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24 June 2008

2508) Democracy and Corruption in Armenia by Vardan Djaloyan

Until recently bribery was considered to be a moral problem, not a social-political one. Consequently, as in the case of other criminal offences, it deviated from the norm.

However, bribery is paradoxical to the extent that while it is considered to be a punishable offence according to the criminal code, it can be considered a non-punishable offence by the society at large, i.e. “doing a favor”. Or how does one calculate a non-monetary bribe, a service in return for a service rendered. Isn’t it perhaps a form of market relations, I for you and you for me? . .

In the case of a simple offence there is the wronged party who is interested that the crime be made know to the appropriate bodies but when it comes to bribery both sides are interested to conceal the matter. We more or less know the exact number of murders that take place but we can’t even approximately state the number of bribery transactions.

What exactly does it mean when a member of the opposition accuses the regime of presiding over a rise in corruption? What high level stratum of the government has started to take bribes? Or is it the case that rank and file citizens are increasingly coming into contact with such cases or perhaps that the society at large is starting to be concerned with the scope of that manifestation? What is the threat to society resulting from corruption? Usually it’s considered that it impedes development. But while the levels of corruption are considered high in Taiwan or South Korea, those countries are developing at fast rates.

The other side is political. Corruption is one of the weapons of the “cold war”. Those in the third world who raised their voices about corruption were immediately suspected of revolutionary-communist offences. In 1968 Huntington wrote that, “who ever bribes a police officer, an employee of the state, is more inclined to see himself as siding with the system than one who stands up to the officer.” There are only a few places where the reality of the “cold war” still exists and Armenia is one of them.

Today, it’s not the bribe taker that’s viewed as corrupting the state institution but rather that it is the institution that is corrupting the “chenovnik” (state bureaucrat) that works there; that it’s a question of political choice. There’s a certain kind of politics that assists the development of corruption and there’s another type that oppresses it. This is an interesting approach to the extent that corruption is no longer viewed as a phenomenon particular to non-developed cultures. This means that poor nations are corrupt but poor are those nations where corruption is widespread.

After this, when corruption was depoliticized, it freed itself from a cultural viewpoint. Here the essential factor, as defined by Transparency International, was that even the implementation of a correct political policy wasn’t sufficient to realize development. When this organization published its famous index in 1994 it precipitated a real scandal even though just a few considered and still consider the methods used by this organization to be scientific. Corruption became an important issue given that it was shown:

1. All other conditions remaining equal, corruption prevents the flow of foreign investment.
2. It negatively impacts on the interests of the needy strata in society.
3. It distorts the logic of state investment - investments are directed to those sectors where the potential for corruption is greatest, as in construction, etc.

From this perspective there are several international bodies that have shown an interest in fighting corruption - the United States, to protect its trade interests; the World Bank, to prove it plays a necessary role; transnational companies, to struggle against local patronage and to facilitate securing new markets; institutions of civil society, to increase their popularity rating in the eyes of the populace. The anti-corruption struggle is the only sector where the neo-liberal politics of government restrictions is not subject to criticism from democracy activists. Neo-liberal management, as an anti-corruption prescription, proposes the lessening of the government’s role in economic life and restricting the intervention of government in the economic sector. Activists for democracy demand an effective government and a struggle against the role played by money in politics, starting with election bribes and ending with restricting the political participation of giant corporations.

The neo-liberal approach condemns bribery payments to foreign state bureaucrats as something that distorts the competitive struggle within the economy. But it says nothing about the corruption of political parties and leaders internationally. Due to such corruption a given elected government is co-opted.

In the political program of the Prosperous Armenia party it is written that it is necessary to lower taxes since most commercial enterprises aren’t prepared to pay them anyway. This is the neo-liberal model of fighting tax corruption. On the contrary, a democratic society is in favor of tax revenues and an increase in the tax burden. During the last year in Armenia there’s been a tense battle between these two approaches. It is not always the case that international organizations assist democratic communities. Democrats, in turn, overlook these differences since the battle against corruption is so morally charges that in their eyes any and all means are justified when fighting against it. To state the contrary signifies to go against the logic of the political struggle and to loose the confidence of voters.

