Bringing money out of the shadows means improving governance
SHINING A LIGHT
4 FINANCE & DEVELOPMENT | September 2019
lobal GDP last year was $87 tr illion, up from
just $11 trillion in 1980. While GDP is just
one among many measures of well-being, t he
improvement is remarkable. But before we start
celebrating, consider these numbers , which point
to the dark side of the global economy:
at gure, equal to 8 perc ent of global GDP,
represents the amount of private wealth est imated
to be hidden in oshore nancial c enters, much of
which likely comes from ill icit activities.
at’s the gain in government revenue, by one
calculation, that could be achieved by reducing
corruption around the world by one-third.
ese numbers shine a light on the hidden
corners of the global economy, the money that
escapes the reach of ta x collectors, regulators, and
law enforcement. ese are the ill-gotten g ains of
graft, the procee ds of regulatory arbitrage, and the
prots from tax domiciles that some consider to
be the equivalent of tax eva sion. Taken together,
they detract from the public good. It is money lost
that could be put to use improving people’s lives.
e rise of digital na nce, crypto assets, a nd cyber-
crime adds to the chal lenges. Consider the so-called
dark web, a hidden marketplace for ever ything from
stolen identities to arms and narcotics.
Illegal or legitimate, these practices have a big
impact on government revenues around the world,
and increasingly the international community is being
called upon to eliminate the regulatory gray areas.
But it is not just a matter of law enforcement.
Governments are being pressed to adjust to rapid
changes in the global economy that—if properly han-
dled—can bring considerable benets. at is certainly
the case with ntech and, potentially, crypto assets.
Demands on government resources are building—
to boost growth in some advanced economies, build
infrastructure in emerging markets, and improve
health and education in the developing world. So the
draining away of trillions of dollars represents a threat
to our well-being. It contributes to a weakening of trust
in government and undermines its ability to address
key economic problems like inequality and poverty.
IMF research shows that countries with lower levels
of perceived corruption have signicantly less waste
in public projects. And among low-income countries,
the share of the budget dedicated to education and
health is one-third lower in more corrupt countries.
at reduces the eectiveness of social spending.
So how do we address these problems?
at’s where the IMF aims to make a di erence.
We have worked closely with national authorities,
multilateral bodies , and the private sector for nearly
two decades to combat money launderin g and the
nancing of terrorism. We have been at the fore-
front of the eort to strengthen sc al transparency
and, increasingly, to confront corruption.
It comes down to the core notion of governance—
how a country denes and implements its eco-
nomic policies in all their myr iad detail and how
it adheres to the rule of law. Last year, the IMF
adopted a comprehensive framework for enhanced
engagement on governance that encompass es the
functions most relevant to the economy, things
like tax collec tion, central banking, and n ancial
sector oversight and market regu lation.
Improving governance isn’t easy; it requires sus-
tained eort over the long term. It’s not only the right
thing to do, it also brings tangible benets to millions
of people. Joint action will help ensure success.
DAVID LIPTON is the acting managing director of the IMF.