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Speeches & Transcripts

Opening Remarks by Thailand Country Director on Corruption

June 16, 2015

Ulrich Zachau 3rd International Evidence-based Anti-Corruption Conference at Sukosol Hotel Bangkok, Thailand

As Prepared for Delivery

- H.E. General Prayut Chan-Ocha, Prime Minister of Thailand
- H.E. Panthep Klanarongram, President, National Anti-Corruption Commission
- Dr. Juree Vichit-Vadakarn, Secretary-General, Transparency International
- Khun Kitti Wasinnondh, Honorable Member, National Legislative Assembly

It is my great pleasure to join you today.

This conference is about corruption and evidence-based policies to fight corruption.  What does the World Bank Group know and what have we learnt from our work fighting corruption around the world? 

Corruption is global, it is big, it hurts economic development everywhere, and it hurts the poor the most. 

In 2013, we estimated in the World Bank Group report “The Cost of Corruption” that bribes paid in developing and developed countries totaled US$1 trillion, or 3% of global GDP.

This is huge, and it excludes public funds embezzled and theft of public assets, which makes the total cost even higher.

Corruption reduces economic growth. According to the G20 Anti-Corruption Working Group study, corruption reduces annual GDP growth of countries on average by 2-5%.

Corruption reduces domestic investment. Our report “The Economic and Social Consequences of Corruption in Transition Countries” shows that gross domestic investment is 20% lower on average in countries with high levels of administrative corruption (countries with scores lower than 40 in the World Governance Indicators) and with a dominant state presence in the economy, than in countries with less corruption and state influence in the economy.

Corruption increases inequality. It hurts the poor more than the rich because most often they have to rely on public services and have the least alternatives. In Eastern Europe, for example, a World Bank report finds that more corruption, measured by a worse Transparency International Corruption Perception Index, is associated with more income inequality.

It is best to fight corruption concretely and directly where it occurs. Global experience suggests some key areas and proven ways to tackle corruption. Here are five examples:

1. Tax administration: Corruption in tax inspections leads to losses averaging 15-20% of collections, more in some cases, according to our Business Environment and Enterprise Performance Surveys.

What to do? Administrative measures can go a long way. For example, rotating tax inspectors, putting in a risk-based audit system, rather than a manual selection of auditees, and reducing the discretion of inspectors.

2. Customs and excise tax administration: Research by the OECD estimates that about 1/3 of total customs collections are lost due to fraudulent practices.

What to do? Some countries like the United Kingdom and United Arab Emirates have automated customs, which excise administrations.  A computer scans contents of containers and auto-assigns and validates import duty value. Additionally, customs procedures have been re-engineered to ensure random assignment of officials for inspections. These automated solutions cost less than 1/10th the amount of foregone collections. 

3. Real estate development and natural resource prospecting permits: Media across Asia have recently focused on corruption between real estate developers and public officials who grant construction permits or oversee impact assessments. Extensive literature shows that natural resource extraction companies often secure preferential access to resource rich lands through bribes.

What to do?  Place advertising in local councils and newspapers before granting a construction permit to increase transparency like in Canada, Denmark, and Norway. Also, publish information of land and land ownership so authorities know if certain land parcels have sub-surface resources. This information is vital in pricing permits and in granting licenses.

4. Corporatization and privatization of state-owned enterprises: Crony privatizations after the collapse of the former USSR and Asian economies resulted in more than US$500 billion losses to the public sector while creating uncontested monopolies.

What to do? The World Bank has developed a toolkit on corporate governance of state enterprises focusing on 4 key areas – (i) establishing a sound legal and regulatory framework; (ii) improving the state’s ownership role, including performance monitoring, enhancing financial discipline, and professionalizing boards of directors; (iii) improving transparency and disclosure; and (iv) ensuring shareholder protection.

5. Public procurement of social and economic infrastructure: An EU commissioned report on corruption in public procurement finds that 13% of project costs are lost to corruption. The United Nations also estimate that corruption costs 23-45% of project costs in developing countries. This is huge, and does not even take into account the high financial and opportunity cost of maintaining poorly constructed infrastructure.

What to do? (i) Start with a simple procurement law that mandates open tendering, competition and transparency (ii) apply technology strategically, for example, using e-Auctions for simple standard products and e-bidding for construction, framework agreements for standard bulk goods; and (iii) complete transparency in the entire procurement process by auditing terms of references so it doesn’t fit just one supplier.

Countries like Chile are using innovative procurement monitoring systems. For example, cars with x-ray equipment run on roads and send back real-time data on the thickness of the road; these data are then cross-checked against road specifications, and also used for road maintenance.

Countries in East Africa, for example, have published school and hospital financing information in public areas in communities.

The World Bank Group fights corruption. Fighting corruption is a priority for us, because corruption reduces economic growth, hurts the poor, and is bad for social stability.

 

In the World Bank Group, we systematically use the world’s best fiduciary policies, systems, and practices for projects we help finance, to reduce corruption, ensure transparency, and help improve outcomes. Still, unfortunately, corruption sometimes occurs in projects that the World Bank Group helps finance. When this happens, we respond swiftly and decisively.  

  • The World Bank also provides top-notch technical support to help countries build corruption resilient institutions and implement clean projects.
  • And the World Bank works globally on partnerships fighting corruption with other international and national institutions, governments and non-government organizations, civil society organizations and citizen groups.

In the World Bank, we are also realists. A World Free from Corruption is a goal, not a fact.  In the real world, corruption is everywhere. But we can fight it, effectively, and reduce it. That’s what we do.

Let me end, by thanking you all for coming from different countries to participate in this conference. My best wishes for a successful conference. 

 

 


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