The Covid-19 pandemic has exacerbated already staggering levels of economic inequality in many countries around the world. Now there is a real risk that trillions of dollars meant to support those hardest hit by the crisis may be captured by the wealthy, increasing inequality as countries are saddled with public debt for money lost to corruption.
The International Monetary Fund (IMF) has lent US$ 89 billion to over 80 countries since March. The Fund has sought to ensure that its emergency assistance helps push back on the rising tide of inequality, with IMF Managing Director Kristalina Georgieva giving countries a road-map: invest in health and education, widen safety nets, and ensure access to food; address budget shortfalls through progressive taxation; and cut corruption and wasteful spending.
But there is little in the loan agreements to make governments heed that advice; some even include terms that could actually go against it.
Six months into the pandemic, massive amounts have already been lost due to corruption or malfeasance: Transparency International analyzed media reports about Covid-19 corruption cases and found 19 that included reliable estimates of the public funds involved, spanning 17 countries. In these 19 cases, the total amounted to US$1.1 billion.
Unsurprisingly, an increase in corruption is linked to decreased spending on health and education and increased inequality.
In exchange for emergency assistance from the IMF, most governments have committed to abide by basic transparency and good governance measures, such as publishing contracts and conducting independent audits. But given the scale of the losses already incurred, it is worth reflecting on the extent to which the IMF strategy is working. These lessons learned will be crucial for safeguarding public funds and reducing inequality during a long and uncertain period of economic recovery.
Here are three key steps that the IMF can take to ensure that funding reaches those most in need and does not contribute to inequality.
- Ensure consistency in preventing corruption and misuse of IMF and other emergency assistance
In many of the loans approved early in the pandemic, governance considerations fell through the cracks – even when the IMF’s own staff had identified corruption risks in the country’s recent past. Since then, growing numbers of loan agreements have included anti-corruption commitments. Overall, the IMF’s response to Covid-19 has shown that it is feasible to include specific governance and anti-corruption safeguards in emergency loan agreements.
The IMF should extend these measures to all countries. One way to do this is by amending its 2011 Policy on Liquidity and Emergency Assistance to make these governance safeguards mandatory and apply them equally to all recipients. This would not only help prevent the misuse of IMF funds, but would also address the lack of consistency in anti-corruption measures in emergency financing that the IMF itself has recognized.
Revising the 2011 policy would also provide a basis for more consistency as the IMF begins to move from emergency loans to other types of funding. The only factor that should determine the level and nature of attention to anti-corruption efforts is the extent of the corruption problem in a given country, not the type of assistance given, nor any other considerations.
- Support implementation of anti-corruption measures with dedicated funding
The IMF deserves credit for the progress it has made in its efforts to tackle corruption, including a sharp increase in candid reporting on the problem and more governance reforms in its programs. But it should also recognize that if it allows governments to pay lip service to reform, it risks undermining the credibility of future commitments.
Emergency funding poses a particular challenge because the money is given to the government up front and in full. Even though many governments promised to publish contracts, conduct independent audits, and take other measures to improve transparency, they have yet to do any such thing now that they have the money. Others may fulfill these commitments only partially or in ways that are not credible.
Some government agencies may lack the capacity to implement the measures effectively. That doesn’t mean the IMF should ignore those commitments. Rather, it should support better governance. With US$1 trillion in lending capacity and so many lives at stake, it is more important than ever for the IMF to ensure that corruption does not cost additional lives.
Dedicated funding for anti-corruption measures as part of IMF assistance would help make sure that sorely needed support reaches those most in need. The IMF should ensure that Covid-19 funding includes a specific budget line for anti-corruption, transparency, and accountability measures.
The IMF should verify and make public an assessment of how each government carries out its anti-corruption commitments. Inadequate implementation should be taken into account in negotiations for future programs. The Fund should also develop guidelines for verifying implementation to ensure consistency and accountability for all future programs.
- Empower civil society
An essential antidote to corruption is a public that can hold its government accountable. Protecting and enhancing the public’s ability to do that should be at the center of the IMF’s strategy to make sure its lending does not exacerbate inequality.
Since the outbreak of the pandemic, there has been a growing recognition of the role civil society organizations can play in supporting accountability. In a positive step, the IMF is increasingly engaging with independent civil society and improving efforts to publicly communicate about IMF programs and policies. But many governments continue to target good governance advocates or enact laws that restrict civil society groups. Even before the Covid-19 pandemic, civil society organizations in many countries faced multiple challenges to their watchdog function. In recent months, the coronavirus has provided an excuse to further restrict civil society and to attack its members.
Civil society organizations can play a key role in monitoring and tracking the use of Covid-19 funds, but they need to be acknowledged as playing a vital role in a broader system. The IMF should be doing all it can to promote the conditions that enable civil society groups to do their jobs.
The IMF should not let its recent improvements make it complacent about corruption. There is still much work to do until it can be sure that the billions it is lending are used to address the economic consequences of the pandemic in ways that help reduce inequality, not make it worse.