The clouds of corruption via CIPE Development Blog
Going back? via CIPE Development Blog
The ongoing financial crisis is hitting hard countries large and small. The debate on the viability of a market economy in post-communist countries is intensifying, especially as Hungary and Ukraine are teetering on the brink of the collapse and are reaching out to the IMF for another bail out.
Some go as far as suggesting that Hungary has been worse off with the fall of communism.
The truth is that Hungary, like the Ukraine, has gone backwards, and not forwards since the fall of communism. Even Viktor Orban, the staunchly anti-communist leader of the main conservative opposition party Fidesz, has conceded that for the majority, life was easier in the relatively liberal ‘goulash’ communism era of the 1970s and 80s.
Never having the pleasure of living in Hungary in the...
Eastern Europe sailing into uncharted waters via CIPE Development Blog
Ukraine has just been promised $16.5 billion from the IMF to prevent its financial system from collapsing. Hungary will also receive a rescue package of yet unspecified value. The value of Polish zloty has fallen around 17 percent against the dollar over the past week, and more than 10 percent against the euro. As stock exchanges plummet, currencies collapse, and economists cut once-hot growth forecasts, these are the new hard times for the countries in Central and Eastern Europe – even those like Poland that until recently seemed relatively immune to the global financial crisis.
But it’s not just the economies of those countries that warrant closer scrutiny. The fallout of the crisis may be as big or greater in the political arena. Ukraine, for one, is not a pretty picture and...
The Flip Side of EU Membership via CIPE Development Blog
Can membership in the EU drive corruption? Ultimately, to join the European Union, countries must exhibit a rather strong progress in advancing democratic institutions and putting in place sound socio-economic structures. If anything, one would associate good governance with lower, not higher degrees of corruption.
But as this article points out, an influx of EU funds in Bulgaria has only fueled corruption in this small country off the Black Sea - especially in the political arena, but spreading in other parts of the country as well. As authors point out:
Far from halting crime and violence, the money effectively spread the corruption.
How bad has corruption gotten in Bulgaria?
Seventy-five percent of Bulgarian businesses have security protection, far more than in other countries in...
If a Bank Fails and No One Reports it, Does it Still Fail? via CIPE Development Blog
As my colleague Alex Shkolnikov noted earlier, the Russian press has been relatively mum on the topic of the financial maelstrom enveloping Russian markets. Now news comes from the Financial Times that the first retail bank has experienced a run on deposits.
Globex, a mid-sized retail bank with assets of $4bn (€2.95bn, £2.32bn), is the first Russian bank to experience a run on deposits during the crisis. It lost 13 per cent of its deposits last month, according to Maxim Raskosnov, an analyst at Renaissance capital, and a further 15 per cent this month according to Emilya Alieva, Globex’s vice-president.
At least a dozen other Russian banks have reported a sharp rise in withdrawals and account closures.
Although Prime Minister Putin has directed his government to inject over $84...
Tales of Banking Horror from the Developing World via CIPE Development Blog
Just in time for Halloween this year I heard a special tale of financial horror from one of my close friends in Ukraine. Its been said that when the US economy gets the sniffles the developing world gets pneumonia - and Ukraine has one terrible case of the financial chills.
My friend, who has been saving and selling some property in eastern Ukraine is just about ready to purchase a beautiful new apartment on the outskirts of Kyiv. Well, this was the plan until two days ago when all of her bank accounts were frozen and she was given notification that her money would be unavailable “for a period of time.” This unassuming, but terrifying, message was given to depositors at the sixth largest bank in Ukraine, Prominvestbank (Quarterly earnings report in English). It...
“Business Associations, Business Climate, and Economic Growth: Evidence from Transition Economies” via CIPE Development Blog
Interest groups are rarely portrayed in a positive light. In economic theories of regulation, collective action, and rent-seeking, interest groups are commonly perceived as seeking some form of redistribution through a political process. In particular, interest groups in the private sector – business associations, chambers of commerce, trade groups, and others – are most commonly portrayed as lobbying for some set of benefits for their members at the expense of other groups, whether they are subsidies, trade protection, or price breaks.
In CIPE’s latest issue paper, John D. Sullivan, Kim Eric Bettcher, and Aleksandr Shkolnikov present a different view of private sector associations in the context of the post-communist transition. The transition process in Central and Eastern Europe...
“The Transition Problem: The Unhampered State as an Obstacle to Democratic and Market Reforms” via CIPE Development Blog
Major systemic transformations in the post-Soviet states are over. Yet the outcome in most cases is not a full-fledged democratic market economy but rather an unsatisfactory compromise between socialism and free markets. Transition countries by and large focused their energies on creating a “social market economy” à la Western European welfare states. Thus, socialism as a system of completely centralized decision-making has been replaced by interventionism, a system with various degrees of state involvement in economic affairs. This “third way”-ism took the place of Marxism as an ideological pillar of the new post-communist world; however, it failed to produce a viable alternative to how the goal of greater social well-being can be accomplished.
