Accessibility links

The East: IMF Takes A Stand Against Corruption And Bribes

  • Robert Lyle

Washington, 5 August 1997 (RFE/RL) - For the first time, the International Monetary Fund (IMF) has taken an official stand against countries which allow bribes business people pay to foreign governments to be deducted as a business expense from taxes.

The position is included in new guidelines the fund's board of executive directors has adopted outlining a new, more stringent role for the IMF in demanding what is known as "good governance" in the countries to which it lends money.

In a public statement, the fund's board said that while it has always promoted public sector transparency and accountability, it has found "increasingly" that a much "broader range" of reforms is needed if countries are to establish and maintain private sector confidence.

The fund says its new guidelines provide for a "more comprehensive treatment" of all the policies and practices of a member country, with the staff instructed to take "a more proactive approach in advocating policies and the development of institutions and administrative systems that eliminate the opportunity for bribery, corruption, fraudulent activity in the management of public resources."

The fund's charter and its operating rules have always forbad the IMF from considering political or non-economic issues when making loans and the guidelines say that requirement remains.

"The IMF's judgement should not be influenced by the nature of a political regime of a country nor should it interfere in domestic or foreign politics of any member," say the guidelines. However, it adds, since good governance is essential to the operation of an economy, it is "legitimate for management (of the fund) to seek information about the political situation in member countries as an essential element in judging the prospects for policy implementation."

The guidelines say the fund cannot adopt the role of an "investigative agency or guardian of financial integrity" in member countries, but issues like corruption -- both large and small scale -- do have an impact on the operation of the economy and of the government's budget. Therefore, these are proper areas for IMF action.

The fund says it is clear that good governance is an economic issue. "The potential risks that poor governance could adversely affect private market confidence, and in turn, reduce private capital inflows and investment -- even in countries enjoying relatively strong growth and private capital inflows -- should" be raised early in the reform effort with member governments.

Most of the guidelines deal with borrowing nations, but in dealing with private markets, the fund for the first time speaks out against the practice in a number of western countries, such as Germany and France, where business people who pay bribes in another country can deduct those as a legitimate business expense.

The U.S. does not allow such a business tax deduction and in fact has been a leader in making the payment of such bribes a criminal act. For several years, west European businesses laughed at the American position as naive, saying that paying bribes is simply how business is done in many developing nations.

But now the fund has joined the ranks of those opposing acceptance of any bribes, following, by just a few weeks, a similarly strong position taken by the World Bank.

A private group formed to fight corruption around the globe, Transparency International (TI), has applauded the IMF's move as "terrific." TI Vice-Chairman Frank Vogel in Washington says the group expects more international and regional organizations to come out with similar stands soon.

"There will be accusations this is political interference," says Vogel, "but there is no question that it is irresponsible for any lending agency to provide funds without getting very clear assurances that the money is being used responsibility and for the intended purposes."

Vogel added, however, that it "would be nice if the fund itself were a little more transparent" and released more of its internal review work. "Talking about good governance behind closed doors is a bit of a contradiction," he said.

Fund officials point out, however, that they have begun releasing annual country review reports when the nation itself agrees, and are releasing far more information on each loan and country review than it has ever done in the past.

The fund cautioned its staff that it may find some countries won't like this new approach. The staff may need to be prepared to face "some tension" in the working relationship with country authorities when questions involving corrupt practices arise, the guidelines note.