The author is a Director at the World Bank. The views expressed in this
article are his personal views and do not represent those of the World
Bank, its management or the Executive Directors.
Indonesia had pursued relatively good economic policies for the last three
decades and had
succeeded in lifting almost 99% of its population out of poverty. But the
greed and
insatiable ambition to accumulate wealth by a small coterie of the ruling
elite in the 1990s
tipped the balance and more than 180 million people have suffered immensely
during last
one year. People have lost jobs and small businesses have been shut down
because of
recession in the economy, essential commodities can be obtained at much
higher prices and
economic insecurity has become rampant. The value of rupiah had tumbled
from 2,500 to a
dollar to 15,000 before stabilizing around 8,000 in the recent days. A
number of financial
institutions have become insolvent and the country is unable to service
its huge external
debt.
Most large corporations have become bankrupt. It is estimated that the
proportion of the
people living below the poverty line of $1 per day has risen from 10% -
an addition of 27
million to the ranks of the poor. All the impressive development achievements
of the last 30
years are being wiped out. Suharto had to surrender power in the end, his
family had to
lose their financial empire and a large number of members of the elite
class had to flee the
country, but the country is still suffering from political instability,
deterioration in law and
order and ethnic tensions. The damage done by a minuscule segment of the
population for
their personal aggrandizement has cost the country a big setback. Output
and incomes have
contracted by 16% in just one year - a suffering unparalleled in the recent
history of the
world.
Russia - a country with poor economic policies - has also suffered equally
as a result of
widespread corruption of a small class of oligarchs and their benefactors.
Russia had to
declare a unilateral moratorium on its external debt which in fact is a
default on its
obligation. It had to devalue the currency from 7 roubles to a dollar to
almost 17-18
roubles and the reformers had to be thrown out of the office to accommodate
the old
Soviet style of economic managers. Food shortages, inflation rate exceeding
60 per cent in
a two-month period, output contraction of over 10 per cent and widespread
unemployment
will make the coming months a winter of distress for the average Russian.
With its nuclear capability intact, the western governments have bent over
backwards to
pump massive financial flows into Russia but most of the infusion ended
up in the Swiss
accounts of the oligarchs, bureaucrats and those occupying key positions,
particularly in the
oil and gas industry. A country so rich in natural resources, possessing
an educated labour
force, endowed with good infrastructure and favoured by heavy external
assistance has
ended up in serious internal turmoil. Yeltsin, who led the country to its
independence, is the
most unpopular leader today and the prospects for the Communist Party coming
to power
at the next elections are not that remote if the current economic miseries
continue to persist.
These two real world examples have set to rest the debate about the economic
consequences of corruption. It is no longer believed that corruption has
any "facilitating" or
"greasing the wheel" kind of benign effect. There is an emerging consensus
among the
academics as well as the policy-makers that corruption has an inimical
and corrosive
influence on economic development and leads to social instability. The
sooner the societies
wake up and tackle this problem upfront the better off they will be.
We in Pakistan have been talking a lot about the problem but it is time
to learn from the
lessons of Indonesia and Russia. Unless something is done about it the
erosion of the social
and economic fabric of the country which is already underway will be accelerated
and
instead of "muddling through", we would be faced with a rude shock.
In order to come to grips with the problem, it is essential first to identify
the main sources
and channels of corruption in Pakistan. In my view there are six main channels
which give
rise to most opportunities for corruption and if these can be plugged,
the chances are that
its incidence will be minimized.
First is the leakage in the assessment and collection of tax revenues.
The small tax base,
large-scale evasion of taxes and oppression and extortion of honest taxpayers
by the
unscrupulous tax collectors have not only generated consistent shortfalls
in revenues and
large budgetary deficits but promoted a buoyant black economy and conspicuous
consumption by a small class of tax evaders and corrupt tax collectors.
The inequities from
this concentration of ill-gotten wealth are leading to serious social fragmentation.
Second, the government contracts and purchases of goods and services by
different
departments and ministries have conferred huge windfall gains to those
authorizing these
contracts and purchases and those who are building and supplying them.