In this Feature Service article,...
National Endowment for Democracy Honors Bronisław Geremek via CIPE Development Blog
Bronisław Geremek, historian, philosopher, politician, hero of the Solidarity movement, Minister of Foreign Affairs who in 1999 signed the treaty under which Poland joined NATO, and most recently European Parliament Deputy was honored today at the NED memorial gathering. Geremek died in a car accident on July 13, his life tragically cut after decades of work devoted to advancing the cause of freedom and democracy in Central Europe.
He once said, “If I were in the West, I would probably not be involved with politics because it is simply an exercise in power. Here in Poland, however, an intellectual must be engaged, because we’re fighting for the very right to think.” A survivor of the Warsaw Ghetto and later a dissident persecuted by Poland’s communist regime, Geremek was a... From Elections to Democracy via CIPE Development Blog
We are constantly saying there is more to democracy than elections. So I was pleased to see a book exactly on this by Susan Rose-Ackerman, From Elections to Democracy: Building Accountable Government in Hungary and Poland. Rose-Ackerman focuses on the importance of policy-making accountability to democratic consolidation in Hungary and Poland. She explores several mechanisms in the two countries for monitoring and citizen participation, and finds most of them insufficient to achieve accountability in policy-making.
For example, government entities tasked with oversight, such as ombudsmen and audit offices, have limited independence and limited mandates, and don’t allow for citizen input into policy-making. Neocorporatist dialogue, another mechanism, tends to be directed by bureaucrats...
Play it again Viktor via CIPE Development Blog
It seems that 7% year on year growth and increased integration into the world economy through WTO membership is not enough to keep the governing coalition of Ukraine held together. Today Yulia Tymoshenko announced that if the coalition is not reformed within 10 days Ukrainians would be heading back to the polls for the third time in as many years.
“But both [Tymoshenko and Yushchenko] – expected to spar for the presidential job in the 2010 election – have effectively served divorce papers on each other. Apparently, it’s a done deal this time, ending the governing coalition and parliamentary majority they created eight months ago.” (read the article here)
In the past year the coalition government has only passed the legislation necessary for WTO integration. It...
Georgia v. Russia – Everyone looses via CIPE Development Blog
In an increasingly globalized world when two countries pick a fight with one another the rest will suffer in some way. While I am not suggesting that pressures on supply chains and the oil market can ever be equated with the horrors of war, the fact remains that when two modern national economies pick a fight with one another the effects will be felt worldwide.
Georgia seems to be the more economically damaged of the two countries thus far. Its credit rating has recently been reduced from a B+ to a B by the ratings agency Standard and Poor’s (S&P) immediately after the start of the conflict. An economy that has been averaging 10 percent growth for the past few years also faces high inflation and a much smaller growth in GDP this year. Also, oil and gas companies that were...
Romania’s Anti-Corruption Struggles via CIPE Development Blog
The term of the current head of Romania’s anti-corruption agency, Daniel Morar, is due to end on August 12. As political and media battles are being fought over whether he should keep his job (he’s not likely to), the bigger issue looming in the background is persistently high level of corruption in the country. Transparency International ranks Romania as the most corrupt country in the EU. According to the European Commission’s progress report released on July 23, institutional and procedural changes introduced in recent years to tackle corruption have made only “fragile” achievements.
A broad based political consensus behind the reforms is lacking as is the unequivocal will across all political parties to root out high level corruption. The commitment of Romania to...
Creating the National Business Agenda in Moldova via CIPE Development Blog
A new video has been added to CIPE’s YouTube channel. It features an interview with Igor Munteanu, Executive Director of the Institute for Development and Social Initiatives IDIS Viitorul in Moldova. His organization has been working with CIPE on creating a National Business Agenda (NBA), the first such document drafted by the Moldovan private sector. NBA is a vital tool for the business community to encourage investment and stimulate business activity and economic growth. Developing an agenda mobilizes the business community to use its skills to effect public policy reform by setting legislative and regulatory priorities and clearly communicating them to policymakers. NBAs identify laws and regulations that hinder business activity. They also offer concrete recommendations and...
Better Democracies, Lower Corruption…or Not? via CIPE Development Blog
As one theory goes, better quality of democracy means lower levels of corruption. The story, then, should fit in just fine with the transition of Eastern European countries from Communism to full membership in the European Union. Does it?
This week the Economist takes a closer look at Eastern European transitions and the problem of corruption, concluding that
[f]or corrupt officials in central and eastern Europe, life has seldom been better. Joining the European Union has produced temptingly large puddles of public money to steal. And the region’s anti-corruption outfits are proving toothless, sidelined or simply embattled.
