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p. 1 of 10 BACK | NEXT I. Introduction II. ADB'S Response III. Definitions of Corruption IV. The Costs of Corruption V. ADB's Position on Anticorruption Issues VI. Conclusions and Recommendations VII. Appendixes

Anticorruption

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I. Introduction

1. The problem of corruption, here defined as the misuse of public or private office for personal gain, has been one of the most enduring dilemmas confronting governments throughout history. Although differences may exist in the nature and scope of corrupt behavior, and the extent to which anticorruption measures are enforced, the phenomenon can be found at all times and within virtually every political system. It can also be found within the private sector. Indeed, the linkage between public and private sector corruption is an area of particular concern for both developed and developing countries in the Asia and Pacific region.

2. Historically, concern about corruption has tended to run in cycles, in which revelations of official abuses prompted anticorruption campaigns and administrative countermeasures that subsequently faded from view until the next round of scandals provided further impetus for reform. The desire to reduce or eliminate corruption was at the core of many enduring innovations for good governance. The major public administration reforms of the late nineteenth and early twentieth centuries—such as the introduction of a meritocratic civil service system, and professional management of government ministries and departments, or the creation of more formalized budget, procurement, and audit processes and agencies—had their roots in the desire to avoid earlier abuses of graft and political patronage.

3. Recently, the effort to combat corruption has moved to the center of the debate about good governance and economic growth. The impetus behind this move has come from many sources. On the donor side, the end of the Cold War has reduced the willingness of countries providing aid to overlook financial improprieties in light of broader geopolitical interests. Donor fatigue has placed increasing pressure upon foreign assistance agencies to demonstrate that they are delivering maximum value for the money. Many multinational corporations have come to believe their interests are better served by open and transparent competition. At the extremes, the negative example of a handful of “kleptocratic” regimes has underscored the danger of political and social collapse if widespread corruption is allowed to fester unchecked.

4. On the recipient side, in countries throughout the Asia and Pacific region, the citizenry has served notice that it is no longer willing to tolerate gross abuses of the public trust for private gain. The liberalization of the press in many parts of the world has enabled journalists to write more freely about official indiscretions. Improvements in education and increased information flow between countries have made their public more aware of anticorruption efforts in other countries and less willing to tolerate systematic abuses at home. The rise of new global nongovernment organizations (NGOs) dedicated to fighting corruption has helped bring and keep the issue in the spotlight in both the developed and the developing world.

5. Many of these dynamics are likely to exist for at least the next decade or more, resulting in a fundamental change in the context within which multilateral development banks (MDBs) operate. Pressure for more active measures against graft and corruption is no longer likely to be isolated and sporadic. Like questions relating to the environment or women in development, influential and well-connected constituencies both within and outside of the MDB community will press hard to ensure that issues of corruption and good governance remain an important and ongoing element of the development debate.

6. In response to these pressures, many international organizations are adopting more robust anticorruption measures:

1. At a Summit of the Americas in May 1994, the Organization of American States (OAS) pledged to outlaw cross-border bribery and the “illicit enrichment” of officials in the hemisphere. In March 1996, 21 member states of OAS signed the Caracas Convention, which calls for energetic collective action in four principal areas: preventative measures and international cooperation, transnational bribery, illicit enrichment, and extradition. The Caracas Convention is now in force between the countries that have ratified it: Bolivia, Costa Rica, Ecuador, Mexico, Paraguay, Peru, and Venezuela.
2. The Organisation for Economic Co-operation and Development (OECD) Ministerial Council approved a resolution encouraging its member states to end the tax deductibility of foreign bribes and commissions for their multinational corporations in May 1996. A year later, it approved a full set of recommendations for criminalizing transnational bribery, enacting stricter accounting requirements and external and internal audit controls, tighter public procurement, and enhanced international controls. In December 1997, OECD ratified a convention making the bribery of foreign officials a criminal offense, on a par with the bribery of local government officials in the country where the corporation is based.
3. The International Chamber of Commerce recently approved revised rules of conduct that prohibit bribes and recommended that its member associations around the globe, and their member corporations, adopt and apply these tighter rules.
4. In December 1996, the United Nations General Assembly passed the Declaration Against Corruption and Bribery in International Commercial Transactions.

7. One of the most forceful proponents of a tough stance on anticorruption issues is the World Bank’s President, James Wolfensohn. At the annual meetings of the World Bank and the International Monetary Fund (IMF) in October 1996, Wolfensohn characterized corruption as a “cancer” on the global economy and emphasized that it was time to “put teeth” into the World Bank’s efforts to address it. The Managing Director of IMF, Michel Camdessus, was equally blunt, noting that IMF officials will henceforth regard it as their duty to press for anticorruption reforms in countries seeking to borrow money. In the wake of the annual meetings, a working group was established under the Development Economics Vice Presidency of the World Bank to develop an integrated anticorruption strategy. The final report, along with accompanying staff guidelines, was endorsed by the World Bank’s Board of Executive Directors on 2 September 1997.

8. The World Bank’s approach envisions a balanced strategy to combat corruption resting upon four pillars: (i) preventing fraud and corruption in World Bank-financed projects; (ii) helping countries that request World Bank support in their efforts to reduce corruption; (iii) taking corruption more explicitly into account in country assistance strategies, policy dialogue, analytical work, and the choice and design of projects; and (iv) adding voice and support to international efforts to reduce corruption.¹

9. In August, IMF took the unprecedented step of suspending the second tranche of an Enhanced Structural Adjustment Facility when one of its member countries failed to demonstrate that it was pursuing adequate measures to reduce the problem of corruption. The World Bank has strongly supported IMF’s move and warned that its own lending will be “substantially reduced” failing decisive action on the part of that government.² At the annual meetings of the World Bank and IMF in Hong Kong, China in September 1997, the commitment of both institutions to combat corruption was strongly reaffirmed.

10. The 1997 summit of the Group of Seven industrial nations in Denver, United States, placed particular emphasis upon the role of the MDBs in combating corruption. The communiqué from the preliminary meeting of finance ministers and central bankers in April maintained, “in view of the corrosive effects of bribery and corruption generally on the achievement of sustainable economic development, growth, and stability, we welcome the increased attention to these problems on behalf of international financial institutions and the OECD.” In June, the final summit statement urged IMF and the MDBs to strengthen their activities to help countries fight corruption, including measures to ensure the rule of law, improve the efficiency and accountability of the public sector, and increase institutional capacity and efficiency. The international financial institutions were also encouraged to promote good governance in their respective areas of competence and to collaborate fully with the World Bank’s effort to establish procurement guidelines that meet the highest standards for transparency and rigor.

11. Many of the developing member countries (DMCs) of the Asian Development Bank (ADB) have played an integral role in the growing anticorruption movement. In East Asia, several countries that have enjoyed high growth rates in the past have expressed concern that perceptions of corruption can hamper their ability to attract future investment. In 1995, the People’s Republic of China passed legislation requiring leading Communist Party cadre levels above the country level to declare their income. Thailand’s Prime Minister pledged in January 1997 to clean up the Customs Department, which was creating numerous “hidden costs” for foreigners seeking to do business in Thailand. That same month, the President of the Philippines characterized “the nightmare of corruption in public service” as one of the country’s most persistent afflictions and ordered all government departments to submit monthly progress reports on their fight against corruption within their offices.

12. On the South Asian subcontinent, the problem of corruption has become one of the most pressing issues confronting government leaders today. In Pakistan, the Prime Minister has made the effort to clean up government one of the key goals of his new administration. India’s President recently characterized corruption as one of the greatest challenges now confronting his country.³

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