Consultative Group for the Reconstruction and Transformation of Central America

"reconstruction must not be at the expense of transformation"

The Fight Against Corruption
A World Bank Perspective

Central America Country Management Unit, Latin American and the Caribbean Region
Stockholm, Sweden  25-28 May 1999

This paper was written by Ian Bannon (Central America Country Management Unit) as an input into the Workshop on Transparency and Governance, organized as part of the Consultative Group Meeting for the Reconstruction and Transformation of Central America, held during May 25-28, 1999, in Stockholm, Sweden. The paper presents the World Bank’s perspective on the fight against corruption, drawing on a number of World Bank and other sources. It briefly sketches elements of a conceptual framework on corruption, explains the World Bank’s strategy to address corruption, and focuses on Bank efforts to support anti-corruption programs in countries that request such assistance. It ends with some concluding thoughts designed to stimulate discussion during the workshop. While the paper discusses the broad elements of anti-corruption strategies, and some of the lessons learned by the World Bank and others, it also points to some elements and examples that may be relevant to the efforts of Central American countries to both ensure the transparent use of reconstruction aid, as well as longer-term efforts to ensure that transparency and improved governance become integral elements in these countries’ strategies for sustainable development.


Table of Contents


Toward A Conceptual Framework

Corruption is a complex phenomenon. Its roots lie deep in bureaucratic and political institutions, and its effect on development varies with country conditions. But while costs may vary and systemic corruption may coexist with strong economic performance, experience suggests that corruption is one of the most severe impediments to development and growth in emerging and transition economies.

Corruption is widespread in many developing and transition economies, not because their people are different from people elsewhere, but because conditions are ripe for it. The motivation to earn income through corrupt practices is extremely strong, exacerbated by poverty and by low and declining civil service salaries. Coupled with a strong motivation is the fact that there are ample opportunities available to engage in corruption. Corruption flourishes where distortions in the policy and regulatory regime provide scope for it and where institutions of restraint are weak. The problem of corruption lies at the intersection of the public and the private sectors. It is a two-way street. Private interests, domestic and external, wield their influence through illegal means to take advantage of opportunities for corruption and rent seeking, and public institutions succumb to these and other sources of corruption in the absence of credible restraints. Even if detection is possible, punishments are apt to be mild when corruption is systemic—it is hard to punish one person severely when so many others are likely to be equally guilty.

Corruption violates the public trust and corrodes social capital. A small side payment to obtain or speed up a government service may seem a minor offense, but it is not the only cost. Unchecked, the creeping accumulation of seemingly minor infractions can slowly erode political legitimacy to the point where even noncorrupt officials and members of the public see little point in playing by the rules. Credibility, once lost by the state, is very difficult to regain.

Definition

Many definitions of corruption have been advanced, none fully satisfactory and comprehensive. Although it may be difficult to define corruption precisely, it is generally not hard to recognize. The World Bank settled on a straightforward definition—the abuse of public office for private gain. This definition is not original, but it was chosen because it is concise and broad enough to include most forms of corruption that the Bank encounters, as well as being widely used in the literature.

Public office is abused for private gain when an official accepts, solicits, or extorts a bribe. It is also abused when private agents actively offer bribes to circumvent public policies and processes for competitive advantage and profit. Public office can also be abused for personal benefit even if bribery does not occur, through patronage and nepotism, the theft of state assets, or the diversion of state revenues. Like most other definitions, it places the public sector at the center of the phenomenon. This should not be taken to mean that corruption cannot occur or that its effects are minor in private sector activities. Bribery occurs in the private sector, but bribery in the public sector, offered or extracted should be the World Bank’s main concern, since the Bank lends primarily to governments and supports government policies, programs and projects.

Fraud and bribery can and do take place in the private sector, often with disastrous and costly results. Weakly regulated financial systems permeated with fraud can undermine savings, increase transaction costs and impose very high economic costs when they collapse. Company employees may solicit bribes from suppliers, and private sector agents may collude to defraud the public. Money laundering is an increasing concern throughout the region. Furthermore, when corruption is systemic in the public sector, firms that do business with government agencies can rarely escape participating in bribery. While it is important to control fraud and corruption in the private sector, public sector corruption is arguably a more serious problem in developing countries, and controlling it may be a prerequisite for addressing private sector corruption. Still, World Bank activities can also promote the control of bribery and fraud in the private sector by helping countries strengthen the legal and regulatory framework to support competitive markets, through prudential supervision and regulation of financial systems, and by encouraging the growth of professional bodies that set accounting and auditing standards.

