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IMF spells out why Ukraine's corruption is dreadful

Author : Oleksiy Kushch

According to the estimates of the IMF, the corrupt superstructure costs Ukraine 2% of economic growth every year
17:55, 2 May 2018

Read the original text at 112.ua.

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"I have invited you, gentlemen, to inform about some unpleasant news: an IMF mission is coming to us." This is how imperishable “Government Inspector” by Mykola Gogol could sound today in a modern way.

It is difficult for world auditors to plunge into our intra-history, they cannot understand Ukrainian mysterious soul. From now on, the IMF will lend to Ukraine on the basis of dynamics of the fight against corruption. All kinds of economic aggregates - Gross Domestic Product, Consumer price index - are now considered as an important, but not the main indicators. In this connection, the multivalued interpretation of the abbreviation “CPI”, which has several meanings: the Consumer price index and the Corruption Perceptions Index, is very symbolic. So, if the first is used in the developed countries, Ukraine uses the second one. Fight against corruption in the morning, and in the evening, you will get the tranche, and vice versa. How is it, actually, possible? It is possible, but fight the corruption first!

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According to the estimates of the IMF, the corrupt superstructure costs Ukraine 2% of economic growth every year, and this is one of the most negative indicators in the world: last year, only with the help of statistical "triple accelerations" the GDP growth was tightened from 2.1% to 2.5 %. That is, corruption takes about half of the increase in gross product.

As for tranches, this year we could get $ 1.9 billion. Is this a lot or not? Well, 10% of the NBU's currency reserves. The Fund states that the "corruption can have a negative impact on the ability of the country to achieve stable, all-encompassing economic growth." Thus, the fight against corruption becomes a kind of mathematical rule for the IMF: it is necessary and sufficient. That is, low inflation and budget deficit, decent GDP growth rates are just the first part of the conditions, necessary for obtaining loans. The second is a successful fight against corruption, confirmed by practical results. "Sports fishing" does not work here. We need industrial "fishing".

At the moment, the main requirements of the fund are reduced to the need to launch an Anti-Corruption Court in Ukraine, precisely in the format, which is seen in the West.

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Some ubiquitous political scientists and experts who do not get out of the broadcasts have a special cover story for the electorate. Like, the Western world has a stigma in the gun, and it faces the same corruption, as we do. Some even say that there is no vertical corruption in Ukraine, and only horizontal corruption remains here. Well, the most sophisticated try to convince the people that corruption is to some extent even useful: at the expense of it, the demand for expensive goods is formed, and investments are attracted. And in general, without corruption, the state apparatus in Ukraine will immediately stop, which will lead to a general collapse. The idea that corruption is a lubricant for a bureaucratic mechanism is not new. As for effective demand, then, perhaps, our corrupt officials are the engine of Italian GDP, 20% of which are luxury products. But the manufacturer of Zhytomyr socks does not even get a cent from this demand.

What does the IMF say about corruption? It has prepared a special report, in which it has carefully analyzed all the socio-economic consequences of this shameful phenomenon. The analysis was carried out within the framework of the UN program "Millennium Development Goals".

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So, according to the IMF, the corruption superstructure inherent in most developing countries (and Ukraine in this group ahead of the rest of the world), leads to a loss of growth dynamics in the private sector of 3% per year. Considering that the private sector occupies more than half of the economy, we lose 2% of GDP annually. The Fund voiced the same figure personally for our country. So everything converges. The total damage to the world economy is 1.5-2.5 trillion dollars a year. Minimizing the level of corruption to the level of the developed countries of the world brings an additional dividend to developing economies in the amount of 400% of the population's income growth. That is, if the country has an average annual per capita income of about $ 2,000, then after completing the main part of the fight against corruption, it can grow to 8,000. Corruption feeds on the poor. In addition, a successful fight against it reduces child mortality by 75%: doctors arrive on time, mothers do not stand in long queues in reception rooms, and seriously ill children in a timely manner buy medicines.

Corruption rent directly takes up about 4% of budget revenues. If applied to Ukraine, this is 40 billion UAH per year. Almost the same amount was allocated in 2018 for the roads repair.

When analyzing the corrupt markets, investors assess their potential losses from entering them. Corruption model, similar to the Ukrainian, is estimated by investors as an additional hidden tax of 20%. That is, entering our market, investors lay in their investment plan hidden costs for 1/5 of the investments made. Still, there are questions, why foreign direct investment in Ukraine amounted to only 2.2 billion dollars last year and at the same time investors repatriated (for the time being they did not take away) dividends worth $ 1.8 billion?

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From the point of view of econometrics, corruption is a kind of multidimensional regression. As is known from mathematics, the main problem of this model is multicollinearity, that is, a close correlation relationship between the factors selected for analysis, which jointly influence the overall result. IMF analysts have identified the relationship between corruption and social exclusion and concluded that this relationship has a much worse impact on the dynamics of the country's development than even the correlation between corruption and GDP growth. Specialists of the fund considered the so-called "10-point" social inclusion of the impact of corruption and concluded that the level of this influence can be estimated at a rate of 5.5 points of the consumer price index (1 to 100 scales). That is, with respect to Ukraine, the effect of corruption on inflation can be estimated in the corridor from 0.5 to 1% of the current CPI. Most surprisingly, in countries that suffer from corruption, "corruption rent", collected from the economy, is at least ten times higher than the amount of official international assistance.

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The most terrible consequence of corruption is a severe form of frustration in society, which manifests itself in a vain expectation of improving the situation in the near future. This is a deep psychotrauma in the scale of the whole country, where corruption leaders change and everything returns to its own place, producing new and new "lost generations".

Unfortunately, neither the FBI, nor the IMF, nor Europol will be able to rid us of corruption rent. And after each visit of the IMF mission, our governors will pray in their "privatized churches": "God, please, just help me get away from it quickly, and then I'll light a candle for you."

The problem of corruption can be solved, as well as the problem of excess fur in the cat's stomach: all this must be simply poured out. And to avoid problems in the future, Ukraine needs to do this regularly.

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This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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