Addressing Corruption with Clarity by Christine Lagarde, IMF Managing Director

International Monetary Fund Managing Director Christine Lagarde delivered opening remarks on Addressing Corruption with Clarity at a Brookings Institution event in Washington D.C. today Monday, September 18, 2017. The remark is reproduced below.

 

Addressing Corruption with Clarity
By Christine Lagarde, IMF Managing Director

Brookings Institution, Washington, DC, September 18, 2017

Introduction

Thank you, Norm, for your generous introduction and for helping organize today’s forum. My thanks go as well to the Brookings Institution, the IFC, and the Partnership for Transparency Fund — in particular Frank Vogl —  for hosting this important event.

Crick, Ngozi, Hans Peter —  I am looking forward to our conversation.

I said this event is important. Why is that? Because in order to tackle corruption we need to acknowledge the problem plainly and measure its impact as accurately as we can. So our gathering of policy makers, business leaders, and civil society experts is a step in the right direction.

When talking of corruption, I always have in mind that famous moment from Casablanca when Captain Renault closes the casino in Rick’s Café. The Captain was “shocked, shocked to find that gambling is going on in here” — which of course did not prevent him from pocketing his share of the earnings before he walked away.

None of us are shocked — we know that corruption is a problem and we are trying to do something about it. That is what brings us together this morning.

I want to begin by addressing three questions we often hear in the context of the IMF and anti-corruption work. First, how does the IMF define corruption? Second, why is the IMF involved in anti-corruption efforts? And third, what more can the IMF do to help its membership in this fight?

  1. What Do We Mean by Corruption?

The IMF, in line with other international organizations, defines public corruption as the “abuse of public office for private gain.”

But what does this mean in practice? We all know that corruption is a complex problem often involving multiple actors who operate in the shadows.

Consider just one example — a bribe in the extractive industries.

Yes, a local official may demand a bribe, or a government ministry may turn a blind eye, but what about the company who proffers the money? Surely, it participates in the illicit transaction.

After all, for every bribe accepted, one must be offered.

For this reason, as we assist our members in fighting public corruption, we also are committed to looking at transnational private actors who influence public officials. Private actors may help generate corruption through direct means such as bribery, but they also can facilitate corruption through indirect means, such as money laundering and tax evasion.

The recent example of the “Panama Papers” highlights the importance of these facilitators, and underscores the pernicious way corruption can quietly spread across borders.

So, to be effective, our approach must recognize the practical realities of the problem and aim to identify the many different dimensions of corruption.

  1. Why is the IMF Involved and Why Now?

This brings me to my second question. Why has the IMF been asked to do more on anti-corruption and why now? The answer is that there is a growing consensus among our members that corruption is a macro-critical issue in many countries.

Thanks to the work of some in this room, it has become clear that systemic corruption undermines the ability of states to deliver inclusive growth and lift people out of poverty. It is a corrosive force that eviscerates the vitality of business and stunts a country’s economic potential.

The annual cost of bribery — just one subset of corruption — is estimated to be between 1.5 to 2 trillion dollars — roughly two percent of global GDP.[1] These costs represent the tip of the iceberg —  the long-term impacts go much deeper.

Think of a government spending taxpayer money on a glamorous, but unnecessary new convention center, whose ulterior purpose is to generate kick-backs.

A year after construction begins, it turns out that funds in the social service coffers are somehow no longer available for their original beneficiaries.

Over time, the money diverted from education or health care perpetuates inequality, and limits the possibility of better paying jobs and a better life.

As this type of corruption becomes institutionalized, distrust in government grows and poisons the ability of a nation to attract foreign direct investment.

The result is a negative feedback loop from which it is difficult to break free.

Millennials feel this reality acutely. A recent survey of global youth revealed that young people identify corruption, not jobs, not lack of education, as the most pressing concern in their own countries.

There is wisdom in this insight — since corruption is a root cause of many of the economic injustices young men and women experience every day.

Young people also understand another truth; corruption is not limited to one kind of country or economy — it can impact every nation. From embezzlement, to nepotism, to terrorist financing, corruption’s nefarious tentacles can take on different forms depending on the environment where it incubates.

This leads to my final question and the launching point for our conversation. What have we already done and what more can the IMF do to help our members push back against all types of corruption?

  1.        How Can the IMF Help?

Tackling corruption has long been a part of IMF work. Last month, the IMF Executive Board took stock of our progress and committed to confronting the problem even more directly moving forward.

The Board agreed that our members would benefit from an increase in granular policy advice, and a candid, even-handed assessment of the economic impact of corruption.

To achieve this goal, new methodologies are needed to better quantify and analyze the problem. That is why I am pleased that today’s event marks the launch of two new anti-corruption research initiatives led by Brookings, the IFC, and their partners.

I know that the IMF will benefit from your work — and I trust our experience can be helpful to you as well. Allow me to elaborate on that experience briefly.

Our work, like yours, begins with initiatives to increase transparency and accountability. As Supreme Court Justice Louis Brandeis said, “Sunlight is the best disinfectant.”

In Gabon, for example, after consultation with our staff, the government committed to publishing data on all major public investments in next year’s budget. By 2020, the budget law will outline the financial risks associated with every public company, including those in the extractive sector.

This work goes hand in hand with our efforts on regulatory reform and strengthening legal institutions.

Regulatory reform does not necessarily mean deregulation, but instead streamlining to reduce the number of gate-keepers in charge of permits, fees, and contracts.

On the legal front, it is often the institutions charged with enforcement — the police, the public prosecutors, and the judiciary — where the rot of corruption sets in.

In Ukraine, for example, the government invited the IMF to help conduct a comprehensive review of national corruption. The subsequent report has led to a series of reforms, including a national anti-corruption bureau.

These reforms are only first steps. Investigators need increased authority to pursue suspected criminals and prosecutors must be empowered to bring charges in an anti-corruption court.

The Ukrainian situation underscores our broader challenge: to make a lasting difference, international organizations, civil society, and political leaders must work in concert. And we must be realistic about how quickly progress will be made. Cultures and habits, good or bad, are not changed overnight.

Since corruption is often hidden and difficult to measure, new policies can take years to become effective. Meanwhile, some governments are reluctant to even engage on the issue because they see corruption as a political, and not an economic problem. But that is no reason to stop pressing forward.

I believe the IMF can only be true to its mandate if we speak about corruption with clarity and offer all the tools at our disposal to help our members. My commitment to you this morning is that the Fund can and will do more in the days ahead.

Conclusion

Let me close by returning to Casablanca — and no, I will not be leading you in a rousing chorus of La Marseillaise — tempting as that may be.

I said at the start of my speech, this is an important event. That remark was not just lip-service to our organizers. A coordinated global effort to stop corruption can make the world a more prosperous place and improve the lives of every citizen.

To paraphrase Humphrey Bogart, I think this is the beginning of a beautiful conversation!

Thank you very much.

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