Causes

The causes of corruption are always contextual, rooted in a country’s policies, bureaucratic traditions, political development, and social history. Still, corruption tends to flourish when institutions are weak and government policies generate rents. The dynamics of corruption in the public sector can be depicted in a simple model suggested by Klitgaard (1998):

C = M + D -A

where:

C (corruption) = M (monopoly) + D (discretion) - A (accountability)

Corruption will tend to emerge when an organization or person has monopoly power over a good or service which generates rent, has the discretion to decide who will receive it (thus on how rents will be allocated), and is not accountable.

Monopoly rents can be large in highly regulated economies, and corruption itself often breeds demand for more regulation. The discretion of public officials may be large, exacerbated by badly defined, ever-changing and poorly disseminated rules and regulations. Accountability may be weak. The ethical values of a well-functioning bureaucracy may have eroded or never existed. Rules on conduct and conflicts of interest may be unenforced, financial management systems may have broken down, and there may be no mechanisms to hold public officials accountable. Watchdog institutions such as the ombudsperson, comptrollers, the media and special anticorruption bodies may be ineffectual or politicized. Combating corruption begins by designing better systems. Monopolies must be dismantled or carefully regulated. Official discretion must be clarified and circumscribed. Transparency must be enhanced. The probability of being caught, as well as the penalties for corruption (for both givers and takers) must be increased and enforced.

Measuring Corruption

Why measure corruption? Implementing effective and efficient reforms to improve governance and fight corruption is inherently difficult. Because such reforms dramatically reduce the rents from corruption, they are often resisted by senior officials, other politicians, and bureaucrats. Yet such resistance can often be cloaked by the lack of concrete evidence on corruption and by the assumption—now disproved—that corruption cannot be measured. When such evidence is available, it is easier to depoliticize the debate, and to shift the focus to the adoption of effective and credible strategies to control corruption.

Measuring corruption offers other benefits as well. It can help to establish priorities for reform by identifying activities and agencies where corruption is concentrated. It educates the public about the economic and social costs of corruption. And it establishes a baseline against which the successes and failures of reform can later be measured. Repeated surveys, starting 18 to 24 months after a reform program is launched and at least once a year thereafter, are key to giving the government the information it needs and refocusing its reform efforts. It is also important in order to involve civil society in the design of priorities for an anti-corruption strategy, and the evaluation of its effectiveness.

Until recently it was considered impossible to systematically measure corruption in government institutions and assess its economic and social costs. Data consisted of general measurements or indices of public expert perceptions of aggregate corruption in a country. But, recent advances include cross-country analysis of data on perceptions of corruption against institutional and other correlates. The newest frontier in the fight against corruption, however, is to survey the parties to corruption directly and simultaneously—including household members, enterprise managers, and public officials—and ask them about the costs and private returns of paying bribes to obtain public services, special privileges, and government jobs. Until recently, skeptics believed that parties to corruption had an incentive to underreport it. But with appropriate survey instruments and interviewing techniques, respondents are willing to discuss agency-specific corruption with remarkable candor. Even with underreporting and nonresponses to some sensitive questions, the results offer telling, lower-bound estimates of corruption.

Effects of Corruption

A broad consensus has emerged in recent years that corruption is unambiguously bad. Until recently, views and approaches to corruption had been more divergent, with one strand of the literature even finding some economic redeeming values (efficiency enhancing). Models that purport to show that corruption can have positive economic effects, however, are usually looking only at short-run static effects. In the long run, the results are likely to be costly in terms of economic efficiency, political legitimacy and basic fairness.

The adverse economic effects of corruption have been borne out by a number of recent studies, using cross-sectional analysis and corruption indices. These adverse effects are especially severe on private investment and economic growth. Mauro (1998) reports regression analysis which shows that a country that improves its standing on the corruption index from 6 to 8 (0 being the most corrupt, 10 the least) will experience a 4 percentage point increase in its investment rate and a 0.5 percentage point increase in its annual per capita GDP growth rate. Tanzi (1998) provides a useful summary of the adverse effects of corruption quantified in recent studies. These include:

  • Reducing investment and hence growth, by increasing costs and uncertainty;
  • Reducing spending on health and education, because these expenditures do not lend themselves easily to corrupt practices on the part of those who control the budget strings;
  • Reducing spending on operations and maintenance for reasons similar to the point above;
  • Increasing public investment because public projects are easier to manipulate by public officials and private bidders;
  • Reducing the productivity of public investment and infrastructure;
  • Reducing tax revenues due to corrupt tax and customs administration; and
  • Reducing direct foreign investment because corruption acts as a tax—the less predictable the level of corruption (the higher its variance), the greater its impact on foreign investment. A higher variance makes corruption act like an unpredictable and random tax.

