The Brothers Karzai

The older brother of Hamid Karzai, the Afghan president, Mahmoud Karzai has major interests in the country’s only cement factory, its dominant bank, its most ambitious real estate development, its only Toyota distributorship and four coal mines.

He and a business partner run Afghanistan’s national Chamber of Commerce — which has far more clout than its American counterpart — allowing him to broker deals and lure foreign investors. For executives with problems with the Afghan government, he is the man to see. One prominent Afghan critic describes him as a “minister maker” with sway in hiring and firing top officials.

An unabashed advocate for money-making in the country his brother runs, Mr. Karzai attributes his success to having big ambitions and taking on ventures that others saw as too risky. “I’m investing in projects that require real work,” he said in an interview. “I’m in love with the idea that Afghanistan can become a Singapore, a Hong Kong.”

Mr. Karzai, though, clearly has exploited his connections, both in Washington and Kabul, to build his business empire. He has collected millions in American government loans for real estate developments in Kandahar and Kabul, capitalized on a friendship with Jack Kemp, the former Republican congressman, for introductions to American officials and international business executives, and benefited from what his rivals charge were sweetheart deals with the Afghan government.

-Another Karzai Forges Afghan Business Empire

Economic Gangsters from Paradise

The lavish lifestyle of the former head of the tiny island nation of Maldives;

Gold Plated Toilets


Over 8 million dollars!


Private island retreat with a cricket pitch


The Palace, cost unknown, staff 300

Surprised? Regulators in bed with Regulated!

The DOJ’s inspector general’s office, run by Glenn Fine, has had one heckuva busy summer, throwing much of its resources at investigations into the legacy of political meddling at the Department. But the Interior Department’s inspector general, Earl Devaney (pictured), has been busy too. The big news today, via the WSJ: Employees of the federal agency that last year collected more than $11 billion in royalties from oil and gas companies broke government rules and created a “culture of ethical failure” by allegedly accepting gifts from and having sex with industry representatives.

A report by Devaney describes a party atmosphere at the Denver office of the Minerals Management Service, a bureau of the Interior Department. Some employees of the office, which houses the department’s royalty-in-kind program, “frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relations with oil and gas company representatives,” the report says, adding that “sexual relationships with prohibited sources cannot, by definition, be arms-length.”

The report also says that between 2002 and 2006, 19 employees in the agency’s royalty-in-kind program, roughly a third of the program’s total staff, had “socialized with and had received a wide array of gifts from oil and gas companies with whom the employees were conducting official business.” Devaney’s report said: “We discovered a culture of substance abuse and promiscuity.”

We know what you’re thinking: What’s the Minerals Management Service? As the WSJ notes, it oversees the nation’s natural-gas, oil and other mineral resources on the outer continental shelf. Its duties include drawing up leases for drilling in offshore waters. Through the royalty-in-kind, or RIK, program, the government receives oil instead of cash payments from energy companies in exchange for drilling rights.

-Report: ‘A Culture of Substance Abuse, Promiscuity’ at Oil & Gas Agency

The Price of Political Connections

To illustrate our approach in action, let’s take a trip to Indonesia and turn the clock back to 1996. Former President Suharto, who by then had ruled the country with an iron fist for nearly 30 years, would be forced to step down a few years later. However, in 1996, Suharto’s government still exercised tight control over the economy: The president decided who could get loans, log for timber, build toll roads, or import rice. In other words, he decided who would make money and how much. If ever there were a time or place where we’d expect the market to place a value on connections, this would be it.

But the aging dictator was in poor health. And because none of his kids or cronies was seen as a capable successor, any leader who followed Suharto would be unlikely to honor (or enforce) the cozy business relationships established under his rule. Any threat to Suharto would translate into a threat to the value of connections, and bets would be placed accordingly.

And indeed, Indonesian investors didn’t disappoint. On July 4, 1996, the Indonesian government announced that Suharto was traveling to Germany for a health checkup. That may not sound like much, but who travels 10 time zones to get his pulse taken? Investors at the stock exchange were inundated with rumors that Suharto had already suffered a stroke or heart attack. The Jakarta composite index, an indicator of Indonesian stocks’ overall performance, much like New York’s Dow Jones Industrial Average, fell 2.3 percent on the day of the news.

