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Former USSR: Study Of Corruption In Transition Economies Urged

Prague, 13 March 1997 (RFE/RL) -- Corruption threatens economic development across Eastern Europe and the former Soviet republics, subverting the benefits which market reforms should bring people.

Despite its enormity, corruption has rarely been a subject of strict economic analysis. But that's beginning to change. International experts are now seeking ways to measure the effect of corruption on transition economies.

Corruption is a common thread in many of the region's top news stories. Russian President Boris Yeltsin is justifying his order for a new cabinet to be appointed by saying that corruption and bloated bureaucracy have slowed reforms. Protests in Bulgaria that brought the dissolution of parliament last month were motivated by economic chaos blamed on corrupt former Communists. In Albania, demonstrations against corrupt investment schemes have evolved into armed insurrection.

The World Bank says that the basic prerequisite of market-led economic growth is "good governance" -- that is, political leaders who practice "accountability, transparency, openness, predictability and the rule of law."

Against this background, the Paris-based Organization for Economic Cooperation and Development (OECD) is now urging closer examination of corruption on a country-by-country basis.

A technical paper just issued by the OECD Development Center says some of the clearest examples of corruption are seen in privatization programs, as well as in tax collection agencies, customs services and investment programs that involve multi-national corporations.

The study says a nation's access to rich resources like oil or diamonds also can stimulate "high-level corruption on a massive scale." But it says national economies are more protected when democratic political structures are fostered along with a more participative civil society.

Privatization is now a major element of economic reform in most of Eastern Europe and the former Soviet republics. That's because state budgets can no longer be burdened by loss-making firms, and because the International Monetary Fund insists on progress toward privatization and market reforms before disbursing fresh credits.

The OECD sees privatization as a way to reduce opportunities for corruption because decentralization takes monopoly control of development out of the hands of a few state officials. The OECD says slow track records on privatization can mean that a ruling party wants to preserve elements of central planning. But the organization also warns that reforms can create new opportunities for corruption unless the process is closely monitored.

It says abuses continue when state monopolies are merely transformed into private ones controlled by vested interests that support the ruling party. Monitors should focus attention on potential gains to government officials or to their friends, family, and social or political groupings.

The World Bank also warns about "informal networks linking senior officials with major enterprises." The World Bank says the secretive nature of these networks increase the potential for corruption. The formation of secretive corruption cartels also excludes new firms that could provide important innovations within a national economy.

The OECD study sites the former Soviet Union as an example of "collusion in bribe-taking." It says different Soviet bureaucracies cooperated in setting bribe levels and in sharing the proceeds, while the KGB was used to monitor officials who attempted to deviate from the agreed price.

Ironically, the OECD says that system was less damaging to the national economy than post-Soviet corruption because today's businessmen can't be sure about how many bribes they will have to pay. In the end, investment is discouraged and growth is stunted.

The "New York Times" last week called Uzbekistan a disturbing example of how post-Soviet corruption causes Western businesses to freeze their investments or pull out of a country altogether. Executives of small and middle-sized western firms in Tashkent complain that once they pay required bribes, officials delay and alter procedures so much that it becomes impossible to make a profit. Diplomats say foreign mining interests with access to high-level officials are among the few western businesses that are not complaining.

The OECD attributes the problem to a "chain of corruption" stretching from low-level civil service employees to the local politicians who make bureaucratic appointments. In order to be posted in a job where they can demand bribes, each official needs to make payoffs to a superior. It says even honest officials may need to become corrupt to get sufficient money for a transfer to a higher post.

The IMF also is disturbed about monopolist policies in Uzbekistan that, according to the OECD, foster corruption. The IMF has refused to disburse $180 million in credits because of Tashkent's insistence on licensing only two banks to conduct foreign exchange operations.