Do donors promote corruption?: the case of Mozambique

Abstract

Donors inveigh against corruption, yet give more aid to corrupt governments. Debate continues on the causes of developing country corruption, but with little consideration of the possibility that the behaviour of donors may unintentionally promote corruption. This article looks at the example of Mozambique, where corruption grew rapidly in the 1990s. It argues that the donor community is prepared to tolerate quite blatant corruption if the elite rapidly puts into place ‘market‐friendly’ policy changes. The article notes that the Mozambican elite is divided, but the group which challenged high level corruption also criticised World Bank adjustment policies; donors opted for the corrupt faction that told the donors what they wanted. Donors try to avoid the issue by concentrating on institutional reform, which the corrupt faction has so far been able to bypass. The issue is compounded by Mozambique's reputation as one of the World Bank's few success stories in Africa, and donors are reluctant to besmirch that image by publicly raising the corruption issue.

Notes

Joseph Hanlon is at the Open University, Milton Keynes MK7 6AA and can be reached at 7 Ormonde Mansions, 100a Southampton Row, London WC1B 4BJ. Email: [email protected].

S Pradhan et al, Anticorruption in Transition‐A Contribution to the Policy Debate, Washington, DC: World Bank, 2000, p 35, at http://lnweb18.worldbank.org/eca/eca.nsf/General/D74DB51B2D46615D8525695B00678C93?OpenDocument.

J Svensson, ‘Foreign aid and rent‐seeking’, Journal of International Economics, 51 (2), 2000, pp 437–461.

A Alesina & B Weder, ‘Do corrupt governments receive less foreign aid?’, Working Paper 7108, National Bureau of Economic Research, Cambridge, MA, 1999, at http://www.nber.org/papers/w 7108, (italics in original).

P Gastrow & M Mosse, ‘Mozambique: threats posed by the penetration of criminal networks’, paper presented at the Institute of Security Studies regional seminar ‘Organised Crime, Corruption and Governance in the SADC region’, Pretoria, 18–19 April 2002. (Peter Gastrow is head of the Cape Town office of the Institute of Security Studies.)

Details of the banking crisis and scandal were published in J Hanlon, ‘Bank corruption becomes site of struggle in Mozambique’, Review of African Political Economy, 91, 2002, pp 53–72 and in a series of articles: J Hanlon, ‘Matando a galinha dos ovos de ouro’, Metical (Maputo), 17 September–3 October 2001, at http://www.mol.co.mz/noticias/metical/2001/mt010917.html. An English version of the article series, ‘Killing the goose that laid the golden eggs’, is on http://www.mol.co.mz/noticias/metical/2001/en010917.htm.

Domingo (Maputo), 2 December 2001.

N Stern, ‘The role and effectiveness of development assistance’, paper for the UN Conference on Financing for Development, World Bank, Washington, DC, 18–22 March 2002, pp xv, xvi, 39, at http://econ.worldbank.org/files/13080_Development_Effectiveness.pdf. (Stern is World Bank Chief Economist and Senior Vice President, Development Economics.)

D Mans, ‘Consultative Group Meeting for Mozambique, Maputo, October 25 and 26, 2001, Chairman's Opening Statement’. (Mans is World Bank Country Director for Mozambique.)

P Ratilal, ‘Perception of the economy’, Maputo, 11 March 2001.

‘Mozambique: no structural adjustment rewards for poor yet’, United Nations Office for the Coordination of Humanitarian Affairs Integrated Regional Information Network (IRIN), Johannesburg, 10 April 2002, at http://www.irinnews.org/report.asp?ReportID = 27214.

‘1481001E Mozambicans believe their lives are not getting worse’, AIM Mozambique Information Agency, Maputo, 29 October 2001.

UNDP, Mozambique National Human Development Report 2001, Maputo: United Nations Development Programme, 2001, table 17.

‘Mozambique: “Authorities know what they want”—donors’, IRIN, Johannesburg, 9 April 2002, at http://www.irinnews.org/report.asp?ReportID = 27190.

