CORRUPTION IN PRIVATIZATION PROCESS AND CONSEQUENCES

Abstract

In order to understand what the risks of corruption in countries consist of
and where they come from, one should first take a look at how communist
economies and entire societies were functioning. Privatization in post-communist
countries is unprecedented not only because this is a process of changing
ownership on a scale and at a rate unheard of before but also because the process
is evolving in a social space that is substantially distorted, both economically and
spiritually, morally and ethically. It investigates the implementation of the
privatization process and valuation methodology in a developing economy where
the market system and its associated institutions are not fully developed…
In post-comunist economies after privatization under the assumption that
theft is possible, that those who have stolen assets cannot be fully protected under
a change in the legal regime towards rule of law.
In many instances, privatization has been accompanied by widespread
corruption. Jozeph Stiglitz, ex-chief Economist at the World Bank, admits that “it
has proved difficult to prevent corruption and other problems In privatizing
monolpoies” The “horrors" come about partly because of the in exible and hasty
deadlines set by the IMF and World Bank. Public services are privatised without
enough time being allowed to set up workable frameworks for regulation. As the
recent External Evaluation of the Enhanced Structural Adjustment Facility (ESAF)
noted with some puzzlement: In most. . . ESAF countries undertaking programs of
public sector reform, the privatization process has always begun before an
appropriate legal framework in the form of a divestiture implementation or state
enterprise law is passed. The results are many-fold:
• Governments are often unable to arrange transparent and open bidding
processes or promulgate needed regulatory laws; ==================================================================================
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• Managers and employees, fearful for their future and condent of their
ability to escape punishment, commonly strip the assets of the entities
undergoing privatisation;
• Many interested parties are able to engage in insider dealing and political
manipulation of the process for their own profit;
• Many state enterprises do not have the time to become economically
viable before being sold off, leading to frequent sales of industries at below
market value despite heavy government spending on recapitalisation.
For multinationals, bribery enables companies to gain contracts
(particularly
for public works and military equipment) or concessions which they would
not
otherwise have won, or to do so on more favourable terms. Every year,
Western businesses pay huge amounts of money in bribes to win friends, in
uence and contracts. These bribes are conservatively estimated to run to US$80
billion a year roughly the amount that the UN believes is needed to eradicate global
poverty.