate
actively in international efforts to address corruption. This area of
activity is moving along well, but more can be done.
This talk primarily focuses on our assistance to clients - the second part of
this strategy.
Assistance to Clients
The Bank views systemic corruption as a symptom
of weak and poorly functioning institutions. Research has shown that
corruption is empirically associated with economic policy distortions,
excessive regulatory interventions and discretion, a poor judiciary
system, weak rule of law and inadequate protection of property rights,
as well as non-meritocratic service hiring and promotion practices and
weak incentives and a lack of professionalism in the civil service.
Bribery also prevails where anti-monopoly policies are weak. Legal,
regulatory, organisational, and ownership reforms to reduce monopoly
power are crucial first steps in the fight against corruption.
Furthermore, bribery and tax evasion (which go hand in hand) are more
common when the overall tax burden on the firm is high -- particularly
where administrative capacity to enforce tax laws is weak. Finally,
research points to the correlation between the extent of corruption
and the extent of civil liberties. The 1997 World Development Report
and the Bank's evolving public sector strategy, as well as the Bank's
increasing emphasis on inclusion and social development, all recognise
the importance of a strong and involved civil society in providing an
impetus for governance reform and in monitoring public sector
performance.
The Bank thus addresses corruption in systemic terms,
mainly with a goal to reduction and prevention through institutional
strengthening. It is not the Bank's role to identify and prosecute
individual offenders, but rather to address the various aspects of
policy and institutional reform that are likely to be critical in
reducing corruption -- including economic policy and its
implementation, institutional reforms and the framework for civil
service employment, the legal-judicial system, financial control
mechanisms, and the extent and nature of public oversight. We know
from experience that internal reforms in the rules and restraints on
bureaucracy are perhaps necessary but are not sufficient for reform.
The "voice" of the citizenry and the private sector and competitive
pressure (for example, in public service delivery) are two mechanisms
that complement changes in internal rules and restraints.
What can the Bank do to help countries address corruption? We are guided by
several principles. First, a country's leaders must be in the
driver's seat. Without high-level political support an anti-
corruption effort is unlikely to succeed. Second, as noted earlier,
citizens need to have mechanisms to hold leaders accountable. They
need voice and participation, and competition can also help increase
transparency and accountability. Third, relevant organisations in the
public, private, and non-profit sectors must have the capacity and the
incentives to do their jobs effectively.
In-depth empirical work can
often help to diagnose the extent and nature of the problem and to
raise awareness. For example, in-depth surveys of citizens, private
firms, and government officials have helped to quantify the level of
corruption, pinpoint where it is most problematic, and thereby help
set priorities for action. The results of recent surveys in
transition countries, for example, help to identify which government
services are most trusted by citizens and help to quantify how much
citizens must pay for certain services and to what extent public
officials tend to purchase their positions. Empirical results such as
these help to break the problem into manageable pieces and set
priorities for action.
Another interesting type of survey that the
Bank has recently helped clients undertake is a "tracking" survey to
see to what extent public spending reaches its intended uses. In
Uganda, for example, tracking surveys helped reveal that many funds
budgeted for education failed to reach the schools. To help increase
budgetary effectiveness, the Government of Uganda began to
disseminate information on monthly transfers of funds to districts
publically -- in newspapers, on radio, and in posters put up at
schools. School-based procurement replaced central procurement of
construction materials, a standard accounting system was implemented
at the central and district levels, and the methods of calculating
grants to schools were made totally transparent. This is only one of
many examples of the power of information and transparency.
It is also an example of how awareness raising must be followed by
action to be useful. The Bank is involved in helping government reform
policies and strengthen institutions all around the world; it lends at
least $5 billion per year for institutional reform. Priorities for
action will vary by country and may include initiatives (i) to
deregulate the economy, (ii) to reform public sector management in
areas such as customs, tax administration, or the civil service, (iii)
to strengthen "accountability" institutions such as audit bodies,
anti-corruption commissions, or the judiciary and/or (iv) to
decentralise government structure to bring services closer to the
people.
Knowledge sharing is another important part of the Bank's
work. In addition to surveys and workshops, the Bank has conducted
over 40 training courses in investigative journalism, parliamentary
procedures, and the roles of the auditor general and the public
accounts committee, and it recently launched its internal and external
anti-corruption web sites.
Finally, we believe that international
efforts are key complements to these in-country efforts at reform.
Anti-corruption work is most effective when it involves a wide variety
of partners, and many corruption problems cross national boundaries.
We are working actively with a wide variety of partners -- including
OECD, UNDP, bilateral donors, the other multilateral development
banks, regional organisation, and non-governmental organisations (both
within countries and internationally) to address common concerns,
share experiences, and jointly design and implement interventions in
the field where possible. We strongly support the OECD's Anti-bribery
Convention, and we hope all signatory countries will ratify the
convention in 1999.
In sum, we are in the midst of profound change,
and there is room for great optimism. The attention given to
governance both inside and outside the Bank has increased
dramatically, the dialogue is noticeably more open both in the Bank
and in our client countries, and new ideas and experiments are
emerging daily. We need to continue our strong commitment, because
helping governments function more effectively is a fundamental key to
long-term development.
However, at the same time we need to keep
realistic expectations. As was noted at the outset, the need to be
vigilant in addressing fraud and corruption never ends, and tackling
widespread systemic corruption is a particularly difficult task.
Corruption is a deep and complex problem, both technically and
politically. Making substantial progress takes time, and countries
must be continually vigilant. Enormous top-level commitment and
leadership is required. We are still in a relatively early stage in
developing our capacity and techniques to understand and help
countries address this issue, and we all still have much to learn.
The goal is well worth the effort, but we need to have realistic
expectations. We must seek continual progress but not expect
perfection.
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