Corruption issue in next IMF Article IV consultation

Published October 14, 2021, 12:05 AM

by Diwa C. Guinigundo


Diwa C. Guinigundo

Corruption will definitely be a big issue in the May 2022 election.

The continuing Senate investigation points to some conspiracy to make big money out of the pandemic. This is not without social cost. Many Filipinos paid for it with their lives because there were not enough vaccines, protective gears were found to be defective even if overpriced. Taxpayers’ money was squandered. Lives snuffed out, yes, but for those who have survived the virus so far, livelihood has been lost and the Philippine economy receded to the deepest levels since World War II.

Globally, external source of growth may not be forthcoming. Economic prospects based on the International Monetary Fund’s (IMF) October 2021 World Economic Outlook are dim because they could only comprise “a hobbled recovery along entrenched fault lines.” The advanced economies are the only income group expected to resume pre-pandemic trends by 2022. The Philippines and other countries would take longer.

For this reason, the nation will never forget what brought us to hell in this lifetime.

Yet, corruption continues to thrive.

There is no absence of efforts to fight it. The IMF executive board discussion on systemic corruption on July 21, 2017 should continue to be very relevant. During that meeting, the IMF highlighted the fact that systemic corruption could indeed weaken the prospects for sustainable and inclusive growth.This is crucial in mitigating what many policymakers described as uneven and unequal growth in many emerging markets and developing economies.

This could not be more relevant for the Philippines now that the issue of corruption and plunder has taken the center stage in the Senate hearing while the Palace appears to be obstructing its full unravelling. The fund’s board discussion was based on a 20-year-old document “The Role of the IMF in Governance Issues: Guidance Note from 1997.” That guidance note requires the Fund to take up corruption issue when it is deemed to have significant macroeconomic impact.

The board also clarified that corruption undermines economic sustainability by “impairing the execution of key state functions such as the conduct of fiscal and monetary policies, the design and implementation of market regulations, financial sector oversight, and public order and enforcement.” More acute corruption can exacerbate inequality because it distorts expenditure size and allocation.

In 2018, the Fund issued its “Framework for Enhanced Engagement on Governance.” This is an important document designed to promote more systematic and effective engagement with member countries when it comes to fund allocation and monitoring mechanism.

The framework is anchored on the three pillars of bribery and transparency, money laundering and enforcement. The cases of Mexico and Ukrainesharpened the focus on the importance of identifying conflicts of interest as well as openness and accountability ingovernment procurement.

Given the extent of the global pandemic today, it is very easy to condemn the Fund for “tying COVID-19 aid funding to anti-corruption reforms” as ethically unacceptable. But it is always first best to ensure the benefits of the assistance actually accrue to the recipient citizenry. The reforms needed are not impossible demand because the models and prototypes are widely available. To address the urgency of aid, staggered implementation and liberal release of support should always be an option.

The extreme scenario is the status quo of corruption and protracted pandemic incidence of infection and death, economic recession and extensive scarring.

In this sense, corruption as part of governance vulnerabilities is deemed “macro-critical.”

In the middle of 2021, Transparency International picked up on the Fund’s preoccupation with systemic corruption with its committed of $1 trillion in lending capacity. In their interaction, the Fund reiterated that “entrenched corruption undermines sustainable and inclusive economic growth.” The Fund admitted that while its principles are well laid out and its assessment of the adverse effects of corruption is well structured, its implementation remains weak: “we used euphemisms that clouded discussion of the issue, our recommendations were too general to be operationally useful, and there was room to step up our collaboration with other international organizations.”

With or without the Fund, we should resist possible misuse or utter loss of public funds for pandemic containment especially if they are borrowed. We should push for greater transparency and accountability.

Yes, the Fund has always relayed to member countries availing of emergency financial assistance to spend as much as what is needed, but to spend it wisely. Good governance and accountability are most important.

But what about those member countries that do not borrow from Washington but nonetheless exposed to global capital markets, and their own debt markets?

Last Tuesday’s Fund downgrade of growth forecast of the Philippines from 5.4 percent to only 3.2 percent in 2021 could only be attributed to the Delta variant and its impact on growth. Nothing seems to have been mentioned about the economic loss from corruption.

Therefore, we expect the Fund to raise the issue of systemic corruption in the next Article IV consultation with the Philippines.

There is such a thing as omission bias. In English: “If you’re not part of the solution, you’re part of the problem.”

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