JOHN HEILBRUNN: AZERI PEOPLE HAVE INCENTIVES TO PROTECT THEIR ACCESS TO RENTS THROUTH VIOLANCE
The former vice-president of The World Bank John Heilbrunnin interview with Turan US correspondent speaks about the problem of corruption in Azerbaijan.
Question: A number international organizations express their concerns about whether it worse to do foreign investments in Azerbaijan because of the corruption. Azerbaijan is named as a country that deviates back because of corruption. how do you see the corruption risks in this country?
Answer: Azerbaijan is sadly considered among the most corrupt countries in the world. If I were advising a company considering operations in Azerbaijan, corruption would be at the top of the risk factors. Transparency International (TI) conducts surveys of surveys and presents the results to the world in the autumn of each year. With more experience in this regard, TI has assumed an authoritative voice in the depiction of corruption internationally. Azerbaijan has had declining scores over the last years from 130 of 163 countries in 2006, to 150 of 179 in 2007, and 158 of 180 in 2008. This score or placement means that international business leaders, officials in multilateral banks, and diplomats perceive Azerbaijan to be among the most corruption countries. Indeed, Azerbaijan shares the ranking in 2006 with the Central African Republic, Burundi, Togo, and Zimbabwe, In 2007, its ranking at 150 was worse than Nigeria at 149; and in 2007, it shares placement 158 with Angola, Sierra Leone, and Venezuela. These are the most corrupt countries in the world and businesses charge more to compensate for the risks. The people of Azerbaijan suffer lower rates of economic growth; they are unable to develop reasonable expectations of economic opportunities, and talented individuals who are not part of the inner circle have clear reasons to flee the country.
Question: In countries like Azerbaijan (which participate in international energy projects) what kind of risks will be faced?
Answer: I would separate risks along two distinct, yet related axes: political and economic. in addition, it is critical to separate risks according to the potential victims of corruption: domestic actors (business leaders, common merchants, and citizens) and international actors (potential investors, businesses with long-standing investments in Azerbaijan, and foreign investors. Economic risks are evident in the increased cost of doing business in a country with high levels of corruption. Any foreign investor is first going to assess the levels of risk to the investment.
This assessment means they will consider adding ancillary costs for requirements they pay `commissions` or bribes to do business. Moreover, a foreign investor will consider the return on investment and require a quicker return in higher risk environments. For a country like Azerbaijan, that means less favorable contracts negotiated for exploitation of oil. Worse, contact negotiations in countries like Azerbaijan often become personal arrangements between actors who know each other and make illicit deals.It is crucial to recall that natural resources are effectively the property of Azerbaijan"s people. The Government of Azerbaijan (GoA) has a responsibility to manage the revenue it receives for oil in a transparent fashion with accountability imposed on public officials. Since the resources are non-renewable, when the last barrel of oil flows from the well, nothing remains except any funds the Azeri government has invested in sovereign funds (more on this point below). Hence, the economic risks create a need for effective revenue management.Political risks are that government officials in resource abundant countries have incentives to capture the oil revenues and use them for their personal enrichment. Resource rents are substantial amounts of money that political leaders may capture for personal uses.
The TI rankings suggest that corruption in Azerbaijan is systemic, meaning it occurs at both the high level involving senior elected and appointed officials as well as at the petty level at which police officers, customs officials, low-level civil servants, and even teachers demand bribes for the performance of their duties. This level of corruption is most disturbing since it means that the honest individuals are unable to work in Azerbaijan since everyone around them is engaged in corrupt behavior. Two tragic outcomes are evident in countries with these levels of corruption: first, the governments are likely to be authoritarian. Second, people in positions of responsibility have incentives to protect their access to rents through violence.
Question: What is the recipe of fighting corruption in countries like Azerbaijan?
Answer: There are no `magic bullets` for reducing corruption in countries like Azerbaijan. The problem is that checks and balances in the government are absent. The judiciary is not independent from the executive and thus deliberates on the basis of executive preferences. Legislators are likely to be members of the coalition that supports the inner government and are lacking independence from executive preferences. Finally, the executive itself may be small and power concentrated in the office of the president.
Several conditions are necessary: 1) pass laws criminalizing corrupt actions; 2) enforce the laws through police bodies such as an anti-corruption commission or serious fraud office; 3) ensure the independence of the judiciary; 4) establish a sovereign with strict withdrawal rules to prevent the executive or any other office from discretion to withdraw funds.
This non-renewable resource fund (NRF) needs to have both rules on savings and fiscal smoothing to offset economic disequilibria that is a consequence of natural resource price volatility. Reports on audits of the NRF need to be submitted to the legislature, the executive, and the independent press simultaneously.
Finally, the GoA needs to begin programs to train government officials to manage the funds and have cross-cutting reporting practices. When well-trained officials are working in the ministries, an oil or petroleum ministry may receive revenues, they must submit internal audit reports (this report means the ministry needs an effective internal audit agency) to the parliament and the executive. Rules should be in place for public disclosure of these reports either in synopsis form or their entirety. External audits are no less critical for the accountability of an oil sector and revenue management. The public should have access to information about revenues paid, received, and reports submitted to the executive and legislative branches. Finally, corruption should be punished and a clear procedure in place for reporting, investigating, and prosecuting corrupt officials.