What was merely bad for Indonesian stocks turned out to be devastating for well-connected companies. One such firm was Bimantara Citra, a media conglomerate run by Suharto’s son, Bambang Trihatmodjo. In the weeks leading up to the July 4th announcement, both the Jakarta exchange and the price of Bimantara Citra bounced around a bit, not gaining or losing very much value. Then, with the market awash with rumors in the first week of July, Bimantara’s stock price took a nose dive. The prospect of the company without its connections had shareholders dumping their stock and running for the exits, driving its price down more than 10 percent in just a few days, obliterating about $100 million of its value. (As the chart shows, Bimantara starts its steep slide even before the announcement, probably reflecting early selling by those with close ties to the Suharto family or his doctors.)

One can just imagine what would have happened to Bimantara shares if the 75-year-old Suharto had died suddenly. In fact, our estimates, based on stock returns during a number of Suharto health scares, suggest that a complete severing of Suharto connections would have resulted in a 25 percent loss for similarly well-connected companies. How much is 25 percent of a company’s value? When Apple announced its iPhone to great fanfare in 2007, its shares went up 8 percent; when Pfizer was unexpectedly forced to withdraw its bestselling antibiotic Trovan in 1999, its shares fell 10 percent. So, connections in Indonesia were worth a lot more than a blockbuster new drug or the next big technology gadget—or even both of them combined.

Of course, Suharto’s government was considered one of the most corrupt dictatorships of its time, so we should not make generalizations based only on its extreme example. Luckily, researchers have since created market-based measures of political connections in many other countries. Mara Faccio, an economist at Purdue University, has measured the value of political connections for nearly every country with a well-functioning stock market. She has followed the political careers of business tycoons (and the business careers of politicians), traced bloodlines to detect family ties, and read the society columns of local newspapers to track who dines with whom. Her conclusion? Close political-corporate ties exist in nearly every country. In Russia, fully 87 percent of the Moscow stock exchange’s value is in companies with close Kremlin connections. Maybe this isn’t such a shock in the unruly capitalism of post-Soviet Russia. More surprisingly, nearly 40 percent of the London Stock Exchange is politically connected.

-How Economics Can Defeat Corruption by Raymond Fisman, Edward Miguel

Good luck

Lugo 'to end' Paraguay corruption

Stolen Money Fact of the Day

According to one estimate, corrupt money flowing abroad from developing countries is now $40 billion per year which amounts to 40% of annual official development assistance funds.

-Putting the focus on Stolen Assets

God, Guns + Gays- hiring score for US Attorneys

Gonzales Aides Broke Laws in Hiring, Report Concludes

A longtime prosecutor who drew rave reviews from his supervisors was passed over for an important counterterrorism slot because his wife was active in Democratic politics, and a much-less-experienced lawyer with Republican leanings got the job, the report said.

Another prosecutor was rejected for a job in part because she was thought to be a lesbian. And a Republican lawyer got high marks at his job interview because he was found to be sufficiently conservative on the core issues of “god, guns + gays.”

The report, prepared by the Justice Department’s inspector general and its internal ethics office, centered on the misconduct of a small circle of aides to Mr. Gonzales, including Monica Goodling, a former top adviser to the attorney general, and Kyle Sampson, his former chief of staff. It also found that White House officials were actively involved in some hiring decisions.

How to Misuse Governance Indicators

The worldwide governance indicators and tautology : causally related separable concepts, indicators of a common cause, or both ?

Summary: Aggregate indexes of the quality of governance, covering large samples of countries, are widely used in research and in aid policy. Few studies examine the validity of these indexes, however. This paper partially fills this gap by examining empirically the dimensionality of the Worldwide Governance Indicators. The six indexes purportedly measure distinct concepts of control of corruption, rule of law, government effectiveness, regulatory quality, political stability, and voice and accountability. Using standard statistical techniques for testing measurement validity, the analysis concludes that the six indexes do not discriminate usefully among different aspects of governance. Rather, each of the indexes merely reflects perceptions of the quality of governance more broadly. An implication of the findings is that the Worldwide Governance Indicator indexes are frequently misused in research and policy applications, where it is commonly assumed that the indexes provide distinct measures of different aspects of the quality of governance. A further implication is that Transparency International's even more widely-known aggregate index similarly reflects perceptions not only of corruption, as intended, but of the quality of governance more broadly.

