Tom Shipley is a Research Fellow at the Centre for the Study of Corruption, embedded within the GI ACE programme. His work focuses on state capture in Sub-Saharan Africa and the role of international institutions in driving anti-corruption reform. Liz Dávid-Barrett is Professor of Governance and Integrity at the University of Sussex and Programme Director of GI ACE and the Director of the Centre for the Study of Corruption. Her research focuses on corruption risks at the interface of business and government, including in state capture, public procurement and bribery in international business – and on approaches to countering these risks, including transnational governance networks in law enforcement and investigative journalism.
State capture is an especially intractable form of corruption and the routes to countering it are narrow. Capture is orchestrated by well-resourced, resilient networks which have strong interests in preserving the status quo. Even when political windows to tackle captor networks arise, capture leaves a lasting imprint on the organisation of state institutions and reform is an uphill task.
Puzzling over how best to respond to capture has led us to look at the roles that various domestic and international actors play in reform processes. One organisation which often flies under the radar is the International Monetary Fund (IMF). Yet it has major lending programmes in many countries where state capture is deeply intertwined with developmental challenges, from the Democratic Republic of Congo to Egypt to Pakistan. Whether it likes it or not, the Fund is in this fight.
In this blog, we explain how the Fund has been expanding its work on corruption and set out some opportunities and risks around its engagement in countries affected by state capture.
In some respects, the IMF is an unlikely anti-corruption champion. Its core mandate is to promote global financial stability and it purports to be strictly apolitical. The Fund is also a relative late comer to anti-corruption work: while its sister organisation the World Bank and other international development agencies took up the anti-corruption mantle from the late 1990s, until the 2010s the Fund’s direct engagement on corruption was sporadic at best and limited to a few countries.
Saying it how it is: state capture causes economic crises
Things started to change under former Managing Director Christine Lagarde (2011 – 2019). Together with advocates in the legal department, Lagarde made the case that corruption was economically “macro critical” and therefore deserving of the Fund’s attention. By now, there were plenty of countries where state capture and grand corruption had clearly tanked the economy. But still, these were highly political issues and thus the Fund’s commitment, in its 2018 Revised Framework for Enhanced Engagement on Governance, to be more “candid” when talking about corruption was a radical departure from business as usual.
Moreover, it was accompanied by some concrete actions. Alongside the new approach to anti-corruption, the Fund launched a governance diagnostic process through which it has conducted assessments of corruption vulnerabilities in more than 20 countries. There has also been an uptick in the proportion of Fund programmes incorporating governance-related conditionality.
Although reluctant initially to use the language of “state capture”, some staff at the Fund have clearly been attuned to the problem for many years. A 2016 IMF paper for instance outlined economic harms from the “privatisation of public policy”, a recognition that corruption may entail not only breaking rules but also, as in state capture, perversions of the law-making process itself. Its recent governance diagnostic assessment on Pakistan was much bolder, explicitly naming state capture as part of the problem.
Will the Fund be able to help in the fight against state capture?
The Fund’s track record on governance matters remains controversial, however, and its work in this area is complicated by its mandate and idiosyncrasies as an organisation. How then should we think about the IMF’s role in countering capture?
The opportunities
We see three principal advantages from the Fund’s engagement which might be harnessed to counter capture:
- Financial accountability: The IMF’s lending operations provide a lifeline to governments facing acute financial difficulties. This brings with it considerable leverage and, through the application of conditionality, a financial accountability mechanism for reforms which might be politically unpalatable. In many jurisdictions, the Fund has unparalleled clout and has the government’s ear.
- Distinct expertise: Tax policy and administration, budgeting and expenditure management, Central Bank operations and debt management, are all areas of vulnerability to capture where the Fund’s largely economist staff bring substantial expertise. While the diagnostic reports produced to date have varied somewhat in quality, several have surfaced invaluable information on the mechanisms by which the state is captured in these areas and others.
- Agenda-setting power: Financial clout and expertise combine to provide the Fund with the power to shape reform agendas responding to capture. This can help overcome coordination challenges which have often plagued international interventions on corruption, committing a government and its partners to one clear plan. With this power, though, comes risk. It means that how the Fund reads the governance situation – and prescribes the reforms required and order of priorities – is absolutely critical.
The risks
When it works on corruption, the Fund steps out onto a tightrope. We see three principal risks, relating to:
- Insufficient consultation: Formally, the IMF’s principal interlocutors are governments. National ownership of reforms is a core principle. So what happens if a government borrower has little interest in tackling capture? The Fund does consult with civil society organisations (CSOs) and development partners but in some jurisdictions the depth and quality of these discussions, and the extent to which they truly influence decision-making, have been called into question. Insufficient consultation exacerbates the risk of misdiagnosis and increases the likelihood that governments will favour window dressing over substantive reforms.
- A lack of partners: The Fund’s primary mandate concerns macroeconomic stabilisation. Fund staff know that they do not have the resources, in-country presence, and expertise to single handedly support and monitor well-rounded governance reform programmes. For the Fund to achieve its agenda it needs partnerships with development organisations and CSOs. And yet, just as it has stepped up in this space, others have pulled back amid widespread cuts in funding. This leaves a gap in the Fund’s model for bringing about change.
- Inconsistency: There is no escaping the fact that the formation and implementation of IMF policy are shaped by geopolitical considerations. While the 2018 Revised Framework aspires to equal treatment, there are inconsistencies in the extent to which anti-corruption is made a pillar of country lending programmes. Much of this work to date has taken place in countries with weaker influence on the international stage, raising questions as to whether the Fund is willing to hold the line with more powerful actors. Consistency is essential to credibility.
The Fund’s presence in the anti-corruption space is welcome but it should be understood as an actor which operates under constraints. It has an important role to play in addressing part of the puzzle around responding to capture but it cannot and should not try to do it all. Going forward, its willingness to learn and evolve its approach to this complex problem will be critical to success.
This blog draws on the GI ACE project “Building Resilience to State Capture”. Find out more about the project here.