The reality is, of course, that anti-corruption successes have not been uniform across the region. Simply looking at TI CPI rankings, one can conclude...
The Spirit of Democracy via CIPE Development Blog
A few weeks ago at the World Movement for Democracy, Larry Diamond, author of the Spirit of Democracy, sat down with our executive director John Sullivan to talk about his new book and “the struggle to build free societies around the world.” You can watch the interview on CIPE’s YouTube channel.
In part 1, Diamond talks about the meaning of democracy and whether it is for everyone or if it has cultural and other limitations. Is it for everyone? A hint - Diamond thinks that democracy is possible in China within a generation.
You need to a flashplayer enabled browser to view this YouTube video
In part 2, the discussion goes into the current state of democracy in Africa, including the recent crisis in Kenya and the ongoing conflict in Zimbabwe.
You need to a...
Beware of Snake via CIPE Development Blog
A corrupt bureaucrat can seem like a cozy business partner to entrepreneurs in developing countries. When an entrepreneur develops a corrupt relationship with a bureaucrat, that business can flourish as sharing profits with the bureaucrat result in a sudden onslaught of administrative pressures that eventually force the competing businesses out of the market.
As comfortable as this may seem to the entrepreneur that benefits from the relationship, eventually (s)he will realize that the unholy transaction was actually a bite of forbidden fruit and now a snake is sitting in his/her lap, studying the business’ weaknesses, waiting for the perfect moment to turn that “business partnership” into a means of extortion. Once the bureaucrat knows a business’ weaknesses, he/she wields all the...
A Division in Ukraine’s Party of Regions? via CIPE Development Blog
The news for Ukraine’s Party of Regions just keeps getting worse. The party won 38% of the 2007 vote for parliament - but failed to gain enough seats to prevent the rebuilding of the “Orange” coalition. Now it seems that internal power struggles have come out into the open with President Viktor Yushchenko’s appointment of Raisa Bohatyryova – a rising star of the Party of Regions and close ally of Ukrainian billionaire industrialist Rinat Akhmetov – to the powerful position of Secretary of the National Security and Defense Council. The nomination prompted quick condemnation from Viktor Yanukovych’s wing of the party which tends to favor a ‘business as usual’ approach and closer ties to Russia.
There has been a persistent rumor that since the success of the Orange...
Border-free Europe expands via CIPE Development Blog
As of 12:01 a.m. on Friday, December 21, the European Union expanded its borderless Schengen area to 9 countries that joined the EU in 2004, mostly from the former Soviet bloc. Intra-EU borders have been open to free trade and visa-free travel since the time leading up to the accession, but now the citizens of these new member countries can move across the EU without border controls.
The dismantling of border posts was largely ceremonial, but its historical implications are immense. Peaceful removing of border controls between, for instance, Poland and Germany is something that hardly anyone would have fathomed just a few decades back. 68 years ago bloody struggle raged over this frontier, and only 18 years ago the West and the East remained separated by the seemingly impenetrable...
Is Political Culture Changing in Ukraine? via CIPE Development Blog
After Ukraine’s recent elections, many people are wondering if tenuous alliances can hold long enough for positive reforms to pass. On the economic side, the tax law has been waiting for review in the Rada for over a year, as has Ukraine’s joint stock law.
In general, many Ukrainians seem optimistic. Even if politics remain dicey in the short term, it seems that attitudes are changing and the country’s political culture gradually continues to open up. Here is one example:
As recently as March of 2007, Mykhola Prestupa - Khmelnitsky’s former mayor and member of the Rada (Ukraine’s Parliament) since 2006 - showed little interest in economic reform or improving the business environment for entrepreneurs. Since then however, his attitude has changed in several respects. His most...
How “Raiding” or “Company Capture” Works in Russia via CIPE Development Blog
Regional siloviki, or “strong men,” usually from one of the state security agencies, or the local prosecutor’s office, have been involved in capturing companies through strong arm tactics since the fall of the Soviet Union. This practice continues to be a major problem for business owners throughout the former Soviet countries to this day, and Putin’s strengthening of security service agencies in Russia’s regions over the last decade renewed the threat.
There are several ways to raid a company, but a common method is for a regional silovik to work with the local tax inspector and find a violation. The local government then seizes the company and sells off its assets through an auction that is public by legal appearance. In reality, however, local business people...
Fighting Corruption in Russia via CIPE Development Blog
The Perm business advocacy coalition in Russia recognizes that with high demand for bribes, entrepreneurs are often willing suppliers. For individual entrepreneurs paying bribes is usually more cost effective than defending oneself against corrupt bureaucrats through a weak legal system. Therefore, the coalition decided to summon the powers of collective action to utilize norms and legal precedents in the fight for business rights.
