CORRUPTION & TRANSPARENCY

“Trust in Allah but don’t forget to tie up your camel”

• Good Governance, Transparency and Controlling Corruption ->

• Key Pre-requisites for Socio-Economic Development and Growth

Arab saying

Roots of Corruption

Not simply an abuse of the public office for private gain:

• Corrupt behavior involves nepotism, cronyism, insider-trading, etc.

Roots of Corruption

• Often institutionalized and is an acceptable behavior in many countries.

• Complex and vague legal systems along with governmental discretionary powers breed corruption.

CorruptionSupply-Side vs. Demand Side

Overview of Corruption• “taboo” topic in many countries

• Institutionalized corruption threatens the development of democracies and markets.

• Increases transaction costs

• Undermines the competitiveness of the private sector in today’s global economy

Overview of Corruption• Essentially a waste of resources

• Corrupt countries lack predictable economic environments and stable legal institutions – the base for international investment, trade and growth

The Importance of Private Foreign Direct Investment in Developing Countries

• ODA : Overseas Development Assistance

• FDI : Private Foreign Direct Investment in Developing Countries

US $/Year Source: World Bank

CORRUPTION DETERS FOREIGN INVESTORS: Probability of Investment Loss due to Corruption (within 5 years)

5

6

10

12

15

24

29

39

41

44

58

62

68

71

79

95

0 10 20 30 40 50 60 70 80 90 100

UNITED STATES

SINGAPORE

ITALY

COSTA RICA

GREECE

ESTONIA

POLAND

MEXICO

ROMANIA

BULGARIA

RUSSIA

UKRAINE

PAKISTAN

GEORGIA

COLOMBIA

TURKMENISTAN

*Source: S&P/DRI 1998

% % % % % % % % % % %

Demand Side of Corruption:The Role of the Private Sector

The business community has to gain a reputation for equity, fairness, transparency, accountability and responsibility by developing the institutions of corporate governance:

• Transparency (full disclosure)• Independent Auditing• Conflicts of interest involving boards of

directors and managers• Procedures for bankruptcy• Property rights• Contract enforcement• Corruption and theft

Quality of Rule of Law by Region

Good

Poor

The ‘Dividend’ of Good GovernanceInfant Mortality and Corruption

0

10

20

30

40

50

60

70

80

90

Weak Average Good

Control of Corruption x Development

Dividend

0

2,000

4,000

6,000

8,000

10,000

12,000

Weak Average Good

Regulatory Burdenx Development

Dividend

Per Capita Income and

Regulatory Burden

Literacy and Rule of Law

0

25

50

75

100

Weak Average Good

Rule of Law x Development Dividend

Per Capita Income and Voice and Accountability

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Weak Average Strong

Voice and Accountabilityx DevelopmentDividend

Note : The bars depict the simple correlation between good governance and development outcomes. The line depicts thepredicted value when taking into account the causality effects (“Development Dividend”) from improved governance to betterdevelopment outcomes. For data and methodological details visit http://www.worldbank.org/wbi/governance.

What to Do About Corruption: Responses from Officials In 62 Countries

20%

30%

40%

50%

60%

70%

80%

90%

Anti-corruptionwatchdog

institutions

Privatization Democracyand civilLiberties

Reform taxregime

Budgettransparency

Deregulateeconomy

Implementpenalties for

corruption

Example setby leadership

Per

cent

age

of r

espo

nden

ts

assi

gnin

g hi

gh r

atin

g

Civil Society Oversight:• Freedom of information• Public hearings of draft laws • Monitoring by media/NGO’s

Competition & Entry :• Competitive restructuring of monopolies• Regulatory simplification

Public Administration and Public Finance: • Meritocratic civil service • Transparent, monetized, adequate remuneration • Accountability in expenditures (Treasury, Audit, Procurement)

Strategy for Good Government and Anticorruption

Accountability of Political Leadership:• Disclosure of parliamentary votes • Transparency in party financing• Asset Declaration, Conflict of Interest Rules

Checks and Balances:• Independent and effective judiciary• Decentralization with accountability

Good and CleanGovernment

Overall Corruption Over Time(Selected Countries; ICRG index, rescaled 0-10)

0

2

4

6

8

High corruption

Low corruption

1992 1993 1994 1995 1996 1997 1998

Indonesia

Indonesia

Finland

El Salvador

10

El Salvador

Finland

Russia

Russia

Poland

Poland

1988-92

Measures of Corruption

Transparency International “Corruption Perceptions Index” ranks 102 countries on the scale of 10 – 1, with 1 being the most corrupt and 10 being the least corrupt country.

Rank Country Score1 Finland 9.72 Denmark 9.5

10 United Kingdom 8.715 Austria 7.816 USA 7.718 Germany 7.325 France 6.3

Rank Country Score57 Mexico 3.664 Turkey 3.271 Russia 2.777 Philippines 2.685 Ukraine 2.496 Indonesia/Kenya 1.9

102 Bangladesh 6.3

World Map CPI 2008