Will an IMF Loan End Equatorial Guinea’s Grand Corruption? Part II

Part I of this post reported that last December the International Monetary Fund approved a $282 million loan to Equatorial Guinea to pull the economy out of recession and restore growth. Equatorial Guinea’s government is by any measure one of the world’s most corrupt, and the Fund determined that if it did not reduce corruption, the loan would have little or no impact. It therefore made addressing corruption a condition for extending the loan. IMF conditionality could be a potent weapon in the struggle to contain corruption. If Equatorial Guinea is held to the anticorruption condition, other governments will be on notice that to qualify for an IMF bailout, they too must combat corruption.

The loan requires Equatorial Guinea not only to enact new anticorruption legislation but to enforce it as well.  The loan will be disbursed in tranches over three years; the Fund can suspend or terminate it at any time if the government fails to comply with the anticorruption conditions.  Assessing whether a law has been passed is straightforward. Deciding whether it is being enforced is not.  It requires considerable judgement, and thus the IMF will have significant discretion to determine whether Equatorial Guinea is complying with the loan conditions.

Vigorous enforcement of the IMF-mandated anticorruption legislation could put many senior government officials in prison, and they will thus do everything possible to blunt enforcement. The Fund must insist the government make steady, measurable progress on enforcement, and if it does not, suspend loan disbursements until it does. Continued disbursements in the face of perfunctory enforcement would defeat anticorruption conditionality, neutralizing a powerful new weapon in the corruption fight.

The measures the anticorruption community can take to help prevent this outcome are detailed below. Continue reading

Guest Post: Why the U.S. Congress Should Pass the CROOK Act

Today’s guest post is from Abigail Bellows, a nonresident fellow at the Carnegie Endowment for International Peace and an independent governance consultant. Ms. Bellows previously served in the U.S. Department of State, where she created and led the anticorruption portfolio in the Office of the Under Secretary for Civilian Security, Democracy, and Human Rights.

In countries long plagued by pervasive corruption, a wave of global protests is disrupting the political order. These protests, typically triggered by a corruption scandal, produce a brief upswing in political will and may result in the ouster of the current government. In fact, 10% of countries of countries around the world have experienced corruption-fueled political change over the last five years. These settings present historic opportunities to produce genuine, lasting reform. But to succeed, reformers must take advantage of political momentum before public interest dissipates or opponents regroup. During these windows of opportunity, U.S. support can play a valuable role, both because of the symbolic power of U.S. support and because of the scale and rigor of the technical assistance that the U.S. can provide. Yet all too often, the U.S. government is unable to respond sufficiently and quickly to support reformist governments during these crucial windows of opportunity. One of the main reasons is that the current U.S. anticorruption budget is too small ($115 million annually), too geographically rigid, and insufficiently flexible (given that programming is typically planned and budgeted two years in advance).

New legislation pending in the U.S. Congress—Countering Russian and Other Overseas Kleptocracy (CROOK) Act—would help address these problems. The House version of the CROOK Act, which was introduced on July 18, 2019 by Representative Bill Keating (D-MA) and Representative Brian Fitzpatrick (R-PA), with support from the U.S. Helsinki Commission, passed the House Foreign Affairs Committee on December 18. The companion Senate bill was introduced on December 11 by Senator Roger Wicker (R-MS) and Senator Ben Cardin (D-MD) and is awaiting review by the Senate Foreign Relations Committee. While the CROOK Act contains many measures that would strengthen U.S. anticorruption efforts, its centerpiece is the creation of an “Anti-Corruption Action Fund.” Continue reading

India’s New Electoral Bond Scheme Won’t Reduce Electoral Corruption. It Will Make the Problem Worse.

Indian elections have long been celebrated as a festival of democracy—in part for their sheer and increasing scale, with over 900 million voters and thousands of political parties registered. Election expenditures have also been on the rise. India’s last national elections were the most expensive elections ever held anywhere in the world, with an estimated expenditure of Rs. 55,000 crores ($7.74 billion)—much of which was financed through private donations. In India as elsewhere, all this private money in politics raises concerns about corruption, both legal and illegal. This problem is exacerbated by a lack of transparency.

Under the rules as they existed until two years ago, individuals and domestic for-profit companies could contribute to political parties via cash, check, or demand drafts. Political parties are required to file an annual income statement, listing both sources of income and expenditures, with the Election Commission, a constitutional oversight body. These statements are publicly accessible under India’s Right to Information law. However, contributions below Rs. 20,000 ($280) could be anonymous, and political parties traditionally exploited this loophole to avoid disclosure of donors. The total share of income from unknown sources has been steadily increasing for all six major political parties, and in the last returns filed for 2017-18, income from unknown sources was over half (51.38%) of these parties’ collective income.

Over the past two years, there have been several reforms to campaign finance. The most significant reform has been the replacement of cash donations with a new mechanism for political donations, so-called “electoral bonds.” Under this system, the threshold for anonymous cash donations was reduced by a factor of ten, but private parties can now make anonymous donations via a bond with the State Bank of India (a public sector bank) in fixed denominations ranging from Rs. 1,000 ($15) to Rs. 1 crore ($1.5 million), during allotted windows. These donations remain anonymous not only to the general public, but also to the recipient political party.

