ECONOMY-BRAZIL: Corruption – A Major Hurdle to Growth

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Oct 5 2000 (IPS) - Graft is one of the biggest hurdles to development in countries like Brazil, severely curbing their potential for economic growth, warn economists here.

If bribe-taking were reduced to the global average as measured by the corruption watchdog Transparency International (TI), Brazil’s per capita income could grow by 59 percent over the next 26 years, based on an estimate of additional annual growth of 1.8 percent, according to a study by economists Fernando García and Marcos da Silva, with the Getulio Vargas Foundation in Sao Paulo.

Curbing corruption would have a similar effect in Argentina and Mexico, but not so marked, because the results are proportionately less in countries with higher incomes, said García.

The economist also estimated that if corruption were reduced to the level of Canada, one of the world’s least corrupt countries according to TI, Brazil’s per capita income would double within 15 or 20 years.

García is an adviser to Transparency Brazil, the local chapter of the Berlin-based TI, a non-governmental organisation that has been measuring the level of graft in a long list of countries in a ‘Corruption Perception Index’ every year since 1995.

In payola-ridden societies, it is more expensive to build a highway, furnish hospitals and provide health or educational services, because kickbacks drive costs up and reduce economic efficiency and productivity, he pointed out.

In Brazil, corruption used to be concentrated in big government infrastructure projects, when the state had the means to invest large sums in such works. But the fiscal crisis and dearth of public works has “modified the profile” of corruption, which has spread throughout government procurements at all levels, said García.

Graft makes investment less productive and hurts returns, and investors avoid countries where corruption generates uncertainty. That in turn drives up interest rates, making capital and the generation of jobs more expensive — all of which stands in the way of economic growth, he explained.

Due to the need to invest or launder “dirty” money, bribery also contributes to the growth of the informal economy, already enormous in Brazil and in other Latin American countries, thus generating other imbalances.

Brazil ranked 49th out of 90 countries this year, with a score of 3.9 on a scale of zero to 10 in TI’s sixth annual ‘Corruption Perceptions Index’.

Finland led the table, while Canada was in fifth place, with 9.2 points. Nigeria came last, with 1.2.

In general terms, European and other rich nations had the best scores. But there were exceptions, like Chile, ranked as the least corrupt of the Latin American countries studied, with a score of 7.4, and Singapore, which ranked alongside Nordic countries with 9.1 points. Italy, meanwhile, scored 4.6, putting it in the company of countries with high levels of bribe-taking.

A spate of scandals that have broken out in recent years led to a deterioration of Brazil’s image, and a decline in its score on the ‘Corruption Perceptions Index’.

The problem took on far-reaching political dimensions in Brazil in the early 1990s, toppling a president, Fernando Collor de Mello, in 1992, and leading to the suspension of immunity of several legislators.

But the latest big scandal is the one that most worries García, because it involves the judiciary. Parliamentary and police investigations discovered that 92 million dollars earmarked for the construction of a Sao Paulo courthouse were siphoned off from 1992 to 1998.

Tainted ties between public officials and the private business sector have the greatest impact on the economy, said García. “An effective judicial power is the basis of everything,” and bribe- taking there eliminates the possibility of monitoring the public accounts and curbing corruption, he added.

Clean, well-run institutions, especially the public prosecutors’ office and other bodies ensuring accountability in the public accounts, are indispensable to development, as they guarantee the efficiency of public services and policies in the economic and social arenas, García underlined.

They are also essential to generating a positive attitude among the population, he added.

Transparency Brazil was founded early this year on the initiative of a group of entrepreneurs in Sao Paulo, Brazil’s largest city. The president of the office, Eduardo Capobianco, the vice-president of the Construcap construction company, said “proximity to the centres of decision-making” was the biggest factor of corruption.

What that means, said Capobianco, is that in Brazil, public sector and construction contracts are the areas most vulnerable to foul play by bribe-givers and -takers.