Russian Finance Minister Alexey Kudrin takes part in a State Duma extraordinary session in September 2005.
Photo: Dmitry Dukhanin
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Global Corruption
// The West Finds a New Foreign Policy Lever
The problem of corruption may well become one of the most important international political problems of the immediate future. At the G8 summit in St. Petersburg in July, a statement concerning "the struggle against corruption at a high level" (which, incidentally, has practically not been discussed at all in Russia) was adopted on the initiative of US President George Bush. "Large-scale corruption among those on the senior level of leadership in the executive, legislative, and judicial branches of power may have a crippling effect on democracy, the principles of the rule of law, and socioeconomic development," says the statement. The statement also calls on the leadership of international banks to come up with a comprehensive strategy to fight corruption by September of this year.
At this week's summit of the World Bank and the International Monetary Fund (IMF) in Singapore, this strategy was at the center of the discussion. The fact that, in many developing countries, credits from the World Bank are stolen and embezzled has long been a topic of discussion and has been actively employed as a criticism of international financial institutions both in the countries that receive aid from them and in the United States. In 2004, US Senator Richard Lugar stated that around 25% of all currency loans from the World Bank went for purposes other than what they were intended for.
In June of last year Paul Wolfowitz, a neoconservative from within the Bush administration, became head of the World Bank. Mr. Wolfowitz announced then that the eradication of bribery and embezzlement would be his main goals. At the beginning of 2006, he froze credit extensions to countries that have, in the opinion of the World Bank, widespread corruption, a low quality of government, and insufficiently rapid reforms. These countries included Congo, Chad, India, Kenya, Bangladesh, Uzbekistan, Yemen, and Argentina. The decision provoked a wave of criticism both in the countries affected and from World Bank donors.
The Poverty Trap
According to opponents of Wolfowitz's approach, the poorest people are "punished" twice: once by their own government, which runs the country ineffectively, and again by the World Bank when it deprives them of even those meager funds that had trickled down. The United Nations, for example, differs from the World Bank in its approach to the problem of aid for the poor. The essence of the UN's conception is that the poorest countries are stuck in the "poverty trap": they must spend all of their income on essential needs. There is simply no money left over to develop the economy, improve government institutions, root out corruption, and so on. Countries that need help from international organizations are those that are poor and that have bad government institutions, and corruption is an unavoidable companion of poverty and bad government. Credits are particularly essential to improve the quality of economic institutions that are indispensable to victory over corruption.
That aside, the World Bank has also been accused of libertarianism. Kenyan Finance Minister Amos Kimunya complained that the World Bank stopped aid to Kenya because the authorities had not been sufficiently successful in the struggle with corruption, but then it did not explain what the country needed to do in order to receive credits. The problem of establishing criteria to measure corruptibility is becoming particularly difficult. Although ratings of corruptibility and the quality of government management are computed by many international organizations, including the World Bank, many economists agree that the problem of corruption is "not quantitative" – calculating the level of corruption is impossible.
Quality and Quantity
Scientific director of the Higher Economic School Evgeny Yasin believes that "formally representing a country as a set of indicators and then making a decision based on them is unrealistic and incorrect." In his opinion corruption is a quality problem, and its main sources lie not in the poverty of a country but in an authoritarian regime. Poverty, like corruption, is a result of authoritarian rule. Taking a different tack, Russian Economic School Sergey Guriev suggests that although the procedure for measuring corruption is not entirely accurate, it is still possible to choose several completely objective criteria. Although a final decision will obviously not be made solely on the basis of formal indicators, the level of subjectively will nevertheless be limited.
"Corruption commonly conjures visions of up those institutions that act in poor or "bad" countries (that have a low level of per-capita GDP, a high infant mortality rate, and a low level of literacy). This institutions really are ineffective, but their natures are very varied. In the mouths of officials at the World Bank, however, corruption means simply everything that differs from the "good" institutions that predominantly Anglo-Saxon countries are accustomed to," says Russian Economic School professor Konstatin Sonin.
Former economic advisor to the Russian president Andrey Illarionov generally believes that the dilemma facing the World Bank is artificial. "Credits from international financial organizations do not facilitate economic growth and improvements in institutional quality," he says with certainty. "The second false idea is that these credits can be made conditional. No matter what the accompanying conditions are, they simply won't be fulfilled." As a result, notes Mr. Illarionov, it usually turns out that a country that abides by such requirements does not need credits from international organizations, while the countries that do are those that will refuse to fulfill the accompanying obligations. The question is not one of the existence or absence of corruption, but of degrees – and that is the zone of subjective assessments.
Global Corruption
However, along with the "technical" level of the problem, it goes without saying that there is a political level as well. Russian Finance Minister Aleksey Kudrin, who has become engaged in the polemics of corruption, says in that vein that "forced interference in the political process, even if it occurs under the banner of support for one or another enemy of corruption," may lead to "growing alienation between a bank" and its clients. In other words, corruption is an internal government matter.
It is true that anticorruption demands are a particular type of "political lever." Paul Wolfowitz, who has backed off slightly from his position of complete cessation of cooperation with corrupt countries, in Singapore formulated the World Bank's task as follows: "Even in the most complex conditions, we should continue the search for reformers and furnish them with support both in the structures of government and within the framework of civil society, including parliament, the justice system, and the mass media, in order to improve the situation at the poorest levels of the population."
With the principles of the "Washington consensus" (i.e., the notion of the universality of "correct" economic institutions) being almost universally doubted, the problem of corruption is turning out to be practically the last boundary that allows the internal processes of poor and developing countries to be controlled and their relative openness to be achieved.
What is more, the collapse of the USSR and the ever-increasing number of countries with "poor" government institutions in the global economic arena has made the problem of corruption a critical one for the West. Economically-active and upwardly-mobile Latin America and Asia, along with the CIS and oil-exporting countries, are often not simply infected with corruption. Corruption there is becoming a basic political and economic system. And the exportation of corruption and corrupt capital from these countries to the West might just be going better than the exportation of Western democracy to these countries.
M&K
All the Article in Russian as of Sep. 20, 2006
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