Credit: Corruption drains public resources and drags down economic growth in multiple ways (photo: dareknie/iStock)

Beheading the Hydra: How the IMF Fights Corruption

May 18, 2017 

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[caption id="attachment_19797" align="alignnone" width="1099"] Corruption drains public resources and drags down economic growth in multiple ways (photo: dareknie/iStock by Getty Images)[/caption]

Corruption—the abuse of public office for private gain—is a many-headed monster. It is pervasive in many countries, but only a fraction of cases make headlines; fewer are successfully prosecuted. Yet the cumulative burden is massive. By some estimates, bribery alone amounts to $1 trillion each year, and corruption more broadly to much more. While the precise figures are the subject of debate, the importance of the problem is not.

The burden falls disproportionately on the disadvantaged. Corruption drains public resources and drags down economic growth in multiple ways. IMF economists and others have examined the links between corruption and higher infant mortality, and lower spending on education and health services—all of which hit poor people hardest. Corruption thus exacerbates inequality. In a domino effect, the interplay of corruption and inequality feeds populist politics, anti-corruption group Transparency International recently concluded.

“When corruption is systemic, it undermines governments’ ability to mobilize investment,” IMF legal counsellor Sean Hagan told the Global Parliamentary Network during the IMF Spring Meetings. Corruption undermines financial institutions and systems, discourages foreign investment and distorts international capital flows. These threats to economic growth and financial stability are precisely why the IMF works with member countries to improve public institutions and legal frameworks, as outlined last year in a staff discussion note on the costs and counter-measures for corruption

The IMF fights corruption in several key ways:

These efforts are bearing fruit. Kenya, Indonesia and Ukraine, for example, have improved their anti-corruption legislative frameworks and law enforcement functions with IMF support. We delayed disbursements to Mali in 2014 over the extra-budgetary purchase of a new presidential aircraft, triggering an audit that saw other problematic contracts cancelled, and budget and procurement procedures tightened. We suspended lending to Mozambique in 2016 pending improvements in auditing and transparency after the undisclosed contracting of well over $1 billion in external debt. At a global level, to address concern over companies and trusts being used to hide the real owners of assets and accounts, we have incorporated standards developed by the Financial Action Task Force into our regular anti money-laundering work, making it easier to identify and trace the proceeds of corruption.

Notwithstanding this progress, the resounding message from our membership at IMF’s April’s Spring Meetings was: “Press on!” As highlighted by recent cases in Korea and Brazil, corruption can reach into high levels of government, and the opportunities to commit and conceal corruption and its proceeds are continually evolving in an era of rapid technological innovation.

Equally, the huge burden of corruption and the globalized threat of illicitly-funded international terror groups like ISIS and Al Qaeda both illustrate the urgency of this work. “It is … imperative that the IMF be a leader in fighting corruption,” said US Treasury Secretary Stephen Mnuchin.

Corruption doesn’t stand still, and nor do we. The IMF is currently reviewing how we treat corruption and other governance issues, following a request last year from our global membership. We are exploring ways to work more closely with other organizations—for example, drawing on Transparency International’s country experts to strengthen our Fiscal Transparency Evaluations.

Left unchecked, corruption is like the mythical hydra, two graft-ridden heads sprouting where first there was one. Working together with our members and other partners, we are determined to press ahead: the burden of corruption on world growth, on countries’ economies and on their citizens, makes this a priority.