While most studies focus on the economic effects of corruption, anecdotal and survey evidence show that the poor bear a considerable and often disproportionate share of the corruption burden. The poor may face outright exclusion when access to public goods and services require a bribe. Given their lack of voice or political influence, in some instances the poor may even be required to pay more than people with higher incomes. Survey results show that although richer households are more likely to pay bribes, the burden of corruption—measured as the fraction of income paid in bribes—is much greater for poorer households. Moreover, when corruption results in shoddy public services, the poor have no options and cannot turn to the private sector (e.g., private schools, hospitals, security or garbage collection). Corruption not only hurts the poor disproportionately, but it is likely to increase income inequality because it allows particular individuals or groups of individuals to take advantage of state activities at the cost of the rest of the population. For example, Tanzi (1998) points out that there are strong indications that the changes in income distribution that have occurred in recent years in transition economies have partly been the result of corrupt actions such non-transparent privatizations. Corruption is also unfair because it imposes a regressive tax that falls particularly heavily on trade and service activities undertaken by small enterprises.


Helping Countries Fight Corruption: The World Bank’s Strategy

Given its mission to fight poverty, the World Bank’s concern lies with the corrosive effects of corruption on economic development. The Bank’s multi-pronged strategy for tackling corruption has five pillars:

  • Preventing fraud and corruption within the World Bank;
  • Preventing fraud and corruption within Bank-financed projects;
  • Adding voice and support to international efforts to reduce corruption;
  • Taking corruption explicitly into account in country assistance strategies, county lending considerations, the policy dialogue, analytical work, and the choice and design of projects; and
  • Helping countries that request Bank support in their efforts to reduce corruption.

The first pillar focuses on instances of fraud and corruption within the World Bank itself, for which the Bank has adopted a policy of zero tolerance. While cases are limited, they are aggressively pursued, and the Bank has commitment to full transparency regarding such cases.

The second pillar focuses on Bank-financed projects. The Bank has established an Oversight Committee and a hotline to receive allegations of fraud and corruption in Bank-financed projects. The Bank has also increased the number of procurement specialists, is working to improve the quality of staff and supervision in procurement and financial management, and is expanding assessments of project-related corruption risks.

The third pillar involves supporting international efforts to curb corruption. This is important both because anti-corruption work is most effective when it involves a wide variety of partners and builds on strong domestic political commitment, and because many corruption problems have a cross-national dimension. The Bank strongly supports the OECD Anti-bribery Convention, regarding it as an extremely important step in the effort to limit cross-border bribery by multinational firms. In addition, the Bank is working actively with a wide variety of partners—including OECD, UNDP, IDB, bilateral donors, regional organizations such as OAS, and NGOs to address common concerns, share experiences and best practices, and design and implement interventions in the field.

The fourth pillar involves mainstreaming the concern for corruption, starting with the country assistance strategy. Where corruption affects Bank projects and a country’s development prospects, the country assistance strategy is now required to address such challenges. To assist in this process, the Bank has initiated training courses on anti-corruption for staff at all levels and is developing guidelines on the treatment of corruption in assistance strategies.

Under the fifth pillar, the Bank has pledged to help countries that request assistance in fighting corruption. To date, about 30 countries have asked the World Bank for such assistance. The ultimate goal of a Bank strategy to help countries address corruption is not to eliminate it completely, which is unrealistic, but to help those countries move from systemic corruption to an environment of well-performing government that minimizes corruption’s negative effect on development. The remainder of this paper focuses on Bank efforts to help countries combat corruption.

Corruption is a symptom of fundamental economic, political and institutional causes. Effectively addressing corruption means tackling these underlying causes. The major emphasis must be put on prevention—that is, on reforming economic policies, institutions, and incentives. Efforts to improve enforcement of anticorruption legislation using the police, ethics offices, or special watchdog agencies within government will not bear fruit otherwise.

The problem of corruption around the world is daunting, and fighting it is a long-term challenge. Although there are many examples of successful efforts in particular institutions, examples of countries making dramatic progress in fighting corruption over a short period of time are rare. In the medium term, however, the design and implementation of difficult anti-corruption economic and institutional reforms is feasible with: strong political will and leadership, civil society involvement within a transparent and participatory process, and the power of rigorous data and the use of new toolkits and approaches.

Economic Reforms

Economic policy reform should be a starting point and the main pillar of an anticorruption strategy in many countries. In general, any reform that increases the competitiveness of the economy will reduce incentives for corrupt behavior. For this reason, deregulation and the expansion of markets are powerful tools for controlling corruption. Markets generally discipline participants more effectively than the public sector can, and their power to do so is closely linked to sound economic policies. Enlarging the scope and improving the functioning of markets strengthens competitive forces in the economy and curtails rents, thereby eliminating the bribes public officials may be offered (or may extort) to secure them. There is a strong correlation between policy distortions and corruption.

