Bribery & International Monetary Fund

The end of twentieth century and the beginning of new millenium have seen the emergence of bribery from a predominantly political, national or regional concern to an issue receiving global attention. In 1996, the leadership of the World Bank and the International Monetary Fund (IMF) publicly denounced bribery and corruption as an obstacle to economic growth and development.

Both institutions vowed to focus on the role of governance in growth and development and to give greater priority to combating bribery in their own programs. That same year, the Organization of American States (OAS) approved the Inter-American Convention against Corruption while the United Nations General Assembly called on member states to “take effective and concrete action to com¬bat all forms of corruption, bribery and related illicit practices in international commercial transactions” (Elliot, 2).

Elliot defines bribery as “practice by which an individual who can take decision or action on behalf of others by virtue of his authority or position is influenced by paying or offering monetary benefits for influencing him to take an action or decision which he would not have done otherwise” (Elliot, 4). As a result of the resurgence of interest in bribery as a major global issue, there has emerged a considerable research effort devoted towards detemiining the causes, costs, and consequences of bribery.

From the macroeconomic perspective the literature for the most part has focused on the impact of bribery on investment, growth and development, in its analysis of the consequences of bribery. For example, Shleifer and Vishny argue that bribery impedes development and lowers economic growth by discouraging productive investment while Mauro provides tentative empirical evidence for this negative impact of bribery on investment and growth (Shleifer and Vishny, 601, Mauro, 683).

There is considerable evidence to indicate that bribery and corruption are common in foreign trade. The payment of bribes by firms and the receipt of bribes by public officials in the procurement and award of export contracts is a standard business practice in foreign trade. As a high-ranking corporate official has noted, “All of us involved in international business are aware that certain payments to government officials are quite common and an accepted method of doing business in many parts of the world” (Basche, 2).

The US Department of Commerce, National Export Strategy Report (1996), states that since mid-1994, “we have learned of significant allegations of bribery by foreign firms in 139 international commercial contracts valued at $64 billion…Bribery continues to be pivotal in many export competitions, with the bribing companies still winning an estimated 80 percent of the contract decisions” (Tanzi, 363). From practical perspective, bribery manifests in a variety of forms. The bribe need not always be a monetary payment. There are more subtle forms of bribery such as “entertain¬ment expenses”, gifts in kind or gifts of services.

The bribe to influence a favorable decision could be the provision of a “rent-free villa on the French Riviera or an expense-free weekend in Las Vegas” (Jacoby et al, 28). It could be a gift of a house or property or it could be the financing of a relative’s education in the university. In addition to such payments, contacts and networks estab¬lished though ethnic or language links or past dealings may also play a part in influencing the decision to award export contracts. Moreover, the bribe paid in order to obtain an export contract is sometimes regarded as a fixed cost of doing business overseas.

Corruption on the federal level is a pervasive and universal phenomenon. It is a rare industry that has not been tainted by a corruption scandal involving the payment or receipt of bribes in the procurement or award of trade contracts. Incidence of bribery has pned a number of industries, ranging from the aircraft, pharmaceutical, machinery and equipment, and chemicals industries to electronics. For instance, a byproduct of the Watergate investigation of the 1970s was the discovery by the Special Prosecutor that US companies were involved in making illegal contributions of corporate funds to domestic political campaigns.

This led the Securities Exchange Commission (SEC) to investigate these corporations to determine if there had been a violation of federal se¬curities laws. The SEC investigation revealed a number of corrupt practices including the payment of bribes to foreign officials in order to secure business abroad. Over 400 US compa¬nies, including 117 of the Fortune 500 companies, were disclosed to have made questionable or illicit foreign payments in excess of $300 million (Sheffet, 290). One of the more prominent investiga¬tions centered around Lockheed Aircraft.

The SEC found that Lockheed had paid millions of dollars in bribes to high-ranking foreign officials in order to secure aircraft export contracts. Other firms involved in the disclosure of questionable payments associated with export sales were Johnson & Johnson, Colgate-Palmolive Co. , Pfizer Inc. , American Home Products, and others. It was such disclosures that prompted the US Congress to enact the Foreign Corrupt Practices Act of 1977 (FCPA) which outlaws the bribery of foreign government officials by US firms in order to obtain or maintain business abroad.

On a state level corrupt state government is more likely to be involved in transactions that are more personally lucrative rather than those that are more profitable for the state (Shleifer and Vishny, 614-615). In other words, corrupt state officials tend to spend the state budget on sectors which have more bribery and bring more personal gain to them than sectors which have less bribery and less beneficial to them (Shleifer and Vishny, 615).

As a result, state can even change “an investment away from the highest value projects, such as health and education, into potentially useless projects, such as unnecessary infrastructure” (Shleifer and Vishny, 616). Shleifer and Vishny point out that this tendency of corrupt state government suggests that many corrupt bodies of power spend more on defense and security than on public services and interests such as education since the former allows larger opportunities of bribery.

Thus, according to these researchers analysis, corruption shifts an investment from public services to construction contracts; as a result, corruption reduces spending on education, healthcare and other social projects. WORKS CITED Basche, James R. Jr. , Unusual Foreign Payments: A Survey of the Policies and Practices of U. S. Companies, New York, 1976 Elliot, Kimberly Ann, (ed. ) Corruption and the Global Economy, Washington, DC: Institute for International Economics, 1997 Mauro, Paolo, “Corruption and Growth,” Quarterly Journal of Economics, Vol.

110, No. 3, p. 681-711, August 1995. Sheffet, Mary Jane, “The Foreign Corrupt Practices Act and the Omnibus Trade and Competitiveness Act of 1988: Did They Change Corporate Behavior? ” Journal of Public Policy and Marketing, Vol. 14. No. 2, p. 290-300, Fall 1995 Shleifer, Andrei, and Robert W. Vishny. “Corruption. ” The Quarterly Journal of Economics 198(3): 599-617, 1993 Tanzi, Vito, “Corruption around the World: Causes, Consequences, Scope and Cures,” IMF Staff Papers, Vol. 45. No. 4, p. 559-94, D