M Mosse, interview with Mia Couto published in Demos, Maputo, February 2001 and quoted in Gastrow & Mosse, ‘Mozambique’.

‘114502E Mia Couto condemns “predatory elite” ’, AIM, Maputo, 24 May 2002.

Gastrow & Mosse, ‘Mozambique’.

J Madeira, Attorney‐General's annual statement to parliament, Maputo, 6 March 2002.

P Fauvet, ‘Cardoso murder: policemen acquitted’, AIM, Maputo, 29 September 2003.

AIM Information Bulletin, 47, May 1980; and J Hanlon, Mozambique: Who Calls the Shots?, Oxford: James Currey, 1991, p 231.

J Hanlon, Peace Without Profit: How the IMF Blocks Rebuilding in Mozambique, Oxford: James Currey, 1996, pp 15–17.

Hanlon, Mozambique, p 269.

The best summary of the growth of corruption is by Graham Harrison in two papers. G Harrison, ‘Corruption as “boundary politics”: the state, democratisation and Mozambique's unstable liberalisation’, Third World Quarterly, 20 (3), 1999, pp 537–550; and Harrison ‘Clean‐ups, conditionality & adjustment: why institutions matter in Mozambique’, Review of African Political Economy, 81, 1999, pp 323–333. By 1996, when I wrote the book Peace Without Profit, corruption was already well known and widely debated, and I commented that ‘Donors have fallen into corrupt practices as well, and may well have led the descent’ (p 144).

L Landau, Rebuilding the Mozambican Economy, Country Assistance Review, Washington, DC: World Bank Operations Evaluation Department, 1998, pp 62–63.

Harrison, ‘Corruption as “boundary politics” ’.

C Castel‐Branco & C Cramer, ‘Privatization and economic strategy in Mozambique’, in T Addison (ed), From Conflict to Recovery in Africa, Oxford: Oxford University Press, 2003, pp 153–170.

Hanlon, Peace without Profit, p 24ff.

A Adedeji, R Green & A Janha, Pay, Productivity and Public Service: Priorities for Recovery in Sub‐Saharan Africa, New York: UNICEF & UNDP, 1995.

Hanlon, Peace without Profit, pp 2, 4.

Hanlon, Mozambique.

Full details of the banking scandal are given in Hanlon, ‘Matando a galinha dos ovos de ouro’; and Hanlon, ‘Bank corruption becomes site of struggle in Mozambique’.

Country Assistance Strategy, Report 15067‐MOZ, Washington, DC: World Bank, 1995.

Castel‐Branco & Cramer, ‘Privatization and economic strategy in Mozambique’; and Hanlon, ‘Matando a galinha dos ovos de ouro’.

In 2002 Banco Austral was taken over by Absa Group of South Africa.

Mozambiquefile (Maputo), 317 and 318, January 2003.

‘Heavily Indebted Poor Countries (HIPC) Initiative‐Status of Implementation’, World Bank, Washington, DC, 14 April 2002, p 7, at http://www.worldbank.org/hipc/Status_of_Implemenation_0402.pdf.

Confidential personal communication.

D Mans, ‘Consultative Group Meeting for Mozambique, Maputo, October 25 and 26, 2001, Chairman's Report of the Proceedings’.

Domingo, 2 December 2001.

P Fauvet, ‘Glowing praise for Mozambique from IMF’, AIM, Maputo, 11 July 2003.

Pradhan et al, Anticorruption in Transition, pp 2, 3, 9, 17.

Ibid, p 26.

C Cardoso, ‘Error grave de Chissano’, Metical (Maputo), 18 January 2000; and Cardoso, ‘Deturpação da crítica’, Metical, 21 January 2000.

Hanlon, ‘Bank corruption becomes site of struggle in Mozambique’. This draws on predatory and developmental state definitions by P Evans, Embedded Autonomy: States and Industrial Transformation, Princeton, NJ: Princeton University Press, 1995.