Some policy reforms can have quick results, particularly some macroeconomic reforms and deregulation, which do not make heavy demands on institutional capacity. The incentives of economic actors can be changed overnight by the removal of controls and the introduction of market-determined allocation systems in areas like foreign exchange and bank credit. Economic policy reforms that contribute to the expansion of markets and the reduction of rents, thus clearly reducing opportunities for corruption, include:

  • Lowering tariffs and other barriers to international trade;
  • Unifying market determined exchange rates and interest rates;
  • Eliminating enterprise subsidies;
  • Minimizing regulations, licensing requirements, permits and other entry barriers for new firms and investors, both domestic and foreign;
  • Demonopolizing public sector activities and privatizing state assets into competitive markets;
  • Abolishing monopoly export marketing boards; and
  • Transparently enforcing prudential banking regulations, and auditing and accounting standards.

Although these reforms will reduce opportunities for corruption, there are some areas—including tax reform, privatization of utilities, liberalization of financial systems, and environmental regulations—where close attention should be paid to the capacity of governments to implement policy reforms and regulate markets. If such capacity is lacking, policy reforms may increase the risk of corruption, especially in areas that become ripe for collusion among private actors. The answer is not to forgo reform, but to consider and help strengthen institutional capacity in tandem with policy reforms.

For Central America, as well as the large majority of other countries in the Latin American and Caribbean Region, most of these economic reforms have either been completed or are substantially advanced. Efforts to combat corruption therefore must necessarily focus on building stronger institutions to improve governance and increase transparency, and ensure the competitive functioning of markets.

Strengthening Institutions

Building strong institutions is a central challenge of development and is key to controlling corruption. Well-functioning public management systems, accountable organizations, a strong legal framework, and independent judiciary, and a vigilant civil society protect a country against corruption. Institutional strengthening, therefore, should be at the core of a country’s anti-corruption strategy.

Strengthening institutions is a complex and long-term undertaking. Although actions are required on a number of fronts to control corruption, reform programs have tended to focus on three broad areas:

  • Strengthening public sectors to improve service delivery—building a professional and accountable civil service, establishing sound financial management, promoting disciplined and transparent policy-making, and establishing a balanced division of responsibilities among central, state, and local governments.
  • Strengthening the legal framework, including the judicial system.
  • Increasing transparency and introducing other measures that strengthen the role of civil society in demanding better government.

Reforming the Public Sector

The fight against corruption is not distinct and independent from the reform of the state, because some of the measures to reduce corruption are at the same time measures that change the character of the state. The reform of public sector institutions needs to consider civil service reform; improved budgeting, financial management, and tax administration; competitive and transparent public procurement; and strengthened capacity in decentralized institutions and local governments. Such reforms must involve changing government structures and procedures, placing greater focus on internal competition and incentives in the public sector, and strengthening internal and external checks and balances. As a complement to these broader reforms, the careful and transparent implementation of enforcement measures, such as prosecuting some prominent corrupt figures, must also be considered. Anti-corruption efforts will lack credibility, and hence effectiveness, unless impunity can be curtailed.

Financial management. Good financial management systems are powerful instruments for preventing, discovering, or facilitating the punishment of fraud and corruption. They allocate clear responsibly for managing resources, reveal improper action and unauthorized expenditures, facilitate audit by creating audit trails and protect honest staff. Guatemala’s recent experience with the adoption of an integrated financial management system is a good illustration of the potential for reducing the scope for corruption and increasing transparency in public sector management (Box 1).

Civil service reform. A professional and well-motivated civil service is a country’s most important development institution. However, the Bank’s experience in assisting with civil service reform in more than 60 countries has shown that progress tends to be slow. Mere downsizing in the absence of an integrated reform program has not worked well and has been subject to reversal. Better approaches to civil service reform are clearly needed. Public sector pay in some countries collapsed in the 1980s and has yet to recover. The longer pay remains grossly inadequate, the more bureaucratic corruption becomes entrenched. But pay reform alone is insufficient. It must be combined with credible monitoring and law enforcement. Merit-based recruitment and promotion mechanisms that restrain political patronage and create a more impartial civil service are strongly linked with lower corruption. Defining what is meant by the civil service and differentiating more clearly between a core civil service and other public employees is also important. In many Central American countries, political patronage and interference continue to hamper the development of a professional civil service.

Tax and revenue departments. Tax and customs departments are often the locus of major fraud and corruption and thus need to be a major focus of national strategies to control corruption. This can often be addressed by giving revenue agencies greater managerial freedom (relative to normal civil service rules) to hire and fire staff and to set pay levels while subjecting their performance to close scrutiny. Organizational restructuring (e.g., separating the tax assessment function from the collection function) and staff rotation can also help reduce opportunities for corruption. Tax policy may also affect anticorruption goals. Simplifying tax and tariff schedules and keeping rates at moderate levels reduces the discretion of tax and customs staff, and narrows the scope for corrupt payments.