Empirics of Governance

An interesting discussion series from World Bank on governance indicators;

The seminar "Empirics of Governance" was held on May 1 to 2, 2008, at the World Bank Headquarters in Washington D.C. This seminar was organized by the Office of the Chief Economist and Senior Vice President, Development Economics (DEC). One important question which the seminar aimed to address is how to help practitioners “use the right indicator for the right job”.

More specifically, the following objectives were set for the seminar: firstly, creating common understanding among the various stakeholders of the complexity of the issues and the need to move ahead when perfection is not attainable, and deepening the interaction between producers of indicators, researchers and operational users; and secondly, helping develop an operational/research agenda going forward. The latter includes development of indicators, their operational use within the Bank, and priority research activities.

Speakers included nine academics and five experts from outside the Bank who are involved in the production of governance indicators, representatives from International Financial Institutions, and a number of Bank staff. A special effort was made to capture a range of experience and views. A number of staff and advisors to the Executive Directors participated in discussion.

The first day of the seminar focused on “Governance Indicators: Issues of Measurement and Use in Research and Policy”. Four types of governance indicators were discussed during the four sessions: broad-expert based indicators, narrow/actionable expert-based indicators, indicators based on representative household and firm surveys and aggregate/composite indicators

Can somebody please explain.

Why World Bank's Governance Indicators suck,

According to World Bank;

This paper conceptualizes governance and provides a framework for assessing governance quality in comparative perspective based upon governance outcomes. It surveys the composite indexes on quality of governance and provides an in depth review of the widely used Worldwide Governance Indicators (WGIs). This review concludes that WGIs use state of the art aggregation techniques but fail on most fundamental considerations. They lack a conceptual framework of governance and use flawed and biased primary indicators that mostly capture Western business perspectives on governance processes using one-size-fits-all norms about such processes. They almost completely neglect citizens’ evaluations of governance outcomes reflecting any impacts on the quality of life. These primary deficiencies and changing weights, respondents and criteria lead us to conclude that the use of such indicators in cross-country and time series comparisons could not be justified. Such use is already complicating the development policy dialogue and creating much controversy and acrimony. These findings, however, should not be a cause for despair as assessing governance quality is an important task and must be undertaken with care. To this end, this paper lays out a conceptual framework which stresses that governance quality for comparative purposes is most usefully assessed by focusing on key governance outcomes capturing the impact of governments on the quality of life enjoyed by its citizens. These assessments should preferably be based on citizens’ evaluations. Such evaluations are not only feasible but also would be more credible and conducive for meaningful and productive development policy dialogues on improving governance quality.

Iqbal, Kazi and Anwar Shah. (2008). “How Do Worldwide Governance Indicators Measure Up? ”,Unpublished paper, World Bank, Washington D.C.

Related;
Inventory of Datasets/Empirical Tools on Governance

Is "good governance" an end or a means?

Thinking about governance and getting a headache

What should the World Bank know and think about governance?

Google goes against Burmese junta

Global Justice Center

Burma is a criminal cabal.

Photo of the Day- Unrest in China

A day after parents staged an impromptu rally in Mianzhu on Saturday, the Communist Party's top local official, Jiang Guohua, came to plead with the protesters to not carry out their plan to march to Chengdu, the provincial capital, where they sought to prevail on higher-level authorities. Mr. Jiang, on his knees, failed to deter the parents, who shouted in his face and continued their march.

Blogging at the World Bank

Pierre Guillaume Wielezynski, who works on blogs and social media for the World Bank, said: "Dani (Kaufmann) has the profile of a good blogger: open, conversational, opinionated and, most important of all, passionate. He understands that blogging, and social media in general is a powerful new form of expression. With Shanta (Shantayan Devarajan), the CommGap team (Communication for Governance and Accountability Program), and Dani, I am excited to see the Bank embrace social media."