Confidential personal communication.

NORAD, NORAD's Good Governance and Anti‐Corruption Action Plan, Oslo: NORAD, 29 February 2000, (italics in original).

Baroness Amos, ‘Tackling corruption in Africa‐building a new partnership’, speech to a conference 20 May 2002, Foreign & Commonwealth Office, London, at http://www.fco.gov.uk/servlet/Front?pagename = OpenMarket/Xcelerate/ShowPage&c = Page&cid = 1007029391629&a = KArticle&aid = 1021827509969.

‘Helping countries combat corruption’, World Bank, 2002, web page, at http://www1.worldbank.org/publicsector/anticorrupt/helping.htm.

‘Anticorruption: World Bank efforts’, World Bank, 2002, web page, at http://www1.worldbank.org/publicsector/anticorrupt/efforts.htm.

Pradhan et al, Anticorruption in Transition, p 1.

D Mans, ‘Chairman's Report of the Proceedings’, 2001.

The World Bank‐mandated Poverty Reduction Strategy Paper (PRSP) is known in Mozambique as the Plano de Acção para a Redução da Pobeza Absoluta (PARPA), the Action Plan for Reducing Absolute Poverty.

NORAD, NORAD's Good Governance and Anti‐Corruption Plan, pp 19–20.

‘Mozambique: “Authorities know what they want”‐donors’.

Stern, ‘The role and effectiveness of development assistance’, p 39.

Ibid, p xiii.

C Burnside & D Dollar, ‘Aid polices and growth’, World Bank Policy Research Working Paper (1777), 1997, pp 1, 2, 16.

‘Country Policy and Institutional Assessment 2003 Assessment Questionnaire’, World Bank, 2002, at http://siteresources.worldbank.org/IDA/Resources/CPIA2003.pdf.

This is directly important in the Mozambican debate. One of the central demands of the development faction is that some credit be directed to rural areas to promote development outside the capital. If the elite accepted this demand, it would need to make up some of its CPIA score elsewhere, for example by reducing corruption. For the predatory elite, it is win‐win‐if credit is determined by the market and thus stays in the city and benefits the rich (and thus themselves) instead of the poor, they keep a higher CPIA score and are under less pressure to reduce corruption. ‘2002 Country Policy and Institutional Assessment’, World Bank, 2002, at http://siteresources.worldbank.org/IDA/Resources/Quintiles2002CPIA.pdf.

Stern, ‘The role and effectiveness of development assistance’, p 39.

República de Moçambique, Plano de Acção para a Redução da Pobeza Absoluta, approved by the Council of Ministers April 2001, tables 7.4, 7.5, 7.6.

‘Mozambique's Poverty Reduction Program receives strong donor support’, World Bank, press release, 26 October 2001.

Reporting on the statement of the IMF Resident Representative Arnim Schwidrowski to the 2001 CG meeting, Mans says: ‘Mr Schwidrowski observed that, in line with the PARPA's fiscal targets, the framework aimed for a reduction in the domestic primary deficit, excluding bank restructuring costs, to under 5 per cent of GDP.’ Mans, ‘Chairman's Report of the Proceedings’. This sentence makes two very different points. First, to meet tight monetary policies, PARPA does indeed involve a cut in spending. Second, so long as the cap is met, the IMF will allow the government of Mozambique to plug the hole in the banking system outside those spending limits.

Alesina & Weder, ‘Do corrupt governments receive less foreign aid?’.

‘119202E Chissano speaks on investment in Mozambique’, AIM, Maputo, 25 February 2002.

Harrison, ‘Clean‐ups, conditionality and adjustment’.

D Mans, ‘Chairman's Report of the Proceedings’.

Domingo, 2 December 2001.

Additional information

Notes on contributors

Joseph Hanlon

Joseph Hanlon is at the Open University, Milton Keynes MK7 6AA and can be reached at 7 Ormonde Mansions, 100a Southampton Row, London WC1B 4BJ. Email: [email protected].