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East: Analysis From Washington -- Fighting Corruption

Washington, 27 September 2000 (RFE/RL) -- Corruption in Eastern Europe and the post-Soviet states is "reaching new heights and posing new challenges" both to the countries of that region and to international institutions which seek to help them, according to a World Bank report issued in advance of that organization's annual meeting this week in Prague.

The challenges to the countries of this region are obvious: If they do not move quickly and effectively to fight corruption, the 250-page report says, the costs to them will be "extremely high" in the form of lower economic growth, less foreign investment, and greater domestic cynicism about moves toward a free market.

Even worse, the authors of the report say, corruption having become institutionalized in these states now hits new companies there far harder than it does state-owned enterprises or already privatized enterprises, a pattern that strikes at the most dynamic part of the economy and thus casts a shadow over the economic future of these states.

The extent of the problem was signaled earlier this month when Transparency International released its annual Corruption Perceptions Index ranking 90 countries according to surveys of business people and the public in those states. Only two of the former communist countries -- Estonia and Slovenia -- were in the top third of the ranking as among the least corrupt -- and even they were 27th and 28th, respectively.

Most former communist countries were in the middle third. But some of the largest -- including the Russian Federation, Ukraine, Kazakhstan, Uzbekistan, Azerbaijan, and Yugoslavia -- were in the bottom third, among the most corrupt. Indeed, Russia ranked 81st out of 90, and Yugoslavia was 89th, exceeded in corruption only by Nigeria.

The World Bank report says that even those countries which have launched anti-corruption campaigns often have failed to follow through. Or what has been still worse, it continues, they have conducted these campaigns for the political benefit of one part of the elite rather than for the goal of instituting "key structural reforms."

But the challenges that corruption in these countries pose to international institutions may be equally great, the report entitled "The Quality of Growth" suggests. Over the last decade, the World Bank and many other Western institutions and governments have viewed privatization, liberalization, and macrostabilization as both a necessary and sufficient means to overcome the legacy of the communist past.

The continuing growth of corruption, the authors of this report argue, indicates that these institutions, just like the countries in this region themselves, must devote more attention to the development of effective legal systems, greater political participation, and the social welfare infrastructure that largely collapsed along with the old communist regime.

And at the same time, these Western countries have seen corruption from the post-communist countries spread into their own countries as those who have received such illegal gains seek to launder them through Western banks.

The World Bank report appears to represent a potentially significant shift in the way the bank does business with this region. Some critics of the bank insist that its loans, made on the basis of the old paradigm of how to promote economic change, have only added to the problem. But bank officials, including the authors of this report, insist that they have already begun to factor in its conclusions as they make decisions about new loans.

To the extent that this document does become a turning point at the World Bank, its basic argument would suggest that that international financial institution may now invest more in social and political infrastructure, helping to build better court systems and other programs as a means to promoting economic change.

That would mark a major departure from the bank's past approach. Moreover, such recommendations could put it at odds with some of the preferences expressed by some of the governments who are its largest shareholders who likely will continue to press for money to go to strictly economic projects.

But even if that happens, this report is likely to play an important role in sparking a new debate in the West over just what it will take to help the formerly communist countries of this region make the transition and thus contribute to a better understanding of both the possibilities these countries have and the difficulties they and the West continue to face.