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Exhibits
White Paper As Panama moves toward gaining greater control of its own economic destiny, corruption stands as a major obstacle to attracting the level of investment necessary for privatizing state-owned enterprises and developing the Canal areas. Failure to address the corruption issue will threaten the Canal’s economic viability, reduce Panama’s ability to replace income lost from the United States’ withdrawal from Panama (five percent or more of GDP), and risk further weakening an already sluggish economy. A host of nations and, most recently, the United States have identified corruption in Panama as a major deterrent to trade and investment. The international community views Panama's business and government as pervasively corrupt. To counter this perception, it is crucial that legal reforms be implemented and enforced to reduce corruption and to permit full recourse for companies that encounter difficulties. This involves implementing policies that curb bribery and corruption, assuring adherence to international conventions that criminalize such practices, and establishing strong enforcement and watchdog agencies. Without these measures, Panama’s past will continue to haunt its future. Noriega’s
legacy of corruption and Panama’s weak anti-corruption laws have raised
doubts about Panama’s ability to operate the Canal efficiently and
to transform former U.S. military installations for productive uses.
Panama needs to persuade the international maritime community, investors,
and governments that it can offer legal certainty to investors and
that it can operate the Canal responsibly without political influence
and corruption. What is corruption? Corruption
is the use of public office for private gain. It involves competition
in bribery rather than competition in the quality and price of goods
and services,[1]
and it adversely affects the flow of public and private funds for
investment. Why is this important to Panama? Panama needs large inflows of foreign investment to stimulate its sluggish economy and replace income lost from the United States’ withdrawal from Panama (five percent or more of the GDP, as well as 6,000 high paying jobs). Panama’s growth rates are too weak to significantly reduce its high, 14 percent unemployment rate. In the last four years, Panama’s GDP averaged just two percent growth, far below what is needed to sustain development, create jobs, and raise the standard of living. With an estimated value of US $5 billion, the former Canal Zone will be critical in shaping the actual growth of Panama’s economy in the next 10 years. The complex shipping and cargo-processing activities related to the Canal are the crown jewel of the government’s economic plans to attract foreign investment. In short, the reversion of the Canal areas and the transfer of the Canal to Panamanian control at the end of 1999 offer an opportunity for Panama to mold its political and economic future and become a model of sustainable development in Latin America. This transition presents a unique opportunity to fully develop the Canal areas into commercial enterprises that create jobs, raise national income and foster economic growth. But Panama’s chance of success in this endeavor will be greatly diminished unless it adopts sound anti-corruption measures that dish up stiff criminal penalties for corrupt practices that now plague and hinder Panama’s economic growth. Criminalization
of corruption is not only an ethical and legal issue, but also an
economic one. In Italy, for example, following recent investigations
and trials on widespread corruption cases, the cost of many public
works or services fell by up to 30 percent. When a bribe is paid to
secure goods or services, it raises everyone’s costs and therefore
penalizes consumers, distorts public sector contract awards, and reduces
government revenues. Panamanian consumers, as well as the country
as a whole, can gain substantial economic benefits from corruption
reform. Bribery is now punished internationally Following
the recent entry into force of the OECD Anti-Bribery Agreement, a
number of Panama’s investment partners have taken measures to criminalize
bribery of foreign officials. The OECD resolution was a landmark;
it set a new international standard against corruption. In this international
climate, Panama cannot afford to continue operating in anything less
than a fully transparent business environment. This means compliance
with new international standards on corruption and strict enforcement
of anti-corruption laws. A case against corruption Corruption generates inefficiencies by permitting the best briber to be the recipient of government contracts, regardless of whether that briber is the most efficient. In addition, since the cost of bribes is included in the price of the goods produced, demand tends to be reduced, the structure of production tends to become biased, consumption falls below efficiency levels, and government revenues suffer. In
a recent World Bank survey of more than 150 high-ranking public officials
and key members of civil society from more than 60 developing countries,
the respondents ranked public sector corruption as the most severe
impediment to development and growth of their economies. The costs of corruption can be summarized in the following categories[2]: · Wasted resources. If corruption takes the form of a kickback, it diminishes the amount of resources available for public use. Corruption also results in productivity losses because the prospect of payoffs can lead officials to create artificial scarcity and red tape. Corruption increases the price of administration—a price that taxpayers ultimately pay. · Allocation distortions. Corruption causes decisions to be weighted in terms of payoffs rather than human need or efficiency. It undermines the state’s ability to raise revenues and leads to ever-higher tax rates. · Increased transaction costs and uncertainty in the economy. · Inefficient economic outcomes. Corruption impedes long-term foreign and domestic investment and misallocates human and other resources to rent-seeking activities. · Undermined state legitimacy. Incipient democracies such as Panama’s are unlikely to succeed if corruption and bribery are the principal objectives of running for office. Investors are reluctant to invest in unstable democracies because it increases their costs and risks. Corruption decreases the state’s ability to provide essential public goods, which in turn affects development prospects. In addition to the strong economic repercussions of corruption in Panamanian development, there are important political considerations. As recently as the 1990s, governments have collapsed in part because the people they governed would no longer tolerate the corruption of politicians. The indignation of ordinary people has been reinforced by an alliance of aid donors, lawmakers and businessmen who had previously simply wrung their hands. These changed attitudes have led to enforcement and judicial actions in some countries. In
Latin America, bribery charges resulted in the impeachment of Brazilian
president Fernando Collor de Mello and Venezuelan president Carlos
Andres Perez, as well as the resignation of Ecuadorian president Abdala
Bucaram. In Mexico, President Carlos Salinas de Gortari was shadowed
by his brother’s illicit accumulation of huge sums of money. Colombian
president Ernesto Samper avoided impeachment over his acceptance of
campaign funds from the Cali drug cartel, but the incident eroded
his political authority and caused his party to lose the last presidential
election. Does corruption have some advantages? Some
sectors argue that bribery can have positive effects under certain
circumstances because it gives firms and individuals a means of avoiding
burdensome regulations and ineffective legal systems. This argument,
however, ignores the enormous discretionary power that many politicians
and bureaucrats have over the creation and interpretation of non-transparent
regulations. Instead of corruption being the grease that facilitates
business, it fuels the growth of excessive, discretionary and non-transparent
regulation. The argument that corruption enhances efficiency by expediting
transactions is also questionable. Just the mere likelihood of bribery
causes the process to slow down or even stall. Enterprise managers
tend to spend a greater share of management time with bureaucrats
and public officials negotiating licenses, signatures and taxes.[3]
Recommendations In
order to attract needed investment and establish a stable political
climate for sustainable growth into the 21st century, it is imperative
for Panama to introduce, implement and enforce anti-corruption measures.