Box 1: Guatemala’s Integrated Financial Management System

Guatemala’s Integrated Financial Management System (IFMS) has been supported through two sequential Bank-funded projects. They have aimed to improve service delivery by promoting more transparent, efficient, and effective public sector financial operations. They have involved modernizing the government’s budgeting, accounting, cash management, and auditing sub-systems. These components are fully integrated through updated laws and regulations, coherent and consistent accounts classifications and administrative procedures, and a powerful single relational database information technology system, providing on-line, real time information to managers and stakeholders. After four years of implementation, the results have been remarkable, including:

  • Lower prices paid to suppliers (e.g., x-ray film down 60%, pharmaceuticals dramatically reduced) due to modernized procurement and payments systems which have cut the time and procedural steps (thus premiums built into prices to reflect inflation or bribes by suppliers to speed payments).
  • Eliminated arrears to suppliers—the "floating debt" used to linger up to 3 months into the next fiscal year.
  • Financial transactions are entered only once and reported instantaneously to the Finance Ministry for consolidation. Once payments are authorized (and automatically registered or rejected against approved budget items), they are made by Finance through the banking system within an average of 72 hours (compared to delays of 15 days to 6 months before).
  • The electronic transfer of funds has increased from near zero in 1996 to 50% of public sector payments in 1998, and expected to cover all payments in 1999—thus reducing transaction costs, discretionality in payment priorities and lost/stolen checks.
  • The number of Government bank accounts has been reduced from 1,300 in 1996 to 600 in 1998 with the aim of having a single account by 2000.
  • The number of budget line items was reduced from 7,920 to 887 during 1997-99, allowing greater focus on programs and flexibility to adjust budgets without prior approval by Finance.
  • The data base provides immediate and detailed information on all recorded transactions, individually or aggregated (e.g., by supplier, authorizing official, region, etc.) thus providing an audit trail.
  • For the first time, the 1999 budget was presented to Congress on CD ROM on September 2, 1998, along with actual 1998 expenditures current through August 28, 1998 (only 4 days old!).
  • Legislators, private citizens, NGOs and any stakeholder can access proposed and executed national budgets at several computer sites in Guatemala and through the Internet (www.siafsag.gob.gt).
  • Physical as well as financial indicators are now included in the budget to better measure performance and promote a results-oriented focus.

With the IFMS, the Government has put in place a basic building block to increase transparency and reduce corruption. Administrative discretion in payments has been limited dramatically, payments can only be authorized against agreed budget categories, an audit trail exists instantaneously on all transactions, the reliance on checks and paperwork in general has been cut sharply, reducing costs and lost or misdirected payments, suppliers are paid promptly with less temptation to speed slow payments through bribes, public procurement is now conducted on the basis of bids rather than price quotes from a list of (often phantom) suppliers, and civil society can be better informed on the use of its tax revenues. The IFMS is also working closely with another Bank-funded project which is supporting the creation of the new Superintendency of Tax Administration.

Source: Myers (1999)

Public procurement. Government procurement and contract management systems in both developed and developing countries are highly vulnerable to fraud and corruption. These risks are exacerbated when budgets come under pressure. Payments are delayed and incentives to bribe increase. Institutional capacity weakens if civil service pay and conditions are inadequate and the processes that ensure transparency and good record keeping are eroded. Reducing fraud and corruption requires a willingness to install or reestablish sound systems and the capacity to operate them as intended. The basic principles of sound procurement are well known, as all donors adopt these principles to protect the projects they finance from corrupt practices. The challenge, however, is to extend these systems and best practices to cover all government procurement, irrespective of the source of funding. Corruption is fungible, so protecting individual projects may simply shift corrupt practices to other, less protected areas of government procurement.

Decentralization. Decentralization involves the shifting of power to lower tiers of government or the granting of greater authority to line managers. Its effect on performance and corruption depends on the setting. Decentralization can help reduce corruption if it improves government’s ability to handle tasks while increasing transparency and accountability to local beneficiaries. But decentralization can also increase corruption if local and regional governments have stronger incentives (e.g., because of lower pay) or more opportunities to carry out fraudulent activities and are less constrained by financial management and auditing systems (which are often in even shorter supply in regions than in the center). In many countries, rich and poor, more corruption is thought to exist in state and, in particular, local governments than in the national government. This is not an argument against decentralization, which for many other reasons may still be desirable. Rather, decentralization initiatives must take into account the relative accountability and capacity of national and subnational levels of government when considering the structure of power sharing and must work to develop the capacity of decentralized entities alongside the devolution of functions. Empowering civil society and communities to become more involved in anti-corruption efforts becomes even more critical when governments are pursuing decentralization strategies.

Legal and Judicial Reform.

A country’s legal system—its laws and regulations as well as the processes and institutions through which they are applied—is vital for addressing corruption, just as it is for resolving civil conflicts, enforcing property rights, and defining the limits of state power.

