Since 2018 the IMF has laid greater stress on governance and corruption issues in its annual reviews of member countries’ economic performance and when extending loans to stabilize their economies and restore economic growth. GAB is delighted to publish this post by Fund General Counsel Rhoda Weeks-Brown explaining why the organization strengthened its focus on governance and corruption and what it is doing to help member countries promote good governance and combat corruption.

The COVID-19 pandemic is a crisis like no other. It has brought about tragic human loss and suffering, coupled with disruptions in the social and economic order on a scale that we have not seen in living memory. The IMF’s response to help its member countries manage the crisis and save lives and livelihoods has been similarly unprecedented, including in the sheer speed and size of that effort. In only seven months, the institution has provided lending assistance of more than US$100 billion to over 80 countries, including over US$31 billion in emergency financing to 78 countries (as of December 4, 2020). We can all agree that the dire economic effects projected to result from the COVID crisis—including declines in living standards, increases in inequality, and a reversal of the decades-long declining trend in global poverty—have made the fight against corruption more urgent now than ever before.

Despite the speed of the IMF’s response, we have focused on safeguards to ensure that appropriate governance, transparency and accountability measures are in place even for our rapid emergency financing. This financing supports countries’ commitments to level up healthcare spending and provide income support for affected households and businesses. Our advice to countries has been “spend what you need, but keep the receipts.” Governments in turn have made firm commitments to address governance, transparency and accountability.

The IMF is also providing technical assistance to countries to help them make progress on these commitments. This reflects a clear understanding that improvements in transparency and accountability are driven by changes in institutional practices across multiple institutions involved in budgeting, spending, monitoring the use of public financial resources and responding to instances of misappropriation and misbehavior.

Governance—key to economic success

The attention we are placing on enhancing accountability reflects the significant and increasingly well-understood macro-critical impact of corruption and weak governance, which undermine the IMF’s mandate of promoting global economic stability and sustainable and inclusive economic growth.

Our appreciation of how corruption can profoundly impair a country’s macroeconomic position, financial stability, and regulatory frameworks was the impetus for introducing a complete overhaul of our governance policy in 2018, in order to more consistently orient the Fund’s work on addressing governance vulnerabilities, including corruption. This approach reflects the realization that it is not effective to treat corruption solely as crime, with a focus on catching and punishing the perpetrators. Rather, a more sustainable way to tackle corruption is also to address underlying governance vulnerabilities—the “cracks” through which corruption can enter and spread in the first place.

Accordingly, the IMF’s policy focuses on corruption, but also on the adequacy and effectiveness of the institutions and frameworks underlying six key governmental functions: fiscal governance, financial sector oversight, central bank governance and operations, market regulation, rule of law (with a focus on contract enforcement and other property rights), and anti-money laundering and counter-terrorist financing. We assess these issues in our member countries on a regular basis.

Tailored policy advice and technical assistance

If the assessment for a particular country shows severe governance and corruption vulnerabilities, then our annual economic review of that country (called an “Article IV consultation” after the relevant provision of the IMF’s Articles of Agreement) will analyze the weaknesses and economic impact, and provide tailored policy advice to help address them.

Governance vulnerabilities and corruption issues discussed in staff reports include fiscal governance (e.g., Bulgaria, Malaysia, and South Africa), central bank governance and operations (e.g., Liberia and Mozambique), financial sector oversight (e.g., Cambodia, India, and Zimbabwe), market regulation (e.g., Nigeria and South Africa), contract enforcement and property rights (e.g., Djibouti), AML/CFT (e.g., Djibouti, Malta, and Malaysia), and the anti-corruption framework (e.g., Bulgaria, Malaysia, and Mexico). If a country seeks IMF financing, it can also be called upon to address these vulnerabilities as a condition for that financing, given the often critical importance of these reforms for success of the economic programs supported by the IMF. Examples can be seen in the Fund-supported programs for Angola, Equatorial Guinea, Honduras, and Ukraine.

We also provide technical assistance and training to strengthen our member countries’ legal, institutional and human capacities to fight corruption. A key tool in these capacity development efforts has been our governance “diagnostic” reports—in-depth, country-tailored assessments of corruption and governance vulnerabilities that draw heavily on local knowledge and expertise, informs the Fund’s dialogue on corruption with national officials, and influences a country’s reform efforts. To date, we have produced or are working on ten reports, including for the Republic of Congo, Mozambique, and Honduras, and we expect that the number of reports will increase substantially in the coming months.

Since 2018, our members, in particular those with more advanced economies, have also been encouraged to have the IMF assess their frameworks against transnational corruption—specifically, the extent to which they effectively criminalize and prosecute the bribery of foreign public officials and prevent the concealment of proceeds of corrupt acts. The G-7, Austria, Czech Republic and Switzerland were early volunteers for these assessments and the IMF continues to encourage other advanced economies to do the same. Powerful multinational corporations and other actors that bribe foreign officials often come from richer countries with large financial sectors, where proceeds of corrupt acts are often concealed and laundered. These countries might not suffer direct economic impacts from corruption elsewhere, but weaknesses in their legal and institutional frameworks contribute to global corruption. Here, the private sector has a role to play, as it is private actors in these countries that most often facilitate global corruption.

A long-term commitment

The COVID crisis and its economic consequences has acted as a clarion call for us to expand and deepen our implementation of the 2018 policy. We have worked to respond to the call, both in the context of emergency operations and our normal operations. An example of this can be seen in a first-of-its-kind anti-corruption course offered recently by the IMF to over 70 government officials from more than 35 African countries. This interdisciplinary course, delivered in close collaboration with experts from some of the recipient countries, illustrates the progress we are making in partnership with other key players to contribute to this critical agenda.

The IMF has a long-term commitment to help countries improve their governance and fight corruption. Taking into account that the root of the word “corruption” implies disintegration, rotting and decomposing, our ultimate goal is to avoid economic and social “disintegration” from the disease of corruption. And to achieve instead the “integration” that flows from a global economy that is productive, inclusive, and shaped by laws and institutions that reflect principles of fairness and integrity.