The differences in the neo-liberal and democratic approaches were best expressed by the notoriously famous American investigative reporter Greg Palast. He was able to get his hands on some internal World Bank documents which he then posted on his website: http://www.gregpalast.com. These documents state that the World Bank generally obligates participating government to sign a secret contract whereby the government in question agrees to sell-off the most important of state-owned enterprises at terms set down by the World Bank and to implement measures which, according to Mr. Palast, “have tragic consequences for the population.” There is also a scenario regarding what the country can expect in the case that it doesn’t go along with the wishes of the World Bank. As a case in point, the BBC and Observer muckraking reporter cites the example of Argentina.

The Argentine secret plan was signed by former World Bank President James D. Wolfensohn. For the Argentine crisis Greg Palast blames the World Bank and the IMF as forcing the country to sell state property including the heating supply system, something that “even the United States is prepared to sell.” Mr. Palast writes that, “the people pay taxes, state property is created on the basis of those revenues and the government then hands it over to the World Bank and the IMF. Billions are then deposited into the Swiss bank accounts of these political leaders.” The World Bank handed over the bulk of the Argentine state property to the infamous Enron Corporation. After this corporation went bankrupt these funds showed up in the accounts of a dummy corporation and then vanished out of sight.

The observations of Greg Palast are backed up by Joseph Stiglitz, who served as the Chief Economist and Vice-President of the World Bank between 1997 - 2002 and who shared “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” in 2001. He was one of the chief critics of the Russian reforms package. According to Stiglitz everything proceeds along four steps.

The first step is privitization. Here, the denationalization of the water and electricity systems assumes particular importance. “You should have seen the eyes of the local political leaders light up at the prospect of amassing huge broker fees for these billion-dollar transactions. During this stage local oligarchs “spring-up” who soak up industrial assets. As a result, the gross domestic product (GDP) takes a nose dive.

The second step is the freeing-up of market capital. Theoretically, this is intended to attract foreign investment but in reality capital essentially flows outwards. Stiglitz call this a “hot money cycle”. Cash is placed into real estate and currency speculation and “escapes” at the first sign of trouble. The profit rates on money inflows start to rise, even reaching usury levels (in the U.S. it’s an annual rate of 75%). The state treasury is emptied out.

The third step is the freeing up of prices - a happy medium for a price rise for foodstuffs, water and gas.

A transitional phase - “IMF induced unrest”

“When a nation is oppressed and beaten-down the IMF sucks out the last drop of blood. It increases the pressure unti the boiler explodes” writes Greg Palast. This is what happened in Indonesia in 1998 when foodstuff and heating subsidies intended for the needy were pulled and in Ecuador in 2001 when the same happened with gas subsidies.

For example, in the World Bank document entitled “Interim Country Assistance Strategy for Ecuador”, it is written in cold black and white that the reforms can bring about “social unrest”. “IMF unrest”, (which Palast defines as the dispersal of peaceful protestors by firearms, tanks and tear gas), will lead to a new exodus of capital and the bankruptcy of the government. Foreigners will be able to seize its devalued property.

The fourth stage is free-trade, according to the World Bank and the World Trade Organization (WTO), which Stiglitz describes as a “new opium war”. If military blockades were used during the “old opium wars”, today the World Bank is able to execute the tactics of a financial blockade, something that can prove “just as deadly”.

According to Stiglitz since those plans stem from the ideological principles of neo-liberal absolutism and are secretive, i.e. they are not subject to debate, in essence they “destroy democracy”.

Secondly, the reforms of the World Bank don’t work. As an example we can bring the World Bank’s “Fight Against Poverty Program”. At the end of 2006 the report of the Independent Assessment roup was publ;ished. The Gropup analyzed the data collected from 25 countries. In 11 the situation improved. This group included India and China, where such an improvement could hardly be chalked up to the actions of the World Bank. The situation in the reamining 14 countries either remained unchanged or got worse.

Stiglitz brings the example of Botswana, a nation which refused the services of the World bank. He advises an “attack on the oligarch” and to build upon internal resources, etc.

However, let’s conclude this detective story. The situation in Armenia is different from Indonesia or Ecuador and absolute parallels could not exist in any event. But there is also one more burdensome factor. Besides the World Bank there is also Russia to contend with. This means that the solution to our problems will be twice as difficult.

June 23, 2008

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