Member of the coalition - associations and chambers of commerce - decided to support an entrepreneur whose rights had been violated when city officials fined him for selling goods without a license. Those officials who attempted to fine him were not tax inspectors and exceeded their duties according to the law. Furthermore, the law clearly stated that in this...
Russian Civil Society Still Alive via CIPE Development Blog
Aside from all the encouraging news I’ve been learning about from an increasingly well organized small business community in Russia, two recent stories about Russian activism give me hope that civil society has not been squashed by authorities. First, a nationwide driver’s union was recently formed after horrible misfortune struck an innocent driver in Altai region. This driver had gone over a hill and was on the decline when suddenly a entourage of official vehicles came hurtling at ludicrous speed onto him, causing a major accident and killing the regional governor. The driver was thrown into jail and left to rot. However, word of this injustice spread and drivers across the country were outraged. Civil society came to the rescue and since then a national drivers’... Kyiv Residents Have the Land Taken From Beneath Their Feet…Literally via CIPE Development Blog
While international media attention was focused on the Ukrainian elections taking place on September 30th the Kyiv city council quietly met and gave away thousands of hectares of land in and around the capital. The conditions of the meeting were kept very secret; the members of the council that met went as far as to turn off the television cameras that, by law, are supposed to record all city council meetings.
It took but five hours for Kyiv City Council deputies from President Viktor Yushchenko’s Our Ukraine faction and the bloc of Kyiv Mayor Leonid Chernovetsky to give away what Korrespondent calculated to be more than 300 plots of land totaling between 2,000 and 3,000 hectares – the equivalent of around 3 percent of the capital’s territory.
So far the reaction in the Ukrainian...
Small entrepreneurs on strike in Belarus via CIPE Development Blog
Last week, over 30 thousand small merchants took part in a one-day protest against a bizarre decree of President Alyaksandr Lukashenka prohibiting private entrepreneurs from employing more than three people who also need to be related to their employer (!).The event did not receive much coverage in the Western media, but I found an interesting article about it (in Polish) by Andrzej Poczobut, Grodno-based political activist and journalist.
The decree, first announced in December 2006, is supposed to become binding as of January 2008 and has already sparked numerous protests over the past few months. In this latest one, bazaars in 32 Belarusian cities participated in a „strike” in which local marketplaces froze their regular operations. Despite threats and investigations by security...
Rags to Riches – An Equal Chance for All? via CIPE Development Blog
One of the things often linked with a market economy in popular consciousness is an opportunity to “make it big” – from a proverbial shoeblack to a millionaire – which is something that many Central European countries of the former Soviet bloc used to associate with the ideals of America during the communist era. At the same time, today those previously egalitarian societies to a large extent retained a deep-seated distrust toward actual wealthy people in their midst. This attitude often comes from attributing newly found prosperity of the elite to abuses of law perpetrated especially during the early days of transition, when the rules of a fair free market were far from being defined, let alone enforced. To what extent has this perception of wealth – and the implied lack of... New Pubs.: Eastern Europe, Environment, Humanitarianism, IDPs/Azerbaijan, Iraq, Mental Health, Protection, Sudan, Violence against Women via Forced Migration Current Awareness Blog
Azerbaijan: Displaced then Discriminated Against - The Plight of the Internally Displaced Population (Amnesty International, June 2007) [text]
Country Reports 2006: Belarus, Moldova, Russian Federation and Ukraine - Situation for Refugees, Asylum Seekers and Internally Displaced Persons (ECRE, June 2007) [text]
IASC Guidelines on Mental Health and Psychosocial Support in Emergency Settings...
Transitions: the Good and the Bad via
The majority of people living through the transition from planned, state-run economies to market economies say they are not living better now than in 1989, research by the EBRD and World Bank showed on Sunday.
Reuters reports on the new World Bank survey, highlighting the attitudes towards transitions in 29 countries. The full survey is available for free here.
As Eric Berglof notes in the foreword,
Ultimately, for transition to be declared a success, it should lead to a measurable improvement in people’s lives, with the principles of democracy, pluralism and the market economy deeply embedded in societies.
Has transition been a success in the region? The authors of the report note that there is definitely some nostalgia for the past, as only 30% believe that their household lives...
Voting with Their Feet… or at Least with Their Passports via CIPE Development Blog
An article in this week’s Economist, “Heading for the Exit,” discusses the extreme increase in the number of Moldovans applying for Romanian citizenship. The article notes that in a country with a total population of 3.2 million, an estimated 800,000 – a full quarter of the population – have requested a Romanian passport.
The article observes that there are cultural issues associated with this surge, as well as a simplified application procedure. However, I think that the article hits the nail on the head when the author comments,
According to a recent opinion poll, a feeling of “being Romanian” motivates less than 15% of those seeking dual citizenship. Instead, the vast majority of passport seekers are merely expanding their options in the face of poor economic...