Addressing Corruption with Clarity
IMF News, September 18, 2017
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- Authors: Christine Lagarde
- Published: September 18, 2017
Introduction
- Speech delivered by Christine Lagarde, IMF Managing Director, at the Brookings Institution, Washington, DC, September 18, 2017.
- Event convened policy makers, business leaders, and civil society experts to acknowledge and measure corruption and its economic impact.
What Do We Mean by Corruption?
- IMF definition: public corruption is the “abuse of public office for private gain.”
- Key observations:
- Corruption is complex, often involving multiple actors operating in the shadows.
- Private actors can be direct participants (bribery) or facilitators (money laundering, tax evasion).
- The “Panama Papers” highlight how facilitators enable corruption to spread across borders.
- Implication:
- Effective anti-corruption approaches must identify many different dimensions and transnational linkages.
Why is the IMF Involved and Why Now?
- Rationale:
- Growing consensus among IMF members that corruption is a macro-critical issue in many countries.
- Systemic corruption undermines inclusive growth and poverty reduction, erodes business vitality, and limits economic potential.
- Quantified cost:
- The annual cost of bribery is estimated to be between 1.5 to 2 trillion dollars — roughly two percent of global GDP.[1]
- Illustrative dynamics:
- Public funds diverted to unnecessary projects can deplete social service coffers (education, health care) and perpetuate inequality.
- Institutionalized corruption increases distrust in government and reduces foreign direct investment, creating negative feedback loops.
- Public perception:
- A survey of global youth found young people identify corruption, not jobs or lack of education, as the most pressing concern in their countries.[2]
- Universality:
- Corruption can impact every nation and take forms from embezzlement and nepotism to terrorist financing.
How Can the IMF Help?
- IMF Executive Board stance:
- Took stock of progress and committed to confronting corruption more directly.[3]
- Agreed members would benefit from increased granular policy advice and candid, even-handed assessment of corruption’s economic impact.
- Methodological needs:
- Development of new methodologies to better quantify and analyze corruption.
- Launch of two new anti-corruption research initiatives led by Brookings, the World Bank, the IFC, and partners (noted at the event).
- Practical IMF actions and examples:
- Transparency and accountability: encourage publication of data on major public investments.
- Gabon example: after IMF consultation, government committed to publishing data on all major public investments in next year’s budget; by 2020 the budget law will outline financial risks associated with every public company, including those in the extractive sector.
- Regulatory reform: streamline processes to reduce the number of gate-keepers for permits, fees, and contracts (not necessarily deregulation).
- Legal and institutional strengthening: focus on enforcement institutions (police, public prosecutors, judiciary).
- Ukraine example: IMF-assisted comprehensive review of national corruption led to reforms including a national anti-corruption bureau; investigators need increased authority and prosecutors must be empowered to bring charges in an anti-corruption court.
- Implementation challenges and realism:
- Cultural and institutional change takes time; policies can take years to become effective.
- Some governments view corruption as political rather than economic and may be reluctant to engage.
- Commitment:
- IMF commits to speak about corruption with clarity and to offer tools to help members do more going forward.
Conclusion
- A coordinated global effort to stop corruption can increase prosperity and improve citizens’ lives.
- The speech closes with the metaphorical reference: “I think this is the beginning of a beautiful conversation!”
By Christine Lagarde, IMF Managing Director; Brookings Institution, Washington, DC; September 18, 2017.