Judicial reform. Enforcement of anti-corruption legislation requires an efficient, predictable, and accountable judiciary. Reform and modernization of judicial systems, however, is a relatively new are in development. We and other donors involved in this area have much to learn about which approaches to judicial reform work best and how best to link judicial reform to an anti-corruption strategy. Recent judicial reform programs supported by the Bank in Africa and Latin America, have focused on judicial independence (including the proper criteria for the selection and removal of judges, pay scales, training and judicial ethics); improved court administration and case flow management; procedural reform, including reducing ex parte communication between judges and litigants; better access to justice (through small claims courts, alternative dispute resolution, and legal aid); and legal education and bar entrance requirements.

The independence of the judiciary from the rest of the government and the power to enforce its rulings are key in anti-corruption efforts. Whatever the precise character of relations between the judiciary and the legislature and the executive, all developed countries and a number of developing countries rely on the judiciary to hold the executive accountable under the law, and to interpret and enforce the terms of the constitution. The judiciary, however, cannot be effective if its decisions are not enforced. In practice, this means that other branches of government must consent to provide the resources needed for enforcement.

Box 2: The Office of the Ombudsperson

Public officials do not always obey the law or follow government policy, which is why many countries have established ombudsperson offices. In several European countries, they are required by the Constitution. Sweden’s ombudsperson has long historical antecedents and has inspired many recent creations. Care must be taken, however, when transplanting models to reconfigure them to local country conditions.

An ombudsperson investigates complaints against the administration, makes recommendations, and tries to have them adopted by the authorities. An ombudsperson should be created by law, as an institution independent from government, courts and all other private and public bodies. It is usually closely associated or accountable to the legislature, but in its daily operations it should be independent of it. The administrative faults or failures vary, and can include illegality, constitutional and human rights abuses, or maladministration. In the classical Swedish model, an ombudsperson investigates complaints alleging law-breaking by the administration, while some new European democracies require them to address complaints of constitutional and human rights abuses. A different model is guided by the notion of maladministration rather than illegality. The idea is that good administration requires more than acting legally (e.g., carelessness, undue delay, procedural irregularity). But this model may greatly increase the range of complaints to investigate, imposing a heavy burden on the office.

Because courts are important autonomous regulators of official behavior, there is potential for overlap with an ombudsperson. The general principle is that challenges to the legality of administrative actions are made to courts, and to the extent that the ombudsperson becomes involved in matters of legality, it is an adjunct to the courts. Another more serious potential for overlap and confusion arises between the ombudsperson and human rights commissions or watch dogs. Human rights ombudsperson offices are common throughout the region (Procuradores de Derechos Humanos). They tend to perform a mixture of functions—including investigating complaints, conducting inspections, challenging the constitutionality of executive or legislative measures, and launching civil and criminal actions. Although these hybrid bodies are often considered as ombudsperson’s offices, the core ombudsperson function is only one of several. There are significant scope for confusion due to a combination of—and even contradiction in—responsibilities. In creating such bodies, it is wise to limit their scope to clearly defined areas of constitutional and human rights.

The key indicators of the effectiveness of an ombudsperson is how readily a minister, department or agency accepts its recommendations. More specifically, it will depend on:

  • Broad political support.
  • Adequate budgetary resources.
  • Public awareness and understanding of its role and functions.
  • Functional competence, which depends on institutional design, administrative capacity and professional expertise, independence from the executive, and appropriate rationing devices.
  • Regulatory value, in terms of fitting within existing arrangements for administrative regulation. Its value will depend on the overall system of administrative regulation within the country. Taken in isolation, the idea for an ombudsman always looks compelling, but unless it fits into the country’s current and future administrative context, it will likely fail.

Source: Manning and Galligan (1999)

Special anti-corruption bodies. A number of countries have set up independent bodies to increase integrity in public life. These include ombudsperson offices, inspector generals, and independent corruption commissions. Experience in developing countries with ombudsperson offices, which pursue allegations of abuse of official power, is mixed, especially when they report to the executive and not the legislature. Corruption commissions and special fraud units have been highly successful in a number of countries (Chile, Hong Kong). In many cases, however, they have been used as instruments of partisan politics, undermining their effectiveness, credibility and public support. Moreover, in instances where watchdog bodies are credited with much of the success for efforts to control corruption, the broader economic and institutional reforms that have taken place simultaneously have not received sufficient credit. In the wrong hands powerful anticorruption legislation or agencies can be abused. Anticorruption bodies appear to be a promising option if they can be made truly independent of the executive and if there is strong and independent judiciary.