The recent history
of commissions, kickbacks and foreign deposits is too well known that it
does not need any
repetition but it simply illustrates the gravity of the problem. Not only
the country is stuck
with shoddy and poor quality works and goods and services but the inflated
public
expenditures are one of the main contributory factors in the financial
distress and heavy
indebtedness faced by the country.
Third, the public enterprises and corporations such as WAPDA, KESC, Steel
Mill, PIA
and a host of others under the federal and provincial control have become
a big sore on the
economic landscape of the country. While the managers and employees are
"making hay
while the sun shines" the country is coming to the brink of financial disaster
by absorbing the
losses (man-made) of these enterprises. The public utility bills are out
of reach for a
common hard-working honest family while the breakdown in power, water and
other
services is too frequent. The competitiveness of Pakistan's manufacturing
industries in the
world market is at serious stake because of higher tariffs charged for
the electricity and
other utilities.
Fourth, the nationalized commercial banks and development financial institutions
have made
a few thousand families fabulously rich but made the rest of the population
pay the price for
their malfeasance. The cost of capital has become exorbitantly high and
the access to credit
has been so severely curtailed that legitimate businesses and enterprises
are unable to carry
out their productive activities or expand. No wonder, employment opportunities
are
shrinking and the ranks of the unemployed youth are swelling.
Fifth, the recruitment, postings and transfers in all government ministries,
departments and
corporations are largely made either in exchange of outright pecuniary
favours or on purely
political considerations. The result is that the government offices are
saddled, barring some
honourable exceptions, with incompetent and dishonest functionaries who
are always trying
to please their bosses or political masters while being completely oblivious
to the grievances
of the common man whom they are supposed to serve.
The culture of sycophancy and catering to the whims of those in power has
taken firm roots
and the courage to speak out the truth and render professional and objective
advice to the
politicians has simply died down. While the upper echelons of the bureaucracy
remain busy
in meeting the demands of those in power, the clerks and lower functionaries
harass, extort
and misbehave with the poor public who come to their offices for legitimate
need. The
police officials are perceived as a menace by the ordinary citizen rather
than as a protector
of their life and property.
Sixth, another avenue for making a fast buck and becoming rich overnight,
particularly in
the past, has been to lay your hands on a licence or permit of any kind
- construction,
import, monopoly enterprise or obtain plots of land at highly subsidized
prices and pocket
the difference between the acquired price and the market price. The prices
of both the
commercial and residential property, therefore, soared to levels beyond
the affordability of
a middle class family. The textile export quota has also been misused in
the past to enrich a
chosen few while the country suffers from lower foreign exchange earnings.
It is much easy to diagnose the problem, analyze it and lay it out explicitly
but it is more
difficult to prescribe as to what can be done about it. Fortunately, the
solutions to all the
problems sketched out above are well known - transparency, openness, accountability,
selection on merit, privatization, competitive tendering, removal of discretion
and
enforcement of the rule of law. Some of these elements have been spelled
out even in the
prime minister's own national agenda. But it is the lack of credible implementation
which is
the root cause of the stalled progress.
There are two options for the sane, patriotic elements in the country.
The first is to sink
deeper and deeper into the morass of cynicism and despair and just keep
on complaining
about all the ills and evils that are engulfing us. The other and, in my
opinion, the preferred
option is to organize various forms of civil society groups, raise voices,
keep on highlighting
these issues, use the free press to expose the real instances of corruption
and malpractices
and act as pressure groups. This is already being done by a number of groups
and
committees (Citizens Police Liaison Committee) and is aided by investigative
reporting
done by some respected and reputed journalists and magazines and newspapers.
To this if we add the noble efforts made by people such as late Hakim Said,
Abdul Sattar
Edhi, Akhtar Hamid Khan, Adeebul Hasan Rizvi and many others like them
who are
quietly delivering essential services to the poor, we have a beginning
of a vibrant and active
civil society which should one day make the difference. There are many
committed civil
servants and conscientious judges who have risen to the highest ranks in
present difficult
circumstances. Let us hope that the ranks of such functionaries also expand
over time and
their support to the civil society groups will further strengthen these
groups in fighting this
battle against corruption.