Overview

The experience of the first decade of transition brought about a greater awareness that improved governance and reduced corruption are essential to reach the long-term objectives of poverty alleviation and sustainable growth.   Early work by the World Bank in Eastern Europe and Central Asia showed that corruption is not a one-dimensional problem, but encompasses a range of interaction within the state and between the state and the society, each with its own dynamic.  Later, these were grouped into two types.  The first is state capture which results for private firms and individuals making payments to political officials to influence the design of laws and regulations, encoding preferential treatment for their private interest.  The second is administrative corruption which involves payments by private interests to distort the implementation of bureaucratic rules and regulations in their favor.  The latter weakens to rule of law by undermining the states capacity to impartially implement rules and regulations, and undermines the public’s trust in government.

Though these forms of corruption are not unique to transition countries, they have been exacerbated by the simultaneous reforms necessitated by transition in which the lines between the state and private interest were blurred.  These include redistributing the bulk of state assets to a rapidly emerging private sector in the absence of restraints on anti-competitive behavior, redefining the role of the state, developing a system of political competition, and establishing the key laws and institutions of a market economy.

Although early effort was made to address the growing corruption during the early years of transition, it soon became clear that a new approach was necessary.   Initially, ambitious anti-corruption campaigns floundered, often because key reforms were blocked by vested interest or politicians hijacked the agenda to attack political rivals or the public did not have confidence that things could be actually addressed.  In addition, early uniform approaches did not take into account important differences among countries, like concentration of vested interest, capacity of civil society or the existence of institutional channels of accountability. 

The World Bank’s work in Eastern Europe and Central Asia played an important role by providing objective and transparent diagnostics that help to depoliticize the problem, focus on specific challenges, and provide a tool for building awareness and consensus among a broad range of stakeholders.  The World Bank also helped countries in the region to pioneer a participatory approach to formulating anti-corruption strategies that involves civil society, the private sector and public officials and provided ways to monitor the implementation and outcome in order to keep momentum going.  

One of the earlier and most successful cases has been that of Latvia, which followed up the Bank-Supported diagnostic work, with participatory strategy building, and reforms through the first and second  Latvia Private Sector Adjustment Loans.  Latvia, which was initially addressing mainly administrative corruption shifted focus to state capture when it was revealed by diagnostics surveys that this was a more critical issue.  Today, Latvia has one of most progressive and effective political party and election campaign financing legal frameworks in the European Union. 

Other countries in the region, and across the world, have followed with diagnostics, strategy building and reform.  Nevertheless, despite the progress that is being made, it is important to acknowledge that corruption, once present, is a persistent problem that continues to plague even developed economies and mature political systems.  It requires perseverance, persistence and not least, time.  In addition to the focus on diagnostics, strategy building and reform, the World Bank is now supporting anti-corruption efforts of its clients in Eastern Europe and Central Asia by mainstream these activities in all its projects and programs in the region.