The IMF Has A Modest Proposal How Governments Can Save $1 Trillion A Year

In a world where government are either totally broke – if they have to rely on organic revenues to offset soaring expenses – or about to unleash hyperinflation – thanks to the “Magic Money Tree” theory which is rapidly gaining acceptance among western socialists everywhere, the IMF has a simple solution how governments around the world can save up to $ 1 trillion every year: just eliminate corruption (because apparently nobody ever thought of this brilliant idea before).

Corruption, which the IMF defined as “the abuse of public office for private gain” distorts the activities of the state and “ultimately takes a toll on economic growth and the quality of people’s lives.” It weakens key functions of the public sector, including the ability to collect taxes or to make expenditure choices in a fair and efficient way, the IMF warned.

Corruption is bad, the IMF further notes, because if in exchange for bribes, “civil servants facilitate tax evasion or corrupt politicians provide ad hoc tax breaks for some people or firms, others will end up facing higher tax rates, and the government may be unable to generate enough revenue to pay for productive spending.”

In what appears to be a lesson in civics for idiots, the IMF said that in addition to increasing government revenue, fighting corruption can also reduce waste and even – in the aftermath of the recent college admissions scandal – help to lift test scores among public school students (although it wasn’t clear just what the connection between government corruption and pod-eating children is at first). It also improves overall public trust in the government, although in a time when populism is all the rage this may well be a lost cause.

“Less corruption means lower revenue leakage and less waste in expenditures, and higher quality of public education and infrastructure,” said the report, pointing out something so blindingly obvious the San Francisco Fed must be green with envy how it didn’t spend $ 100,000 in taxpayer funds to research it first.

The totally insightful observations continued, with the IMF “data” showing that the pattern of lower corruption perception and higher revenues is maintained across developed, emerging and low-income countries.

“Among advanced economies, a country in the top 25% in terms of control of corruption collects 4.5% of GDP more in revenues, on average, than a country in the lowest 25%. The gap in revenue collection is 2.75% of GDP among emerging market economies and 4% of GDP among low-income countries,” said the report.

While the bulk of the report confirms what should have been blindingly obvious to all, it did have some insightful observations, for example pointing out that extractive industries like mining and oil drilling are hotbeds for corruption, as are procurement and the administration of state-owned enterprises.

So how can the world curb corruption in those areas? the Fund focused on transparency and oversight as key corruption deterrents noting that a strong, free press was instrumental as a catalyst (the IMF probably envisions FaceBook as an example of the latter).

“We expected transparency would go together with good fiscal outcomes, but what surprised us is that the effect of transparency is much stronger in countries that have a free press or a (strong) civil society,” said Paolo Mauro, deputy director in the IMF’s Fiscal Affairs department. “And when you have those two together the effect is even stronger.”

Mauro did not comment on recent allegations that some of the biggest distributors of news in the world such as Facebook and Google, are themselves part of the problem in terms of inherent bias and selective filtering of information the company’s principals disagree with.

Mauro and Paulo Medas, a deputy division chief in the same IMF department, co-authored the study, a chapter of the Fund’s Fiscal Monitor, which is being published in parts this week ahead of the IMF’s spring meetings scheduled next week in Washington.

Among other recommendations to curb corruption summarized by Reuters, the Fund calls for the professionalization of civil service, including merit-based hiring, as well as the need for simple tax rules and business codes to avoid the temptation of bribes to navigate them.

The report also recommended technology that can fight corruption. For instance, it said, taking procurement on line is seen as a rapid and inexpensive part of the “anti-corruption puzzle.”

So-called e-procurement “is a relatively cheap initiative that can open competition, so you can have bidders from any place in the country or the world and it makes it very cheap and transparent for companies to bid,” said Medas. Chile and South Korea are cited as examples in the effectiveness of e-procurement, while Rwanda and Georgia show some of the highest increases in revenue collection relative to GDP.

Emerging countries’ dependence on extraction of raw materials for economic development gives them an added incentive to curb corruption and makes success even more important, the IMF cautioned.

The report’s conclusion: “Against this backdrop, and by contributing to growing inequality, corruption undermines trust in government and can lead to social and political instability.”

Ok, brilliant. And now we patiently wait to find which country in a world filled with cronyism, special interests and of course, easy monetary policy, as corruption is better known in polite circles, will take the lead in this noble venture to rid the world of all social and governance evils. And since none will, perhaps what the IMF is really petitioning is for a real life Batman to finally take control of the situation.


ZeroHedge News < click to continue reading