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The IMF on corruption and COVID-19

An interview with Kristalina Georgieva, Managing Director, International Monetary Fund

Photo: Gerd Altmann / Pixabay.com

Transparency Int'l

This interview is the first blog in our new series, Tracking the Trillions, which takes a closer look at how the IMF can tackle corruption, while promoting transparency and accountability.

1. Last April marked two years since the IMF Board approved a new Framework for Enhanced Engagement on Governance.

Why did the IMF decide to increase its focus on tackling corruption?

Entrenched corruption undermines sustainable and inclusive economic growth. It has pernicious effects—eroding the social contract, reducing taxes and deterring investors—and it is a longstanding priority for the IMF. We first put in place a policy addressing governance issues in member countries in 1997, and we have analyzed the economic costs of corruption for many years. Measures to address corruption have featured prominently in a number of Article IVs and IMF lending arrangements.

In 2017, a review of the policy found that its principles remained sound, but our implementation had not been consistent. Too often, we used euphemisms that clouded discussion of the issues, our recommendations were too general to be operationally useful, and there was room to step up our collaboration with other international organizations.

It was against this backdrop that the Fund adopted the Framework for Enhanced Fund Engagement on Governance in April 2018, which instituted a structured process to promote more evenhanded, candid, and effective engagement on governance and anti-corruption issues.

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF) speaking about anti-corruption efforts during COVID-19.

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2. What progress has the IMF and its member countries made since the adoption of the 2018 framework?

What were some of the biggest challenges in implementing the 2018 framework?

I think we’ve made a good start. Internally, we’ve put in place a systematic process for analyzing governance vulnerabilities and the severity of corruption in each of our member countries, together with a framework for assessing reform priorities to address these issues. Departments are also gradually revamping their capabilities in dealing with these sensitive issues.

These internal efforts result in systematic coverage of governance and corruption issues in core IMF activities.

In surveillance, we focus on both domestic and transnational aspects of corruption. On domestic corruption, our analysis of governance and anti-corruption efforts has increased substantially in IMF reports. It is now more granular and better calibrated to the severity of corruption risks. Just recently—for instance—our surveillance work has focused on central bank governance and operations in Liberia, financial sector oversight in Moldova and the anti-corruption framework in Mexico.

We also focus on transnational aspects of corruption. So far, with all G7 members, as well as, Austria, the Czech Republic, and Switzerland, we have discussed whether their national frameworks effectively prosecute multinationals involved in bribing foreign public officials. This voluntary initiative was done in coordination with the Organisation for Economic Co-operation and Development (OECD) and the Financial Action Task Force. We also examined each countries’ measures to stop the concealment of proceeds of overseas corruption.

In IMF-supported programs, we more frequently include governance improvements and fighting corruption as stated objectives. This is underpinned by strong anti-corruption measures.

We are increasing our capacity development efforts. Here, we aim to provide technical advice to help countries strengthen governance in areas such as tax administration, expenditure oversight, fiscal transparency, financial sector oversight, anti-corruption institutions and asset declarations for senior officials. Our capacity development toolbox now features “deep-dive” governance diagnostics that provide the basis for detailed anti-corruption action plans. More than 10 deep dives have already been completed or are underway.

We have ramped up collaboration on governance issues with other international institutions, including the World Bank, the G20 Anti-Corruption Working Group, the United Nations Office on Drugs and Crimes, the OECD Working Group on Bribery, and the Financial Action Task Force, among others.

But all of this is just a start.

Ultimately, our shared goal is not just to strengthen our analysis and advice, but to see this translate into improved national governance and reduced corruption. This takes time and it is too early to assess results.

Among the challenges we face is that many fragile states are among those with the most severe governance challenges. These countries have limited implementation capacity and competing reform priorities, so policymakers face tough choices about prioritization and sequencing. Data gaps are another constraint in some cases. All of this points to the need for being patient with results, but persistent in our efforts.

3. Over the last year, Transparency International analysed 96 IMF reports and found an increase in references to corruption. However, these references are heavily skewed towards a minority of reports and countries. Afghanistan for example represents over 10 per cent of all mentions.

How can you ensure that you are treating all your member countries similarly in the future?

First, let me say that it is always useful when civil society organisations (CSOs) analyze our work and hold us accountable. It helps with our internal analysis, and it helps the Fund deliver a better service to its members. I am glad that your research found a big increase in references to corruption—it helps to show that the 2018 Framework is having its intended effect.