Civil Society

Civil society and an independent media are, arguably, the two most important factors in controlling systemic corruption in public institutions. Corruption is controlled only when citizens are no longer prepared to tolerate it. Private groups, professional organizations, religious leaders, and civil organizations all have a stake in the outcome of anticorruption initiatives and an interest in the process. They also may play an important role as watchdogs of public sector integrity.

Box 3: Nicaragua: Building a National Integrity System

What is a national integrity system? It is an effort to integrate broad public participation in anti-corruption efforts with a comprehensive public sector reform program. Using surveys, consultations and hearings, citizens become involved in identifying problem areas in public service delivery and setting priorities for change. This consultation feeds into a National Integrity Workshop, which brings together civil society and government representatives to design an action plan focused on various key areas or integrity pillars. The anti-corruption action plan then represents broad social consensus, integrated within a broader economic and public sector reform effort, also involving civil society in an ongoing evaluative process.

The Case of Nicaragua. The Vice President issued an open invitation to all Nicaraguans to participate in a National Integrity Forum on February 5, 1999. The Forum was supported by the World Bank, the Inter-American Development Bank and Norway. The morning plenary was attended by more than 1,000 people from all walks of life, as well as 29 observers from Central America, Panama and the Dominican Republic, who then took part in a Regional Integrity Forum the next day. The Nicaragua Forum begun with diagnostic presentations on seven key areas or integrity pillars: judiciary, legislature, public auditing, education, private sector, media, and foreign assistance. Working groups organized around these pillars then met for three hours. They were asked to identify problems, imagine a better future and then propose solutions to get there. Rapporteurs then presented the recommendations to the plenary attended by over 600 people, including the President. Despite the groundswell of interest in the forum, civil society remained cynical regarding the Government’s motivation and commitment to addressing integrity. The Government, in turn, found it difficult to overcome its suspicions that such processes and criticisms lend themselves to political manipulation.

Next steps. The working groups produced a list of over 70 recommendations ranging from the very general to the very specific (e.g., expansion of the integrated financial management system, a comprehensive civil service law, creation of an ombudsperson office, media training). The National Integrity Steering Committee is carrying out further consultations and validations in other departments, prior to distilling and consolidating these proposals into an action plan with specific measures and timetables. It is hoped that this action plan would be not only adopted, but also championed by Nicaragua’s political leadership. This commitment should include a set of clear and monitorable actions, which would constitute a checklist or scorecard to which civil society would hold its leaders accountable at regular intervals. Without such a strong commitment, the tremendous energy generated by the participatory process likely will dissipate and an opportunity missed to begin addressing a major obstacle to Nicaragua’s development.

Strengthening of various sectors in and out of government simultaneously tends to spark a dynamic system of checks and balances. This is based on the assumption that civil services, as well as other state institutions, seldom renew themselves from within. Facilitating constructive "pressure points" outside the civil service or government, is therefore, key in forcing the public sector to be more responsive. The identification and achievement of short-term goals known to the public, then helps to generate a momentum for change. Public information is the first step, but the greatest challenge for integrity efforts is opening the circles of citizen participation in contexts where historically the citizenry distrusts government and the public sector is unaccustomed to citizen involvement in state affairs The integrity process tends to increase but also channel citizen involvement to encourage reform activity while ameliorating public sector fears that throwing-open government operations to citizen evaluation means opening the floodgates to partisan gamesmanship.

Successful anti-corruption campaigns involve civil society. However, promoting a more effective and constructive civil society role where there is little tradition of such involvement is a major challenge. A first step is to consult citizens and civil society. If consulted, citizens are an invaluable source of information about where and how corruption occurs. Ways of consulting and involving the public, include carrying out systematic client surveys; setting up citizens’ oversight bodies for public agencies; national integrity workshops; consulting with communities in small towns and villages; asking school children; and using telephone hot lines, call-in radio shows, and educational programs. The use of survey data and other participatory mechanisms builds momentum and spearheads new activities by civil society and NGOs.


Concluding Thoughts

First, the Bank—as is the case with many others working in this area—is at an early stage of building up a body of knowledge on what works and does not work in the fight against corruption. We have much to learn on the design and implementation of effective anti-corruption strategies. The elements sketched out in this brief paper attempt to illustrate a broad and evolving framework, not a blueprint. This framework needs to be filled in with research, country studies, lessons and best practices drawn from country experiences, open dialogue with governments and civil society, and strong interaction and partnerships with other donors and agencies participating in these efforts.

