News

USIS Washington 
File

25 November 1998

TEXT: U.S. AID DIRECTOR VIEWS U.S. ANTI-CORRUPTION PROGRAMS

(Programs involve training bureaucrats and journalists) (2190)



Washington -- The director of the U.S. Agency for International
Development says the United States is attacking corruption in
developing countries with a barrage of programs and policies.


Brian Atwood says the anti-bribery campaign in the developing world
complements efforts by the Organization for Economic Cooperation and
Development to stamp out bribe-paying by transnational companies.


The USAID initiatives, among other things, involve training civil
servants, judges and journalists in the developing world.


The text of the Atwood article appears in the current issue of USIA's
Economic Perspectives, which can be found on the Internet at
http://www.usia.gov/journals/ites/1198/ijee/ijee1198.


(following is the text of the Atwood article.)

(begin text)



Corruption As a Persistent Development Challenge

By J. Brian Atwood, Director, U.S. Agency for International
Development


Worldwide economic conditions in 1998 show that the path to sustained
economic growth has taken some unexpected detours. Even the largest
and most powerful nations are not sheltered from the economic and
political meltdowns happening elsewhere. The economies of virtually
all nations are closely linked through electronic commerce, the
Internet, and the free flow of international capital. However, the
freedoms of the global economy also have an ominous downside if
misused.


The recent turmoil in global markets, with its widespread economic and
social fallout, will test the commitment of developing countries to
free market economies and democratic government. Many of these
countries are experiencing severe economic downturns and social
disruptions. One contributing factor, perhaps, is the lack of
institutional safeguards to protect their economies. Lacking the
framework for good governance and the rule of law, and troubled with
inadequate regulation of banks, unsound investment decisions,
questionable evaluation of risks, nontransparent accounting
procedures, and limited openness in government, opportunities for
crony capitalism and corruption often surface in developing countries.
While economies were booming, these seemed to be ancillary issues.
However, they deter economic growth and social progress.


THE FALLOUT FROM CORRUPTION



In recent years, corruption has had devastating impacts in such
countries as Nigeria, Indonesia, and Russia by corroding their
economic and political systems. Not surprisingly, these countries fall
at the bottom (most corrupt) of Transparency International's 1998
Corruption Perception Index, with ranks of 81, 80, and 76,
respectively, out of 85 countries.


In Nigeria, the late General Sani Abacha and his cronies siphoned
billions of dollars out of the oil industry, which is the country's
primary source of wealth and accounts for 80 percent of government
revenue. Diversion of funds from state coffers led to a marked
deterioration in infrastructure and social services and a
near-collapse of state-owned oil refineries. The country's per capita
income, which was as high as $800 in the 1980s, has now dropped below
$300. As this oil-rich country faced a fuel shortage and depression,
the government resorted to ever greater repression to stay ensconced
in its position of advantage. Only the untimely death of Abacha has
provided a possible opening for political and economic reform.


Another well-known example of government corruption that undermined
the national economy is in Indonesia, where state banks channeled
money to projects involving former President Suharto's family and
friends. In the 1990s, banks allowed arrears on loan repayments to
mount unchecked and circumvented rules to prevent excessive
foreign-currency borrowing. Consequently, when the value of the rupiah
fell in 1997, the whole financial system began to collapse.
Bankruptcies and massive layoffs have returned as many as half of
Indonesia's 200 million people to poverty.


Russia provides a third notable example of corruption damaging
political and economic development. In Russia, corruption linking an
oligarchy of financial-industrial groups with government officials has
distorted privatization, undermined economic reform, deterred trade
and investment, and eroded public confidence in state institutions.
The weak state of the economy, combined with the recent financial
crisis, has given a substantial political boost to former communists
and other opponents of reform.


SOME POSITIVE STEPS



Despite this sobering picture, many countries are attacking the
underlying problems that give rise to corruption. In Africa, for
example, major anti-corruption conferences have been held within the
last 18 months in Ethiopia, Mozambique, and Ghana. These conferences
provided a forum for African leaders to develop innovative strategies
to fight corruption, to exchange information with other countries from
around the world, and to inform the international community about the
steps they need to take to reduce corruption.


