Transcript No Slide Title

The World Bank:
Addressing the Problem of
Corruption
IACC
Durban, South Africa
October 1999
Corruption is not a new concern
• Bank projects
• Governance in client countries:
– Growing attention in the 1980s to policy reform
and public sector management
– 1983 WDR on Public Management
– 1989 Africa Perspectives Study
– 2 Governance reports (1990 and 1994)
… but World Bank attention to the
issue has grown dramatically in
recent years
• Growing evidence of the economic costs of
corruption, particularly on the poor
• 1990s: Political opening and end of the Cold War
• Rise of international attention and activism
• President Wolfensohn:
– Annual Meetings speech 1996
– New Bank anticorruption policy 1997
– Mainstreaming in 1998 and 1999
“ 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
Our policy addresses this issue
directly ...
• 1997 Board policy: “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.”
A Four-part Strategy
 Level 1: Preventing Fraud/Corruption in WB
Projects
 Level 2: Helping Countries that Request
Assistance in curbing corruption
 Level 3: Considering Corruption in:
 Country Assistance Strategies
 Country Lending
 Policy Work
 Choice and Design of Projects
 Level 4: Supporting International Efforts to
Curb Corruption
What are the Economic Costs
of Corruption?
Corruption is a problem
70
Percent of entrepreneurs
60
50
40
30
20
10
DC
SSEA
MNA
CEE
LAC
SSA
CIS
Senior Management Time Spent With Officials
(mid-1990s, various sources)
Ukraine
Russia
Zambia
Egypt
Lithuania
Brazil
Guatemala
Pakistan
Uganda
Uruguay
El
Salvador
0%
10%
20%
30%
Percent of time spent by the firm’s management with officials
9
Why firms declined to invest in
Latvia:
• Financing (23%)
• Regulatory Uncertainty/Corruption
(19%)
• Insufficient Demand (15%)
• Taxes (15%)
• Cost of Regulations (8%)
Factors correlated with corruption
4
3.5
3
2.5
2
1.5
1
0.5
0
Index of corruption
6
5
4
3
2
1
Low
Medium
High
0
Low
Policy distortion index
4
3.5
3
2.5
2
1.5
1
0.5
0
Medium
High
Predictability of judiciary index
6
5
4
Low
Medium
High
Civil servant wages relative to manufacturing
3
2
1
0
Low
Medium
High
Index of meritocracy
The degree of civil liberties in a country, a free press, and involvement of
civil society helps in controlling corruption.
Bribery and Civil Liberties
HIGH
BRIBERY
THA
CMR
AGO
IDN
NGA
(GCS97+)
NIC
GTM
VNM
PHL
KEN
UGA
GRC
POL
UKR
CIV
JOR
ARG
MEX
ETH
KOR
BRA
TUR
CRI
ZWE
CHN
ISL
ITA
BFA
GHA
MWI
HUN
MYS
SVK
ZMB
MAR
Bribery
VEN
IND
COL
EGY
TZA
HND
RUS
MOZ
MUS
PER
SWZ
TWN
LSO
CZE
NAM
ZAF
ESP
PRT
ISR
BEL
FRA
TUN
CHL
NLD
JPN
NZL
DEU
IRL
CHE
AUT
AUS
CAN
SGP
USA
LUX
GBR
DNK
FIN
LOW
BRIBERY
SWE
r=0.67
LOW
Source: Kaufmann and Sachs (1998)
Civil Liberties
(Freedom House)
NOR
HIGH
How can the World Bank help
clients address corruption ...
• Corruption is a symptom of dysfunctional
institutions … and development means
building institutions
• The political and economic aspects of
governance are intertwined
Multipronged Strategy for Combating Corruption
Economic Policy:
•Deregulation
•Tax Simplification
Civil Service:
•Pay
•Meritocracy
Legal-Judicial:
•Independence
•Judicial Strengthening
•ADR Mechanisms
Corruption
Financial
Controls:
•Audit
•Procurement
Public Oversight:
•Parliamentary Oversight
•Civil society and media
•“Power of data”/Surveys
• Independent agency/NGO
Mechanisms to
enhance
state capability
Rules
and restraints
• Judicial independence
• Watch-dog bodies
•
•
Public-private
deliberation councils
• Co-production with
communities
Voice and
Partnerships
•
Decentralization
•
Client
surveys
Merit-based
recruitmentpromotion
• Competitive service
delivery
Competitive
Pressures
Guiding Principles:
Leadership, Partnership, and
Selectivity
• A country’s leaders must be in the
driver’s seat
• Citizens must be able to hold those
leaders accountable
• Organizations must have capacity and
incentives to do their job
Latvia: Report Card of Government
Services
Post Office
State Educational
Institutions
Office of Social Benefits
Polyclinic/
Health Services
Agency of
Immigration & Citizenship
Prosecutor
Customs Service
Courts
Local Housing Authority
Police
0
10
20
30
40
percent giving favorable rating
Based on a World Bank - Latvia survey of households
Ukraine
Unofficial payments by enterprises
Type
License/Service/
“Favor”
Average
fee required
(1996)
Enterprise registration
Each visit by fire/health inspector
Tax inspector (each regular visit)
Telephone line installation
Lease in state space (sq. ft. per mth)
Export license/registration
Import license/registration
Border crossing (lump sum)
Border crossing (percent of value)
Domestic currency loan from bank on
preferential terms (percent of value)
Hard currency loan on preferential
terms (percent of value)
Enterprises
admitting need to pay
“unofficially”
$176
$42
$87
$894
$7
$123
$278
$211
3%
4%
66%
81%
51%
78%
66%
61%
71%
100%
57%
81%
4%
85%
Purchasing Public Positions:
Officials’ Perceptions
48
Customs inspectors
60
41
Tax inspectors
52
Natural Resource
Licensers
33
43
32
Judges
39
Ordinary Police
40
Georgia
25
Investigators&
Prosecutors
Albania
33
32
21
Local officials
24
Ministers
10
5
0
20
40
60
Percent of Public Officials Believed to Have Purchased Their Positions
80
Some Programs that Address
Corruption
•
•
•
•
Service Delivery (Guinea, Tanzania)
Tax Administration (Latvia)
Judicial Reform (Albania, Guatemala, Morocco)
Administrative and Civil Service Reform (Albania,
Bolivia, Ghana, Indonesia, Tanzania,Yemen)
• Decentralization (Ethiopia, Hungary, Thailand)
• Procurement reform (Benin, Georgia, and Colombia)
• Infrastructure privatization (Argentina, India)
Average Capitation Grant per Student in
Uganda, 1991 Prices
US$ per
Student
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1991
1992
Intended Grant Amount
1993
1994
Received by School (mean)
1995
Knowledge Sharing
• External Training and Collaborative
Workshops(WBI)
–
–
–
–
Comprehensive Anticorruption strategies
Investigative journalism
Auditor General
Parliamentary Public Accounts Committee
• Anticorruption and Public Sector Reform
web sites
Challenges Ahead
• A Time for Optimism and Commitment
– Greater focus and attention
– Increasingly open dialogue
– New ideas and experimentation
• A Need for Realistic Expectations
– One of the most complex and difficult
development challenges
– Look for improvement, not perfection
“[T]he 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