Second, the reconstruction and transformation of Central America presents a challenge and an opportunity in the fight against corruption. The challenge lies in ensuring a transparent and non-corrupt handling of the increased levels of external assistance that are expected to support the reconstruction of the affected countries. This has been a key concern of donors, governments and civil society since the very early days following the disaster. Many of us have been working intensively with the affected countries to improve the transparency and accountability on the use of resources. While these efforts are important, they should not be limited to providing assurances of probity and transparency during the reconstruction phase. In ensuring the transparent handling of reconstruction aid, there is an opportunity to set in motion a process that can begin to change the rules of the game and establish the fight against corruption as a key element of sustainable development. For this reason, special arrangements to ensure transparency in the use of reconstruction aid must not only fit within each country’s institutional framework, but should also lay a foundation for longer-term efforts to ensure more responsive and effective delivery of public services and greater probity in the use of public resources.

Third, care must be taken to ensure that transitional institutional arrangements set up to handle reconstruction aid sustain a workable balance between restraint and flexibility. Institutional mechanisms need to be credible and ensure transparency, but at the same time they need to be agile and responsive, to ensure that reconstruction assistance reaches beneficiaries effectively and efficiently.

Fourth, tackling corruption is neither easy nor quick. Corruption is a symptom of deeper-seated factors. The causes are complex and the means to control it are not fully understood. There are no single magical solutions and, as with most problems in development, it must be attacked on many fronts simultaneously.

Fifth, where corruption is systemic and entrenched, boldness is required—an incremental approach is unlikely to work. In these cases, an anti-corruption strategy must also go beyond first principles, such as adopt market-friendly policies, reduce red tape or provide training, helpful though these actions may be. Entrenched and systemic corruption requires administering a shock in order to disturb a corrupt equilibrium. There are many ways to do this, but one way to rattle the system is for a number of corrupt figures to be convicted and punished. Since a campaign against corruption can too often become a campaign against the opposition, the first few cases to be prosecuted could be from the ruling party.

Sixth, while prosecuting offenders is necessary to demonstrate that impunity is at an end and the rules of the game are changing, it is also important to emphasize the preventive nature of anti-corruption efforts rather than the enforcement aspect. In a related sense, an anti-corruption strategy has a greater chance of success if it is forward-looking, focusing on setting up improved systems and institutions that reduce monopoly power and discretion while increasing accountability, rather than looking back at the past and overwhelmingly focused on uncovering previous abuses.

Seventh, rigorous analysis and quantification of corruption is an important tool. Hard data on corruption is more than just a passive research tool or academic exercise. When well gathered, presented and analyzed, survey data complemented by hard financial information is very difficult for the authorities and political leaders to ignore.

Eight, leadership is key. The sustained reduction of systemic corruption requires committed leadership and support from civil society. Constructive pressure and assistance from abroad can help, but cannot substitute if the political will is missing.

Ninth, for leadership to be credible, it must transcend mere pronouncements or ethical exhortations to combat the evils of corruption. It needs to be backed by concrete, monitorable and time-bound actions, to which the country’s leadership is held accountable. Involving civil society, both in the design of measures and programs as well as their monitoring, is critical.

Tenth, the role of civil society is key. Where executive political will exists, the role of civil society may be akin to being partners with government in the implementation and monitoring of anti-corruption programs. Where such political will is absent or tepid, civil society’s role has a different dimension—it needs to foster the willingness of the political leadership to reform.


References and Further Reading

Gray, Cheryl, and Daniel Kaufmann. 1998. "Corruption and Development." Finance & Development, March 1998, pp. 7-10.

Kaufmann, Daniel. 1997. "Corruption: The Facts." Foreign Policy, No. 107 (Summer), pp. 114-31.

————, Sanjay Pradhan, and Randi Ryterman. 1998. "New Frontiers in Diagnosing and Combating Corruption." PREM Notes, Public Sector, No. 7 (October). World Bank.

Klitgaard, Robert. 1998. "International Cooperation Against Corruption." Finance & Development, March 1998, pp. 3-6.

Manning, Nick, and J. D. Galligan. 1999. "Using an Ombudsman to Oversee Public Officials." PREM Notes, Public Sector, No. 19 (April). World Bank.

Mauro, Paolo. 1998. "Corruption: Causes, Consequences, and Agenda for Further Research." Finance & Development, March 1998, pp. 11-14.

Myers, Ronald. 1999. "Guatemala’s Financial Management Project." (draft) World Bank. Washington, D.C.

Tanzi, Vito. 1998. "Corruption Around the World." Staff Papers, International Monetary Fund, Vol 45 (December), pp. 559-94.

World Bank. 1997. World Development Report 1997. New York, Oxford University Press.

———. 1997. Helping Countries Combat Corruption: The Role of the World Bank. Poverty Reduction and Economic Management Network. Washington, D.C.

For more information on the workshop, contact
Mr. Jorge Claro de la Maza (jorgecm@iadb.org)
Chief of Procurement and Coordination Office
Inter-American Development Bank
tel: (202) 623-2612  fax: (202) 623-1579

 

Nicaragua, May 2000   -   Honduras, February 2000   -   Stockholm, May 1999

Inter-American Development Bank