Parallel to these Africa-wide initiatives, several African countries
have moved from rhetoric to action in addressing corruption. In
Botswana, the Directorate on Corruption and Economic Crime is a model
for anti-corruption institutions, with more than 4,200 corruption
cases handled since 1994. In Uganda, the constitution established an
Office of the Inspector General, which has a broad mandate and
specific powers to address corruption and which is required to submit
periodic reports to parliament.


There is a growing consensus among the developed and developing
countries alike that the fight against corruption advances their
national and economic interests. At recent summits of the G-7 leaders
and at meetings of development ministers, communiques unambiguously
condemn corruption for weakening the global trading system, impeding
sustainable economic development, and stifling the functioning of
democratic institutions. Combating corruption is now one of the
highest priorities on the agenda of both international development
agencies and lending organizations.


The United States, through the activities of its international affairs
agencies, is committed to combating corrupt business practices and
improving the poor functioning of institutions that allow corruption
to flourish. Bribery is a barrier to trade that hurts U.S. commercial
interests and undermines the U.S. objective of promoting democracy and
economic development in developing countries. In addition, the
prevalence of corruption inhibits our ability to foster the
reconstruction of economies where there are important foreign policy
interests.


USAID's RESPONSE



As a development agency, USAID has a major interest in seeing that
bribery does not become commonplace. Consequently, USAID has
identified anti-corruption -- which is a key element in the Clinton
administration's strategy to fight international crime -- as a
priority in its development agenda. To borrow a phrase, "all
international crime is local." Thus, any long-term solution to the
problem of international crime, including corruption, must rely
ultimately on strengthening government institutions, engaging civil
society, and establishing the rule of law in individual countries. To
succeed, the fight against corruption cannot be a short-term,
technocratic affair but must involve the public in a long-term,
sustained campaign.


USAID is designing a framework, in close consultation with other
bilateral and multilateral donors, for addressing corruption and other
forms of criminal activity. This framework is based on many of the
lessons we have learned from working with developing countries during
the past 35 years. These include, most notably, a recognition that
political instability, weak public institutions, and poor economic
management create an environment in which widespread corruption and
certain types of criminal activities flourish, and that these
consequences, in turn, undermine economic growth, increase the
potential for state failure, and feed the activities of organized
crime.


Some of the major USAID activities include:



o Raising awareness about the costs of corruption. Efforts to raise
awareness about the costs of corruption and to mobilize the political
will for fighting it are central components of USAID's program
activities. USAID supports efforts to publicize procedures and rights,
conduct corruption perception surveys, sponsor integrity workshops,
foster anti-corruption nongovernmental organizations, promote civic
monitoring, provide training in investigative journalism, promote
private sector efforts to prevent corruption, and advocate
international cooperation and conventions.


o Promoting good governance. USAID works to improve transparency and
oversight in government through activities such as integrated
financial management systems and training and technical assistance for
audit institutions and anti-corruption agencies. USAID also seeks to
realign incentives to government officials through ethics codes and
financial disclosure requirements.


o Strengthening the justice sector. Corruption flourishes where
institutions in the justice sector -- including the judiciary,
prosecutors, police investigators, and the private bar -- are weak and
incapable of investigating and prosecuting criminal activity. To
strengthen these systems, USAID programs support drafting new criminal
and anti-corruption laws, training prosecutors and judges, and
improving court administration to prevent tampering with records and
reduce delays in hearing cases.


o Reducing the government's control over the economy. Governments
exert significant control over the economy through state-owned
enterprises, licenses, tariffs, quotas, exchange rate restrictions,
subsidies, public procurement, and provision of government services.
Often such controls create opportunities for abuse and impede economic
growth. USAID works to reduce these opportunities through
deregulation, delicensing, privatization, and competitive procurement.


