IMF - Anti-Corruption Champion?

Article excerpt

After turning a blind eye to corruption for decades, the IMF and The World Bank have now suddenly gone moral. What is behind this radical change of posture and what are the implications?

"No tolerance for corruption." "Corruption is a cancer." These were not slogans from street demonstrators but proclamations by the bicephalous leadership of the Bretton Woods institutions, International Monetary Fund (IMF) Managing Director Michel Camdessus and The World Bank President James Wolfensohn respectively.

After decades of turning a blind eye on the corrupt practices of many governments, such as President Mobutu's in the former Zaire, and on their destructive effects on their countries' economies and populations, the IMF and The World Bank are now increasingly vocal about the need to tackle corruption. Both institutions are applying new policies that tie lending to action by the borrower countries to fight corruption.

Furthermore, the IMF's executive board, which is composed of representatives of its 181 member nations, has decided to release previously unpublished documents on domestic economies. Last August, the IMF applied its new policy to Kenya: it suspended a $220m loan, accusing Nairobi of having failed to clean up widespread bribery. The World Bank also delayed smaller loans to Kenya for the same reasons. In the days following the IMF's decision, Kenya's shilling dropped by as much as 20%.

Kenyan President Daniel Arap Moi, whose economic challenges are rivalled only by his political problems which range from ethnic conflict to authoritarian rule, called the loan suspension "purely political." The Fund denied this. But the line between economics and politics is thin as concerns corruption. Both organisations are aware of that difficulty. The IMF's guide-lines recognise that although "the IMF's mandate and resources do not allow the institution to adopt the role of an investigative agency or guardian of financial integrity in member countries, and there is no intention to move in this direction," its staff should "address governance issues, including instances of corruption, on the basis of economic considerations within its mandate." Similarly, The World Bank's President says that his organisation "cannot intervene in the political affairs of . . . member countries but . . . can give advice, encouragement and support to governments that wish to fight corruption."

Bangs for bucks

The fact remains that for years the twin institutions refused to fight corruption in their borrower countries, saying that the problem was an internal matter. But the statement made in September by The World Bank's President that "only if we reduce corruption will we have an effect on poverty alleviation, which is the Bank's mission" would have rung just as true during Mobutu's golden years as it does today.

So why are the IMF and the Bank focusing on corruption now, in a departure from their traditional approach which has been, as IMF's Mr Stanley Fischer acknowledges, "mostly to be quiet about it"? …