Shining a Light

• Author: David Lipton
• Position: DAVID LIPTON is the acting managing director of the IMF.
• Pages: 4-5

Bringing money out of the shadows means improving governance

David Lipton

SHINING A LIGHT

4 FINANCE & DEVELOPMENT | September 2019

G

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:

$7 trillion

at gure, equal to 8 perc ent of global GDP,

represents the amount of private wealth est imated

to be hidden in oshore nancial c enters, much of

which likely comes from ill icit activities.

$1 trillion

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

prots 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 benets. 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 signicantly 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 eectiveness 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 eort to strengthen sc al transparency

and, increasingly, to confront corruption.

It comes down to the core notion of governance—

how a country denes 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 eort over the long term. It’s not only the right

thing to do, it also brings tangible benets to millions

of people. Joint action will help ensure success.

DAVID LIPTON is the acting managing director of the IMF.