SPECIFIC USAID INITIATIVES



In the past year, USAID has taken a number of steps to promote
anti-corruption efforts. Washington-based officers have convened an
anti-corruption working group that meets monthly to exchange
information and coordinate work across bureaus. Given the
cross-sectoral nature of corruption, both economics and democracy
officers participate in the group. A subcommittee of the working group
is developing policy guidance on anti-corruption activities for USAID.
This fall, the agency's Center for Democracy and Governance completed
a "USAID Handbook on Fighting Corruption," which is available by
e-mail at [email protected] or by fax at (703) 351-4039.


USAID is also supporting anti-corruption efforts through a grant to
Transparency International (TI). This grant provides $2 million for
intensive anti-corruption work in nine countries and for regional
lessons-learned workshops. The country programs will start with an
integrity workshop to foster group diagnosis of corruption problems
and development of an action plan to fight them. Countries targeted in
this grant are Bangladesh, Benin, Bulgaria, Colombia, the Dominican
Republic, Ghana, Mozambique, the Philippines, and Ukraine. USAID is
also contracting with the Center for Institutional Reform and the
Informal Sector (at the University of Maryland) to develop four case
studies of successful anti-corruption interventions to feed into
regional workshops that TI will organize.


USAID regional bureaus also have developed a number of anti-corruption
initiatives. The Latin American and Caribbean Bureau has initiated an
assessment of its Regional Financial Management Improvement Project
II, which has used $7 million over five years to improve governmental
accountability and financial management and plans to issue a follow-on
contract in 1999. The project hosts a donor consultative group,
publishes a monthly newsletter entitled
"Accountability/Anti-corruption," sponsors regional teleconferences
called Respondacon, and provides technical assistance. Similarly, the
Eastern Europe/Newly Independent States Bureau has established an
anti-corruption working group, developed an anti-corruption strategy,
and set aside $900,000 over two years to establish a donor
consultative group, support training workshops, assist assessment and
strategy design exercises, develop a newsletter, and write reports and
program materials. The Asia/Near East Bureau has set aside $200,000
for an assessment and development of a regional anti-corruption
strategy.


In addition, USAID is co-sponsoring anti-corruption workshops with the
Organization for Economic Cooperation and Development to follow up on
and broaden discussion of the its anti-bribery convention signed in
December 1997. And the agency's Global Bureau is co-sponsoring an
international conference on the role of the private sector in fighting
corruption to be held in Washington, D.C., in February 1999.


USAID's Inspector General has also furthered anti-corruption efforts
through its work with Supreme Audit Institutions (SAIs) in developing
countries. These SAIs are national auditing agencies similar in many
respects to the U.S. General Accounting Office. Although SAIs can
constitute a country's first line of defense in combating fraud,
waste, mismanagement, and corruption, in many countries they lack the
resources and expertise to fill this crucial role. To help fill this
gap, the Inspector General's office has provided basic training to SAI
staff in countries receiving USAID development assistance.


THE DEVELOPMENT CHALLENGE



Corruption is a global problem. The industrialized countries are
certainly not immune from corrupt practices, and all have a
responsibility to be part of the solution. However, corruption appears
to exact a higher toll in developing countries and transition
economies because they can least afford the consequences. Corruption
prevents many countries from addressing their most serious development
challenges, deters foreign and domestic investment, undermines
confidence in public institutions, and exacerbates budgetary problems
by depriving governments of significant customs and tax revenues.


The recent upheaval in financial markets and in developing country
economies underscores the importance of transparency in public
institutions and public decisions. USAID programming to further
sustainable development and foreign policy objectives supports a wide
array of activities to combat the root causes of corruption.


By supporting such efforts, countries become better trading partners
with the United States and can attract foreign investment. Also, one
of the United States' key foreign policy interests is the promotion of
democratic development around the world; by supporting programs to
combat corruption, developing country governments gain greater
legitimacy and are better able to promote political stability and
economic development. And they become better development partners as
well as countries in which long-term sustainable development can be
achieved.


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