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.

Corruption Supply-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) 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 Governance Infant Mortality and Corruption WeakAverageGood Control of Corruption x Development Dividend 0 2,000 4,000 6,000 8,000 10,000 12,000 WeakAverageGood Regulatory Burden x Development Dividend Per Capita Income and Regulatory Burden Literacy and Rule of Law WeakAverageGood Rule of Law x Development Dividend Per Capita Income and Voice and Accountability WeakAverageStrong Voice and Accountability x Development Dividend Note: The bars depict the simple correlation between good governance and development outcomes. The line depicts the predicted value when taking into account the causality effects (“Development Dividend”) from improved governance to better development outcomes. For data and methodological details visit

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 Clean Government

Overall Corruption Over Time (Selected Countries; ICRG index, rescaled 0-10) High corruption Low corruption Indonesia Indonesia Finland El Salvador 10 Finland Russia Russia Poland Poland

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. RankCountryScore 1Finland9.7 2Denmark9.5 10United Kingdom8.7 15Austria7.8 16USA7.7 18Germany7.3 25France6.3RankCountryScore 57Mexico3.6 64Turkey3.2 71Russia2.7 77Philippines2.6 85Ukraine2.4 96Indonesia/Kenya Bangladesh6.3

World Map CPI 2008