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6 April, 2011  ▪  Andriy Skumin

An Ancient Sickness

Infected with the soviet disease of corruption, FSU countries keep contaminating new areas—except for Georgia

Former soviet and eastern bloc countries largely lie at the bottom of TI rankings for corruption. Corruption has entrenched itself firmly in the activities of those who act on behalf of the government or local communities in these countries.

Sources of power

After the 1991 putsch, corruption at the very top caused the greatest da­mage and always fed on oil and gas. This was especially true of countries like Azerbaijan, Turkmenistan, Kazakhstan and Russia, which extracted their own hydrocarbons. There are countless ways of siphoning money through fuel deals, and nearly all of them are in the hands of top officials.

One of the most popular and easiest schemes used in mid-90s involved barter and mutual offsets. These were commercial deals to supply certain commodities worth a certain amount of money in exchange for fuel supplies worth the same. The perfect example is Ukrainian Ihor Bakai, a financial whiz with only a vocational school diploma. He traded gumboots, underwear and other domestic junk for Turkmen gas at prices two or three times higher than in Ukraine. This made multimillionaires out of Bakai and several Turkmen officials. The awkward bit was how to explain all this to the Turkmen people…

Post-soviet countries typically had abundant assets owned by the state or local communities. As they switched to market principles, privatization and denationalization of enterprises and distribution of land became yet another source to feed corruption. For instance, in June 2004, the State Property Fund of Ukraine sold 93.02% of Kryvorizhstal, one of the largest steel mills in the world, to the Investment Steelworks Union, a consortium owned by Rinat Akhmetov and Viktor Pinchuk, behind closed doors, for UAH 4.26bn, a paltry US $800mn. One year later, after the steelworks had been renationalized, India’s Mittal Steel bought the same stake at a public tender for UAH 24.2bn or US $4.8bn—nearly six times more.

State procurements of goods and services are another corruption-ge­nerating industry in the post-soviet part of the globe. In this sector, all kinds of illegal schemes are based on getting an order and inflating the price of goods and services being contracted, often between 15 and 25%.

Corruption tax

Burdensome licensing procedures are also widespread in post-soviet countries, whether it be registration, licen­sing or simply issuing documents, such as acts or statements. This explains why these countries are always in the bottom of business-friendliness rankings—because a well-placed bribe accelerates all these procedures. Getting a limited company registered normally takes considerable effort, patience and nearly a month, while paying US $500 to a “consulting firm,” the bribe and reward for the intermediary included, cuts the process to just a few days. Getting a certificate to confirm land ownership can take 12-18 months, whereas a US $200 incentive can reduce the wait to two months.

In the end, the corruption of po­verty is the most basic form of corruption. It comes from the abysmally low salaries in many professions, where the bribe basically serves as a bonus to miserable wages for a service employee or an official. For instance, paying for a physical exam, treatment or the services of a nurse at a public hospital is completely illegal. Yet, several years ago, someone posted an unofficial price list for hospitals in Turkmenistan: US $2-5 for a consultation, US $2-3 for treatment and notice of sick leave, US $4-6 to prescribe a course of treatment, and $0.5-1 for a drip or injection by a nurse. This online discussion of the unofficial cost of medical services in Turkmenistan shows that prices vary according to country but the concept is alive almost everywhere in the post-soviet region.

A weak judiciary system and a low level of courtroom culture among post-soviet populations let various oversight and enforcement agencies, such as tax, fire and health services, abuse their position. The target of this horde of inspectors is business, which gets used to seeing “gifts” as a necessary evil, just like taxes.

Law enforcement agencies and the courts themselves are another major source of corruption in post-soviet countries. Today, they are among the most corrupt agencies in virtually all these countries. The less transparent the government, the higher the corruption. Most post-soviet countries have price lists for opening or closing a criminal case, changing the category of violations such as extortion to fraud, or getting the desired judgment.

Mission possible

Over the past few years, a precedent was created that spoiled all firm convictions about the ineradicable nature of corruption, making Georgia the poster child of anti-corruption efforts in this region. In 2002, Georgia ranked 85-87 out of 102 countries in the Transparency International’s global ranking with 2.4 points, on a par with Ukraine and Vietnam. Only 15 pariah countries were worse than these three: Even Russia and Honduras were less corrupt in 2002 than Georgia.

Yet, in 2003, the Rose Revolution brought a new wave to power, led by Mikheil Saakashvili. In 2010, Georgia was among Top 10 countries with the least corruption, based on a survey of 84 countries. This dramatic change was driven by Mr. Saakashvili’s political will to no longer fear top corruption and not to judge fraudsters by their political colors. Anti-corruption pressure was applied to both opponents and supporters of the leader of the Rose Revolution and more than 400 “high-flyers” found themselves deplaned.

The March 2005 Deregulation Program became the turning point, leaving only 150 out of nearly 900 business procedures in place. It introduced a “one-stop shop” for starting up a business and now it takes less than a day to start a company in Georgia—and three days at the most to register ownership of land or real estate!

The unprecedented reform of law enforcement agencies implemented in Georgia turned the country into a showcase for fighting corruption. It virtually wiped out corruption among the police. The impact was not long in coming: today, 87% of Georgians trust their police, compared to 10% in 2003, before the reform. Unlike Russia, which films soap operas about good-hearted cops as a way to improve the image of its police,  this is the real result of real reforms to the law enforcement system.

Next, the traffic police were replaced by patrols. For this, 15,000 people with zero experience in the police were hired and trained for a couple of months. The 40,000 policemen who worked as traffic cops were fired: the total number of law enforcement personnel laid off under Mr. Saakashvili is up to 75,000. The newly-hired amateurs demonstrated a professionalism and honesty that surprised the whole world. The profit margins for corruption have shrunk significantly under President Saakashvili, too. Today, a Georgian police officer gets US $500–1,000, plus housing, insurance and a high pension. And if they are caught taking a bribe, they can lose all that overnight—and get 6 to 9 years in jail for their trouble.

Georgia is a great example that debunks the myth about corruption as a permanent habit. Yes, everybody, it can be eradicated.

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