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Importance of CPI Reports in Assessing Corruption

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1. Introduction

The purpose of this essay is to discuss the importance of the CPI reports in assessing corruption. It is argued that the CPI is the most reliable report that is best used to assess corruption compared to other reports available. The assessment of corruption has been a topic of interest to both economists and policymakers since it directly affects the level of poverty, growth, and inequality in a country. We have seen how corruption can lead to misallocation of resources, squeezing the poor and creating inequality to an extent where growth can be retarded. However, the indirect nature of corruption means that it is almost impossible to get an accurate measure of its levels. It is because of this that there has been a recent increase in the number of reports and corruption indices available today. These reports are used by policymakers to identify the levels and areas of corruption, in an attempt to raise the welfare of their citizens. In order to achieve this, it is vital for them to be able to accurately ascertain the effectiveness of the policies they are implementing and be able to compare their results to other countries around the world. This is where the CPI report comes in. Given its reliability and how widely used it has become, it is the most suitable tool that policymakers should use to measure the effectiveness of their policies in reducing corruption and compare their results internationally.

2. Methodology of CPI Reports

The Corruption Perceptions Index (CPI) is based on a rating of corruption in the public sector as seen by business people and country analysts, and ranges between 10 (highly clean) and 0 (highly corrupt). It has since 1995 made CPI scores a household name, providing a snapshot of corruption in around 180 countries the world over. Basically, it is a ‘poll’ done to assess both the national and international incidence of corruption. Thus, being a somewhat immeasurable index, it uses a combination of a few other indices, some that serve well as quantifiable measures of corruption, others which have corrupt tendencies associated with them. This collection of information helps form CPI into a complex professional assessment of levels of corruption. To measure business corruption, the World Economic Forum’s (WEF) Executive Opinion Survey, of over 8,000 business leaders in over 125 countries, is used. It gives key to vital information in the effective implementation of and conformance with policies and regulations, a very good indicator of corruption in both the public and private sector. Domestic investigators are questioned when using Transparency International’s (TI’s) Bribe Payers Index, which ranks countries according to the likelihood of their firms to bribe abroad. This is then correlated with CPI to create a more informed report of corruption in developed countries. This being one good example of how CPI is externally validated to prove its authenticity.

3. Key Findings from CPI Reports

High CPI scores are also an indicator of political instability and increased risk for investment, and many multinationals take corruption into consideration when deciding whether to invest in a foreign country. These companies and the governments of their home countries increasingly see corruption as a problem that must be addressed. This serves progress.

Approximately a trillion is spent each year on health and education services, but an astonishing ten times that amount is spent on debt repayments to international creditors. The transfer abroad of such massive amounts of money is a direct result of corruption in developing countries, and the debt is often the underlying cause of this conduct. Given the vicious circle in which many indebted countries find themselves, money from creditors, even if obtained illegally or immorally, is rarely put to good use. Often, it is simply a wasted resource that provides leaders and the elite with further means to enrich themselves. This is a vast betrayal of the poor, in whose name the money was originally loaned and to whom its benefits should rightfully accrue.

In 1998, CPI reports were able to identify a corruption scandal involving the former President of Indonesia. It was discovered that the President’s friend and three of his children had taken bribes worth millions from a forestry company. To secure his selection of a financial company in 1999, it was discovered that he had taken bribes from the Yemeni government to invest the country’s funds in a safe and profitable place. These bribes resulted in an increase of 12 points on the CPI scale for Yemen between the years of 1996-1999. It is believed that the sale of a Yemeni bond caused this increase. The CPI reports identified the countries involved and the nature of the situation. In this case, it was the bribes, and they were able to suggest a reason for the increased corruption.

4. Implications for Policy and Governance

To be effective in governance terms, these measures must also be widely used by governments. It seems reasonable to suggest that reducing corruption is a goal to which all governments pay at least lip service, thus they are likely to utilize this method of assessing the level of corruption and the effect of their anti-corruption measures. The use of an index which calculates a country’s level of corruption against a standard will be attractive to governments who wish to portray their anti-corruption efforts in a positive light. The CPI provides a direct and easily intelligible measure of corruption compared to most statistics used in social sciences. The fact that a simple score can effectively measure a complex concept is also a great advantage. Once this cause and effect is firmly established, it is likely that the IMF and World Bank’s initiative will lead to a large reduction in corruption. It is uncertain whether this would necessarily take the form of a reduction in the number of corrupt acts, etc., or policies by governments to increase their CPI scores. If the latter is the case, it is possible that it could lead to a form of policy mimicry by countries in an attempt to raise their CPI scores by imitating the policies of countries which have been more successful in reducing corruption. An example of this would be privatization of industry in an attempt to reduce state involvement in rent-seeking behavior. This would be a major step forward for global governance. Finally, an understanding of country-level corruption is important for the allocation of aid. If it is believed that corrupt governments with low CPI scores are less likely to utilize aid in the way that it was intended, or more likely to use it to enrich the ruling elite, then it is likely that donors will be less willing to provide aid to these countries. This may be seen as unfair, as it deprives the citizens of these countries of much-needed funds, yet it is also an issue of accountability for the donors who must ensure that their money is being used for the right purposes. The right move or not, it is clear that this could seriously affect the economies of some of the world’s poorest nations. In short, it seems clear that the CPI and IMF and World Bank initiative are important steps in the ongoing battle against corruption and the move to a better global governance.

5. Conclusion and Recommendations

So where does this leave us? The CPI has successfully identified the complex phenomenon of corruption and quantified it in a manageable framework that is easy to understand. It is apparent that corruption as a cross-cutting issue can be assessed with a single composite index with relative accuracy. The reports provide a useful tool for first world nations assessing risk in providing aid, loans, and investing venture capital and so on, in turn putting pressure on corrupt nations to clean up their act, as to not lose the potential income. This is beneficial for world economic welfare as funds will be allocated more efficiently. The CPI is also useful in assessing progress that has been made between reports in corrupt nations and sectors. Comparing ratings over time will show which direction a country or sector is heading regarding corruption. This can be very useful information if the CPI is used to evaluate the effectiveness of certain anti-corruption policies and develop new ones. High CPI ratings may also attract investment to a developing sector and fast track progress on the assumption of less corruption and less associated risk. All of the aforementioned scenarios benefit the people of nations as misappropriation of funds and bribery denies them essential services and commodities.

Now, with a fuller understanding of the role of the CPI in the assessment of corruption, the facts can be revisited. It should be noted that in more instances than not, the CPI is primarily used by organizations to assess external business scenarios. On a less frequent occasion is it used for internal diagnostic assessment of the level of corruption within a nation and between sectors. Regardless of how and why the CPI is used, it is evident that there is always an issue for there is no need for continuous assessment if there is no problem, “said Micro-Note 3, ‘The higher the CPI, the cleaner the public sector administration.'” This implies that the level of corruption will never be absolutely clean or corrupt, and until corruption is ceased there will always be need for the CPI. This has been reflected in recent years with a continuous demand and increase in CPI reports.

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