This is a critical time in Panama’s history. Academics, the private
sector, civil society, NGO's, political parties, the judiciary, legislators,
and government workers, all sectors of society need to join in achieving
the common national goal of becoming a model of sustainable development
in Latin America. The following are important components of a strategy to curb corruption in Panama · Watchdog agencies. Such agencies need to be established and empowered to monitor public officials' behavior and compliance with anti-corrupt measures. · Training and institutional restructuring. Training and restructuring efforts will be important in reducing opportunities for corruption. As part of the restructuring effort, diagnostic surveys might be employed (e.g., public service delivery surveys, enterprise surveys, and public official surveys that the World Bank could support). · National Advisory Committee. This committee should represent all sectors of society. Its task would be to guide the reform process by recommending measures designed to foster public support and identifying practices and procedures that are conducive to corruption. · Judicial reform. The judicial system can play an important role in limiting corruption at all levels of government by monitoring both civil servants and politicians and by holding government employees accountable in the event of wrong doing. Additionally, the judiciary needs to be given complete independence and provide fair and prompt conflict resolution. · Empowering the Ombudsman. The Panamanian ombudsman needs to have constitutionally defined powers and full authority to investigate non-jurisdictional activities of the judiciary. · Civil service reform. Preventive measures to deter corruption need to be taken. These measures include standards of conduct for public officials, mechanisms to enforce these standards, stricter penalties for wrongdoing, and improved procedures for government hiring, government procurement, and tax collection. · Regulatory reform. Panama’s regulatory system needs be based on transparency principles—principles that help assure that laws and regulations provide desired social and economic objectives without unnecessarily burdening economic activity. Additional actions will be needed to improve Panama’s international image: · Implement the OAS Convention Against Corruption. Panama ratified the OAS Convention in 1998. Now it must adopt legislation needed to implement it. The Convention requires governments to cooperate with foreign government efforts to investigate and prosecute corrupt acts, including cooperation where extradition is called for and assistance in recovering illicitly acquired property or wealth. The Convention further requires governments to criminalize bribery, transnational bribery, and illicit enrichment, and it discourages the use of bank secrecy laws as the basis for withholding cooperation from investigations of corruption. · Adopt the OECD Anti-Bribery Agreement. Through the OECD Agreement, Western-based multinational companies are being required by their governments to work together to limit the amount of bribery in which they engage. As a result, multinational corporations will be more careful where they invest. If Panama wants to offer legal certainty to investors, it should voluntarily adopt the OECD Anti-Bribery Agreement just as Argentina, Brazil and Chile already have. · Request IDB/World Bank assistance. By requesting the World Bank's Anti-Corruption Action Plan assistance, Panama can receive support and technical assistance for reforming institutions and implementing anti-corruption programs. The WB program offers diagnostic surveys, training workshops and policy advice and focuses on capacity building. Panama can also request IDB assistance for implementation of the OAS Convention Against Corruption. · Participate in International Trade Fora. Panama’s active participation in international trade organizations will help convey Panama’s commitment to creating a stable and predictable environment that protects investment. By becoming a full participant in the FTAA Working Group on Investment, Panama will signal its commitment to establishing a fair and transparent legal framework. Panama can also take an active role in the WTO Working Group on Government Procurement in order to address trading partners’ negative evaluations of its investment climate and procurement regime. Failure to take action against corruption not only prolongs the problem but could drag Panama even closer to the backwaters of developing nations. Just as the Communist countries deluded themselves in the 80s, we too can delude ourselves that conditions will improve even if we don’t make the tough choices necessary to rid Panama of the damaging effects of corruption. Alternatively, we can take action to curb corruption and move toward sustainable development. [1]
Langseth, Peter, Rick Stapenhurst and Jerey Pope, The Role of a
National Integrity System in Fighting Corruption, The Economic Development
Institute of the World Bank, 1997, p.1. |
