Top-Notch Advice from the Inter-American Development Bank on Combatting Corruption

To say I opened a copy of Report of the Expert Advisory Group on Anticorruption, Transparency and Integrity in Latin America, the Inter-American Development Bank’s latestadvice to Latin American and Caribbean governments on fighting corruption, with low expectations would be an overstatement. What specific, detailed, actionable and therefore useful measures could a report directed at 45 governments contain? Particularly given the diversity of the region’s governments, which range from prosperous, thriving middle-income democracies to desperately poor, repressive authoritarian regimes.  I thus assumed the report would follow the tiresome formula of so many previous attempts to spur developing nations to take meaningful steps to curb corruptions: a hodgepodge of obvious but vague generalizations wrapped around pleas for greater political will.

My subterranean expectations were only lowered given its institutional sponsor. Like the other regional development banks and the World Bank, the IDB exists to loan money and therefore strives to stay on the good side of the region’s governments to ensure they will continue to borrow.  In reports past from other development banks that consideration has often ruled out even the hint of politically controversial measures or criticism levelled at any government’s faltering anticorruption efforts.

The third strike against the report is its authors.  A distinguished collection of mostly Latin American “names” in the anticorruption field, all are busy experts whose main job is delivering high-profile lectures, authoring academic papers, and advising private sector entities and governments.  Devoting time and effort to an IDB publication that neither burnishes one’s academic credentials nor services clients was probably not high on their list of priorities. Most likely, I thought, they were asked to bless a precooked series of bromides assembled by interns and junior staff.

Boy, were my expectations off base.  Rather than a strike out, the report is a home run.  Or at least a stand-up triple.

The first sign I had seriously misjudged the report appeared in the section detailing a series of regional initiatives necessary to combat money laundering, identify the beneficial owners of offshore companies, eliminate barriers to extradition and mutual legal assistance, and otherwise strengthen the enforcement of the criminal law. The authors warn that while corruption prosecutions must be stepped up, defendants’ human rights must not be compromised lest some unidentified critics cry “witch hunt.” While they leave it to readers’ imagination as to who might be alleging “witch hunt” in the face of a corruption investigation, they denounce Guatemalan President Jimmy Morales by name for ending the International Commission Against Impunity’s work in Guatemala: “Morales’ decision represents an important step backward against transparency, integrity, and anticorruption, not only in Guatemala but also across the region.”

The second indication that the IDB report is not your run-of-the mill anticorruption screed is its willingness to confront the political finance monster head-on. One of the most sensitive, critical, and troubling areas the region’s government must attack if they want to curb corruption is how political parties and electoral campaigns are financed. Sensitive because every Latin and Caribbean government in office today has likely winked at, if not blatantly violated, current campaign finance law.  Critical because behind much of the region’s corruption ills is politicians’ insatiable search for the money needed to win the next election.  Troubling because of the growing trend the authors note: “political finance is increasingly coming from organized crime groups.”

Not only do the authors acknowledge that political finance is the 800-pound corruption monster, they offer thoughtful, sensible, serious recommendations for taming it.   These include:

  • Strengthening the enforcement of current campaign finance law by assuring electoral bodies and commissions, judges, and prosecutors not only enjoy the necessary “independence, resources, and authorities” but have access to the information and investigations of agencies responsible for money laundering and corruption;
  • Asserting greater control over the flow of private funding by banning anonymous contributions and foreign contributions and limiting contributions from legal entities (American readers please note);
  • Reducing candidates’ and parties’ dependency on private money by providing free or reduced airtime on public and private television and introducing public funding in those countries without it; and
  • Enhancing the transparency of contributions by strengthening reporting by candidates, corporations, political foundations, NGOs, and entities linked with candidates or parties.

If calling out Morales for terminating the impunity commission and urging governments to get serious about campaign finance weren’tenough to separate the IDB report from the crowd, the report takes on one of the region’s most sacred of sacred cows: Public-Private Partnerships.  Oversold for years as the solution to theregion’s growing demand for water, power, and other essential public services, PPPs have enriched lawyers, consultants, investment bankers, and government insiders of all kinds thanks to undisclosed conflicts of interest and outright bribery. When the original deal isn’t sufficiently lucrative, the “players” frequently renegotiate it to sweeten the take. The only loser: citizens seeking reliable, reasonably priced services.

Drawing on the work of Chilean professor and report co-author Eduardo Engel, the report ticks off 11 different measures governments must take to “address the most common reasons for contract renegotiations and reduce corruption [in infrastructure] more generally.” Among my favorites:

  • stop including clauses in PPP contracts that give the facility’s operator the right to renegotiate at the drop of a hat;
  • empanel an independent technical review committee to review any contract renegotiation;
  • end the pervasive conflicts of interest that infect so many projects by separating strategy and planning bodies from the units responsible for contract compliance units; and
  • one that will warm the hearts of the public finance community, for fiscal accounting purpose treat PPP investments the same way, and provide the same level of scrutiny, as if the project were funded with public monies.

It is a rule that any glowing review must cite shortcomings in the document being praised to be credible, and there are certainly areas where the report could be stronger.  One is the lack of an account of, let alone diagnosis and remedy for, the massive, Hemisphere-wide corruption that infects large construction projects. Revealed by Lava Jato, the Brazilian investigation of bid rigging on contracts let by Brazil’s state-owned oil company, the burgeoning scandal, as the report recognizes, underscores the urgency of a frontal assault on corruption.  Yet what the Brazilian investigation and the follow-on investigations in Peru, Colombia, Mexico, and elsewhere show about cartelization cum bribery on infrastructure projects is not described; let alone are solutions detailed.

Second is the tiresome use of aggregate indicators of corruption and rule of law to “prove” that corruption is costly and fighting corruption welfare enhancing.  Two decades ago, when the anticorruption movement was in its infancy, this kind of analysis was the best available.  Today, the research has moved on and there are more scientifically sound and compelling ways to make the point.

But these are secondary matters in a valuable report that merits close attention.  Not only by policymakers and anticorruption activists in Latin America and the Caribbean, but by all those looking for concrete, effective measures to control corruption.  One might even hope it would spur the Asian Development Bank and the African Development Bank to produce their own region-specific versions, particularly now that the World Bank has cut back on its governance and anticorruption work. But a warning to those two banks and other international organizations who would publish a report on fighting corruption.  The IDB has forever raised expectations about the quality of work a development agency can produce.

(Full disclosure: I might have known once I read the acknowledgements that the IDB report was likely a mold-breaker. Roberto de Michele, a professional friend of many years, is one of many first-rate IDB staff the authors thank for assistance in seeing the report through.)

2 thoughts on “Top-Notch Advice from the Inter-American Development Bank on Combatting Corruption

  1. A MUST READ! Like Rick, I’ve written & read many anticorruption reports for over 2 decades. This one stands tall among any you will find.

    Now the challenge is to take these lessons learned to other regions and targeted countries where timely opportunities exist & to roll-out & execute its recommendations – coupled with more country context research & applicability. This will take more significant resources (which aren’t there), more creative partnerships (more public-private partnerships & much closer collaboration between the human rights & anti-corruption communities), more systematic monitoring & reporting (these frameworks still don’t exist or they are still in their infancy) and more demand-driven political will.

    While we may be half-way home now with this report it is clear we still have a long-way to go.

    PS. I also send kudos to Roberto. His leadership in this area over many years has made a difference to many.

  2. Pingback: Top-Notch Advice from the Inter-American Development Bank on Combatting Corruption   | Anti Corruption Digest

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