Front Matter

Front Matter

Sanjeev Gupta, and George Abed
Published Date:
September 2002
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Governance, Corruption, & Economic Performance

George T. Abed

Sanjeev Gupta


International Monetary Fund

Washington, D.C. 2002

© 2002 International Monetary Fund

Production: IMF Graphics Section

Cover design and charts: Sanaa Elaroussi

Typesetting: Alicia Etchebarne-Bourdin

Cataloging-in-Publication Data

Governance, corruption, and economic performance/editors, George T. Abed, Sanjeev Gupta—Washington, D.C.: International Monetary Fund, [2002].

p. cm.

  • Includes bibliographical references.
  • ISBN 1-58906-116-0

1. Political corruption—Economic aspects. 2. Political corruption—Economic aspects—Developing countries. 3. International Monetary Fund. I. Abed, George T. II. Gupta, Sanjeev. III. International Monetary Fund.

JF1081.G67 2002

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The following symbols have been used throughout this volume:

  • … to indicate that data are not available;
  • — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
  • – between years or months (for example, 2000–01 or January-June) to indicate the years or months covered, including the beginning and ending years or months;
  • / between years (for example, 2000/01) to indicate a fiscal (financial) year.

“Billion” means a thousand million.

Minor discrepancies between constituent figures and totals are due to rounding.

The term “country,” as used in this volume, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.


For some time now, the IMF has recognized the important role of good governance in influencing economic performance. The IMF’s role in this area is founded on its mandate to promote macroeconomic stability and sustained noninflationary growth in member countries. Poor governance and widespread corruption cut into government revenues and lead to wasteful spending, thereby weakening the macroeconomic position of a country. Corruption also impinges on the effectiveness of the state, and erodes the confidence of the public in its institutions and policies. It is against this background that the IMF is actively promoting good governance in member countries through enhanced surveillance; the promulgation of standards and codes of good practice in the fiscal, monetary, and statistical areas; technical assistance to strengthen institutional capacity; and specific measures to address particular instances of poor governance and corruption in IMF-supported programs. While the IMF provides member countries with the know-how and the tools, the main responsibility for tackling these problems resides with the countries themselves.

The increased involvement of the IMF in governance issues has been facilitated by the growing consensus in the economics profession and in the international community at large on the adverse effects of corruption on economic performance. Recent empirical research, including that presented in this volume, documents the detrimental impact of corruption on economic growth, inflation, public finances, investment, poverty, and the provision of social services. In particular, studies demonstrate how weak and poorly run institutions fall prey to vested interests which, in effect “capture the state” and then use their power to preserve monopolies and extract rent, hinder competition, and inhibit economic reform. Corruption is equally damaging when those in positions of authority exploit their public trust to achieve personal gain. Such practices not only impose additional taxes on the economy, they also undermine the rule of law, which is essential to the proper functioning of a market economy.

In such situations, governments must be prepared to challenge vested interests and root out corruption. They need to foster transparency in the management of public funds and in the legal and regulatory frameworks, and must establish competent and impartial courts of law, trustworthy law enforcement agencies, and better trained, properly paid civil servants and judges. The global consensus on the importance of good governance can be effective only on the basis of the increased willingness and commitment of authorities to foster a transparent and accountable system of government at the national level. The IMF has always been ready to work with member countries to identify ways to reduce the risks of mismanagement and corruption in its areas of expertise. A case in point is the heavily indebted poor countries, where the IMF is working closely with the World Bank and national governments to ensure that additional spending, facilitated by the recently launched initiative to reduce their debt burdens, is channeled into programs that reduce poverty. This requires that concerted efforts be made to strengthen institutional reforms, especially in the areas of public expenditure management.

I welcome the publication of this volume. It has consolidated research by IMF staff on the impact of corruption and poor governance on macroeconomic performance. I hope that it will stimulate further research and wider discussion on this vitally important topic, both within and outside the IMF.

Horst Köhler

Managing Director

International Monetary Fund


This volume is a product of the collective effort of many individuals. In particular, we are grateful to the contributing authors for their papers. Most papers were originally issued as IMF Working Papers and the revised versions of some these papers were published in journals and other volumes. Thanks are due to Edward Elgar Publishing, Elsevier Science, Ltd., North-Holland Publishing Co., Routledge, and Springer for allowing us to reprint these articles.

Staff of the Fiscal Affairs Department’s Expenditure Policy Division provided valuable assistance. We are particularly grateful to Hamid Davoodi, Luiz de Mello, Shamit Chakravarti, Erwin Tiongson, and Meike Gretemann for their assistance and advice in compiling this volume. Special thanks are due to Suzanne Alavi, who managed the correspondence with authors and publishers and prepared the volume for publication. Esha Ray of the IMF’s External Relations Department edited the manuscript and coordinated production.

The views expressed are those of the authors and do not necessarily reflect those of the IMF.

George T. Abed

Sanjeev Gupta



George T. AbedDirector, Middle East Department, IMF
Rosa Alonso-TermeEconomist, Office of the Vice President, Economic Policy and Poverty Reduction, World Bank; formerly Economist, Fiscal Affairs Department, IMF
Matias BarensteinDepartment of Economics, University of California at Berkeley
Sheetal K. ChandProfessor of Economics, University of Oslo, Oslo, Norway; formerly Advisor, Fiscal Affairs Department, IMF
Joshua CharapSenior Economist, European I Department, IMF
Era Dabla-NorrisEconomist, IMF Institute, IMF
Hamid R. DavoodiEconomist, Fiscal Affairs Department, IMF
Luiz de MelloSenior Economist, Fiscal Affairs Department, IMF
Dhaneshwar GhuraDeputy Division Chief, African Department, IMF
Sanjeev GuptaAssistant Director, Fiscal Affairs Department, IMF
Emine GürgenFormerly Assistant to the Director, European II Department, IMF
Christian HarmProfessor of International Business, University of Münster, Minister, Germany
Jean HindriksAssistant Professor of Economics, CORE, Université Catholique de Louvain, Louvainla-Neuve, Belgium
Michael KeenAdvisor, Fiscal Affairs Department, IMF
Carlos LeiteEconomist, African Department, IMF
Paolo MauroEconomist, Research Department, IMF
Karl O. MoeneProfessor of Economics, Department of Economics, University of Oslo, Oslo, Norway
Abhinay MuthooProfessor of Economics, University of Essex, Colchester, United Kingdom
Raju SharanDeputy Controller General of Accounts, Government of India, New Delhi, India
Vito TanziUndersecretary of State at the Ministry of Economy and Finance, Rome, Italy; formerly Director, Fiscal Affairs Department, IMF
Erwin R. TiongsonSenior Research Officer, Fiscal Affairs Department, IMF
Paul WadeSenior Economist, IMF Institute, IMF
Beatrice WederProfessor of Economics, University of Mainz, Mainz, Germany
Jens WeidmannSecretary General, German Council of Economic Experts, Bonn, Germany
Thomas WolfAssistant Director, European II Department, IMF
Caroline van RijckeghemProfessor of Economics, Faculty of Arts and Social Sciences, Sabanci University Campus, Istanbul, Turkey; formerly Economist, Research Department, IMF

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