Improving governance and fighting corruption in the Baltic and CIS countries: the role of the IMF

In the late 1980s and early 1990s, some 25 countries began their dramatic transformation into market-based economies by liberalizing prices, dismantling the remaining instruments of Soviet-type central planning, and starting fundamental structural economic reforms. But among all the economies making this same transition, perhaps nowhere has the need to improve governance and reduce corruption been more evident than in the 15 independent states that emerged from the dissolution of the former Soviet Union. These societies, most of them under communist rule for 70 years, were characterized by a lack of government transparency and effective rule of law for generations. While the economic changes introduced after independence focused on correcting the systemic distortions, not enough recognition was given to the equally compelling need to overcome official corruption. In fulfilling its mandate to provide economic policy advice to the Baltic and CIS countries, the IMF has also played an increasing role in seeking to strengthen governance and battle public corruption in the region. This pamphlet briefly reviews the connections between governance and corruption and the high economic costs corruption exacts, summarizes the related steps the IMF has taken to date, and outlines an agenda for the CIS countries and the IMF in the coming years. Drawing on recent examples of corruption in the region, the pamphlet analyzes the links between governance and corruption, and emphasizes that poor governance creates opportunities and incentives for corruption.