On your question, we do, of course, take great care to be evenhanded in how we treat member countries, and we have a strong internal review processes in place to promote this. But we also recognize that governance and corruption issues vary across countries and take account of these differences in our analysis and surveillance.

The good news is that the new framework allows us to take a risk-based approach to individual countries—so we can dial up the attention we give to governance and anti-corruption issues based on the severity of their governance vulnerabilities.

"Corruption is a corrosive force that hits the poor and most vulnerable the hardest," says Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF) as part of an interview with Transparency International.

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4. The IMF is playing a leading role in mitigating the economic impacts of COVID-19 and has committed to put its US$1 trillion lending capacity toward that end. While the speed of the IMF’s response is welcome, Civil Society Organizations, including Transparency International, have expressed concerns regarding insufficient anti-corruption or transparency measures in these emergency loans. Although, we have seen an uptake in transparency, accountability and anti-corruption measures in some countries, this is not consistent across the board.

What is the IMF doing to reduce the risks of these funds being lost to corruption and not reaching their intended beneficiaries, particularly where some countries are reducing access to public information and media freedom?

You are right that the IMF has responded at record speed, because this is truly a crisis like no other. More than one hundred countries have requested emergency financial assistance, and we have already provided over US$24.7 billion to more than 69 countries.

While moving at great speed, the IMF has consistently emphasized the importance of improving governance and accountability. Our message to governments has been very clear: in this time of crisis, please spend whatever is needed. But spend wisely and keep your receipts. We don't want accountability to be lost.

We are taking several steps to ensure—as best as we can—that IMF financing is not misused.

First, governments receiving emergency financing have committed to adopt a range of measures. These range from publishing procurement contracts online, as well as the beneficial owners of companies receiving these contracts, to publishing independent audits of crisis-mitigation spending. The measures serve to improve transparency, anti-corruption efforts, anti-money laundering mechanisms, and public financial management. In each case, we assess which measures will not unduly delay urgently needed disbursements.

Second, all countries receiving emergency financing must commit to undertake a “Safeguards Assessment” to provide reasonable assurance that the central bank's reporting and controls are adequate. Where there are shortcomings, IMF staff make time-bound recommendations and closely monitor their implementation.

Third, many of the countries receiving emergency assistance either already have existing multi-year financing arrangements with the IMF or will be seeking such arrangements soon. These arrangements are better-suited to addressing longer-term structural issues that underpin poor governance and corruption.

5. The nature and severity of governance weaknesses, including corruption, cannot be understood from official sources only. It requires input from a range of actors, including civil society. We've observed the IMF taking different approaches in its engagement with civil society in different countries.

What role does the IMF see for CSOs in its fight against corruption and how will it address this issue of consistency in the context of shrinking space for civil society in many countries?

Thieves and fraudsters are very determined, and they use sophisticated techniques to divert funds away from their intended use. We can only stop fraud and corruption if we work together, and civil society has a critical role to play in holding to account both governments and institutions like the IMF.

Civil society organizations (CSOs) provide a platform for citizens’ concerns about corruption to be heard. Through your advocacy, you put pressure on governments and businesses to stick to their commitments and to clean up their act. And through your work with institutions like the IMF, you show us where we can do better.

I know that you are facing significant challenges around the world in doing this kind of work, so here is my ask of you—please keep up your good work. At a time of crisis, it is more important than ever. We will continue to play our part, even in challenging times like during the COVID-19 pandemic—for example, by working with governments to improve fiscal transparency. And all IMF country teams are encouraged to engage with CSOs—to seek their views on policy priorities, and to explain the IMF’s efforts in these countries.

6. The IMF has repeatedly demonstrated its ambition to play a leading role in tackling corruption worldwide.

Thinking further ahead to 2030 and beyond, what do you see as the next frontier in the field of anti-corruption?

The global anti-corruption agenda is already very full—many current initiatives are not yet fully implemented and best practices are not adopted as widely as is necessary. Looking to 2030, we can take big steps forward in the fight against corruption and reaching the Sustainable Development Goals, if we focus on delivering on these priorities—like stronger asset declaration requirements for senior public officials, and transparent beneficial ownership for legal entities.

Looking beyond 2030, I am hopeful that technology, though it also has its risks, can help in the fight against corruption. For example, machine learning to better harness the increasingly large amount of publicly available data can help identify corruption risks. Such technological innovations may spur the next frontier of anti-corruption work.

View this interview in Arabic, French or Spanish.

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