The stated objective of these reforms is to target the practice of money laundering in campaign finance and increase transparency. In a previous post on this blog, written shortly after the new scheme was introduced, Abhinav Sekhri argued with cautious optimism that this tool, though imperfect, was indeed a step in the right direction. I disagree. In fact, the electoral bond system has decreased transparency and increased the potential for corruption, for several reasons: Continue reading

Requiring Public Contractors To Have Anticorruption Compliance Programs May Sound Like a Good Idea—But Not When Government Capacity Is Lacking

Five years ago, in a thought-provoking post, Rick Messick proposed that developing states should demand that firms doing business with them have an anticorruption compliance program. At the time Rick wrote his post, he wasn’t aware of any developing state that had imposed any such requirement. A couple of years later, some Brazilian subnational jurisdictions, such as the state of Rio de Janeiro and the Federal District, adopted legislation in this spirit, requiring that companies awarded a public contract, or participating in a public-private partnership, above a certain value must establish an anticorruption compliance program. These initiatives seem to be of a piece with a broader trend in Brazilian anticorruption law, which has sought in various ways to create stronger incentives for companies to adopt effective compliance programs. (For example, Brazil’s 2013 Clean Company Act holds companies strictly liable for corrupt conduct, but companies that have a so-called “integrity program” may get a penalty reduction.)

Nonetheless, despite the importance of corporate compliance policies as a component of any effective anticorruption strategy (see here and here), demanding that contractors to establish such programs as a condition of doing business with Brazilian government entities is unlikely to achieve the intended goals.

Continue reading

Anticorruption Bibliography–January 2020 Update

An updated version of my anticorruption bibliography is available from my faculty webpage. A direct link to the pdf of the full bibliography is here, and a list of the new sources added in this update is here. As always, I welcome suggestions for other sources that are not yet included, including any papers GAB readers have written.

Will an IMF Loan End Equatorial Guinea’s Grand Corruption? Part I

Long scorned as a nearly perfect kleptocracy where corruption is unparalleled in its brazenness, Equatorial Guinea announced last November it would end the rampant corruption that has earned it such contempt, issuing a policy note saying it is “firmly committed” to measures to “enhance governance and transparency, [and] reduce corruption.” The note issued not from a newly-installed, reformist government but from the same one that has bled the country dry for three decades. The commitment to honest government is the price the International Monetary Fund is demanding in return for a loan to pull the economy out of a deep, prolonged recession largely caused by the ruling elite’s wholesale looting of the nation’s patrimony.

The Equatorial Guinea loan is not the first time the IMF has conditioned a bailout on anticorruption reforms. In 2015, in return for a four-year $17.5 billion loan, Ukraine was required to overhaul the institutions that investigate, prosecute, and adjudicate corruption cases, prohibit government employees from receiving large gifts, and compel senior officials to disclose their assets. The European Union, other international organizations and governments, and Ukrainian civil society all helped formulate these conditions, and all pressed the government to comply with them. Thanks to this concerted pressure, it is; and while Ukraine today is hardly corruption free, it is making steady progress in bringing corruption to heel.

Equatorial Guinea’s promises to the IMF appear in a policy paper titled “Good Governance and Anticorruption Action Plan” (Spanish version; English version). It there pledges not only to enact a slew of new anticorruption laws but to enforce them as well. But unlike Ukraine, Equatorial Guinea has no powerful neighbors demanding it comply with these promises, no strong, independent civil society organizations lobbying for them, and no vibrant, free press following its progress in realizing them.  Like most corrupt countries, it is run by a thuggish, repressive regime that locks up its opponents, or worse, and cares nothing for its standing in the international community or its citizen’s well-being.  The chances the government will honor the IMF loan covenants are thus much lower than they were in Ukraine. Close observers of the country expect the government will enact measures that look good on paper but are never enforced.  And then claim it has done what it promised. Continue reading

New Podcast, Featuring Charles Davidson

A new episode of KickBack: The Global Anticorruption Podcast is now available. In this episode, I interview Charles Davidson, currently the publisher of the American Interest magazine, and previously the co-founder of Global Financial Integrity and the Hudson Institute’s Kleptocracy Initiative. We discuss a variety of topics, including financial integrity, beneficial ownership transparency, and kleptocracy–including the threat that kleptocratic wealth from authoritarian states poses to liberal democracies, the use of targeted sanctions against individual corrupt actors, and concerns about how kleptocrats use Western institutions not only to launder their money, but also to launder their reputations.

You can find this episode, along with links to previous podcast episodes, at the following locations:

[NOTE: This episode begins with some introductory housekeeping material about future directions for the KickBack podcast. If you want to jump straight to the interview, it begins at 3:07.]

KickBack is a collaborative effort between GAB and the ICRN. If you like it, please subscribe/follow, and tell all your friends! And if you have suggestions for voices you’d like to hear on the podcast, just send me a message and let me know.