Question: A number international organizations express their concerns about whether it worse to do foreign investments in Azerbaijan because of the corruption. Azerbaijan is named as a country that deviates back because of corruption. how do you see the corruption risks in this country?
Answer: Azerbaijan is sadly considered among the most corrupt countries in the world. If I were advising a company considering operations in Azerbaijan, corruption would be at the top of the risk factors. Transparency International (TI) conducts surveys of surveys and presents the results to the world in the autumn of each year. With more experience in this regard, TI has assumed an authoritative voice in the depiction of corruption internationally. Azerbaijan has had declining scores over the last years from 130 of 163 countries in 2006, to 150 of 179 in 2007, and 158 of 180 in 2008. This score or placement means that international business leaders, officials in multilateral banks, and diplomats perceive Azerbaijan to be among the most corruption countries. Indeed, Azerbaijan shares the ranking in 2006 with the Central African Republic, Burundi, Togo, and Zimbabwe, In 2007, its ranking at 150 was worse than Nigeria at 149; and in 2007, it shares placement 158 with Angola, Sierra Leone, and Venezuela. These are the most corrupt countries in the world and businesses charge more to compensate for the risks. The people of Azerbaijan suffer lower rates of economic growth; they are unable to develop reasonable expectations of economic opportunities, and talented individuals who are not part of the inner circle have clear reasons to flee the country.
Question: In countries like Azerbaijan (which participate in international energy projects) what kind of risks will be faced?
Answer: I would separate risks along two distinct, yet related axes: political and economic. in addition, it is critical to separate risks according to the potential victims of corruption: domestic actors (business leaders, common merchants, and citizens) and international actors (potential investors, businesses with long-standing investments in Azerbaijan, and foreign investors. Economic risks are evident in the increased cost of doing business in a country with high levels of corruption. Any foreign investor is first going to assess the levels of risk to the investment.
This assessment means they will consider adding ancillary costs for requirements they pay `commissions` or bribes to do business. Moreover, a foreign investor will consider the return on investment and require a quicker return in higher risk environments. For a country like Azerbaijan, that means less favorable contracts negotiated for exploitation of oil. Worse, contact negotiations in countries like Azerbaijan often become personal arrangements between actors who know each other and make illicit deals.It is crucial to recall that natural resources are effectively the property of Azerbaijan"s people. The Government of Azerbaijan (GoA) has a responsibility to manage the revenue it receives for oil in a transparent fashion with accountability imposed on public officials. Since the resources are non-renewable, when the last barrel of oil flows from the well, nothing remains except any funds the Azeri government has invested in sovereign funds (more on this point below). Hence, the economic risks create a need for effective revenue management.Political risks are that government officials in resource abundant countries have incentives to capture the oil revenues and use them for their personal enrichment. Resource rents are substantial amounts of money that political leaders may capture for personal uses.
The TI rankings suggest that corruption in Azerbaijan is systemic, meaning it occurs at both the high level involving senior elected and appointed officials as well as at the petty level at which police officers, customs officials, low-level civil servants, and even teachers demand bribes for the performance of their duties. This level of corruption is most disturbing since it means that the honest individuals are unable to work in Azerbaijan since everyone around them is engaged in corrupt behavior. Two tragic outcomes are evident in countries with these levels of corruption: first, the governments are likely to be authoritarian. Second, people in positions of responsibility have incentives to protect their access to rents through violence.
Question: What is the recipe of fighting corruption in countries like Azerbaijan?
Answer: There are no `magic bullets` for reducing corruption in countries like Azerbaijan. The problem is that checks and balances in the government are absent. The judiciary is not independent from the executive and thus deliberates on the basis of executive preferences. Legislators are likely to be members of the coalition that supports the inner government and are lacking independence from executive preferences. Finally, the executive itself may be small and power concentrated in the office of the president.
Several conditions are necessary: 1) pass laws criminalizing corrupt actions; 2) enforce the laws through police bodies such as an anti-corruption commission or serious fraud office; 3) ensure the independence of the judiciary; 4) establish a sovereign with strict withdrawal rules to prevent the executive or any other office from discretion to withdraw funds.
This non-renewable resource fund (NRF) needs to have both rules on savings and fiscal smoothing to offset economic disequilibria that is a consequence of natural resource price volatility. Reports on audits of the NRF need to be submitted to the legislature, the executive, and the independent press simultaneously.
Finally, the GoA needs to begin programs to train government officials to manage the funds and have cross-cutting reporting practices. When well-trained officials are working in the ministries, an oil or petroleum ministry may receive revenues, they must submit internal audit reports (this report means the ministry needs an effective internal audit agency) to the parliament and the executive. Rules should be in place for public disclosure of these reports either in synopsis form or their entirety. External audits are no less critical for the accountability of an oil sector and revenue management. The public should have access to information about revenues paid, received, and reports submitted to the executive and legislative branches. Finally, corruption should be punished and a clear procedure in place for reporting, investigating, and prosecuting corrupt officials.
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