The Governance Blog joins the other recently launched blogs that are helping to break ground on the social media front: CommGap's Public Sphere, East Asia & Pacific on the Rise, and Devarajan's End Poverty in South Asia. "The PublicSphere blog has been going since January," said Sina Odugbemi, program manager in CommGap, who recently joined the Bank from DfID. "We've had thousands of readers so far, most of them from outside the Bank. It's a way for us to engage with a global community on a whole range of issues related to the interactions among public opinion, the public sphere, and governance," Odugbemi said....

Kaufmann, whose trademark, even in his research, is being a straight shooter, says about his newest medium: “I like the language of blogging—the straightforwardness is very salutary. I like it when you don’t have to write in ‘Bank-ese.’”

-We Continue to Innovate: From Surveys to Blogging

Congratulations to Governance Matters Blog and to Mr. Daniel Kaufmann who has been instrumental in creating a Bank blog focussed on governance issues. Still it seems Bank's work are too much in silos and there isn't much talk on cross themes.

The following post was on East Asia blog;
Number 1 essential to fighting corruption: political will

I would have liked to see a reaction from the those at Governance Blog. With all the focus on Africa why isn't there a blog focused on Africa? IMF has taken lead in creating a blog on public financial management.

Who do you think at World Bank should be blogging? Robert Zoellick, Danny Leipziger, Anwar Shah, Charles Kenny, etc.,

Natural Disasters and Corruption

Books to Pre-order

Economic Gangsters Corruption, Violence, and the Poverty of Nations

* Chapter 1: Fighting For Economic Development
* Chapter 2: Suharto, Inc.
* Chapter 3: The Smuggling Gap
* Chapter 4: Nature or Nurture? Understanding the Culture of Corruption
* Chapter 5: No Water, No Peace
* Chapter 6: Death by a Thousand Small Cuts
* Chapter 7: The Road Back From War
* Chapter 8: Learning to Fight Economic Gangsters

Related;
The link between Corruption and Dating Economics

Russian Corruption Fact of the Day

The level of corruption remains extremely high," Medvedev said. "In 2007 alone, 10,500 criminal cases involving corruption were launched, and we understand perfectly well this is only the tip of the iceberg."

- Russia's Medvedev launches anti-corruption drive

Corrupt Politician or Management Expert?

India's Railways Minister Laloo Prasad Yadav and his wife offer prayers at the Mahavir Hindu Temple in Patna, 18 December 2006, after being cleared of corruption charges. India's Railways Minister Laloo Prasad Yadav was cleared 18 December of amassing unaccounted assets in his former post as chief minister of the impoverished eastern state of Bihar, local media said.

Related;
“When we get into very corrupt states, ..UP or ...Bihar, we have to go in with a political analysis...may be we don’t publish the political analysis..”

-India Country Director for World Bank, Isabel Guerrero

Turkey Fact of the Day- Legal Aid

-Although legal aid is free, less than two percent of defendants made use of it during their trials.
-Approximately 75% of defendants who were sentenced to prison were never represented by a lawyer.
-Only in 7.3% of cases were lawyers present during police interrogations of suspects.

Alone in the Courtroom: Accessibility and Impact of Criminal Legal Aid before Istanbul Courts

The Perfect Storm

Safia Ali, mother of five, has not eaten in seven days. Her 1-year old son, Farhan, has fallen ill.

The consensus now is that all the same elements of the early 1990s — high-intensity conflict, widespread displacement and drought — are lining up again, and at a time of the biggest spike in global food prices in more than 30 years. The United Nations says 2.6 million Somalis need assistance and the number could soon swell to 3.5 million, nearly half the estimated population. If there is excellent rain or a sudden peace, the crisis may ease. But weather projections and even the rosiest political forecasts do not predict that.

-Famine Looms as Wars Rend Horn of Africa

Eurovision Corruption

Forty years on, we are being asked to believe that General Franco ordered his top television executives to offer bribes to all and sundry to make sure that Spain’s entry won that year’s Eurovision Song Contest, and thus deprive Congratulations and Cliff Richard of the title that should have been his.

-Franco's win at Eurovision...