How corruption and inflation affect economies

Corruption is one of those vices that are worldwide. One never reads about any country developed or underdeveloped without coming across the problem of corruption.

But in some countries, it is worse than in others. The Scandinavian countries are the least troubled with corruption.

I do not know how South Africans have reacted to The Economist of December 9 to 15 2017 whose front cover reads The Corruption of South Africa. Its leading page reads inter alia “under President Jacob Zuma, the State is failing, contracts are awarded through bribes and connections, ruling party members murder each other over lucrative government jobs, crooks operate with impunity.”

This is no isolated case in the world, certainly not in Africa and there are traces of it in Malawi. In the Weekend Nation dated January 13 2018 on the Opinion and Analysis page, we read of an interview Moses Michael Phiri had with Edward Monster, public affairs officer at the US Embassy in Lilongwe. Phiri learned from Monster that Malawi had failed to qualify for the second Millennium Challenge Compact (MCC) compact because among other things, government had not shown a strong commitment to combating corruption. Those who listen to Malawi Broadcasting Corporation (MBC) broadcasts are always told by government spokesperson that there is no corruption among people in high places.

I used to believe such rebuttals and viewed reports on the state of corruption in Malawi by Transparency International as biased. The Cashgate trials have revealed that what has been uncovered is the tusk or tail of the elephant, the body is somewhere between the two organs.

Said Monster: “Corruption fundamentally undermines economic growth which is why Malawi School Certificate of Education [MSCE] examines a country’s commitment to combating when choosing partner countries and when developing and implementing programmes.”

The economic benefits that Malawi could have realised if the MCC compact had been extended have been forfeited because the war against corruption is being waged half heartedly. When law enforcement officers notice that some of the suspects are influential people they do their jobs hesitantly. This is the reason Cashgate scandal last a long time without being detected. Just what is the problem about recovering the K873 million said to have been misappropriated at the Ministry of Health according to The Nation dated January 19 2018.

Corruption deters economic growth according to the form it takes. When appointments to key positions are based on cronyism, inefficiency will prevail in the whole ministry or department. How can an incompetent principal secretary make his or her subordinates work efficiently?

When government contracts are awarded to incompetent but influential people, projects are either not completed or are not finished according to specifications. This was the case when the Ministry of Education during the UDF era awarded contracts to friends and favourites. School buildings were either not finished or done badly.

Now of those contracts who were involved is claiming a hefty sum as compensation and is doing so while holding an influential position. The taxpayer’s money ought to be protected from rent-seekers like this one.

In some countries, looters of public funds or those who indulge in graft and corruption are given extra severe sentences. In 1961, a prime minister called Menderes in Turkey was deposed, convicted of corruption and sentenced to death. In the 1970S, leaders of the army in Ghana who had deposed Prime Minister Dr Kefi Busia were themselves toppled by younger officers accused of corruption and summarily shot Ghana was under military rule for many years headed by Lieutenant Jerry Rawlings. Recently according to The Economist, a former president of Peru who was sentenced to 25 years was pardoned by the President after serving part of the sentence.

Deficits are excess expenditures a government incurs after exhausting the revenue raised through taxation. The extra money is borrowed usually from commercial banks. As a result, private businesses are said to have been crowded out.

This means businesses are deprived of sources of their loans. When businesses cannot raise money, the economy suffers because they are unable to expand and offer more jobs.

Often government raises the extra money by borrowing from the central bank. In effect, the central bank is instructed to print more notes, when too many notes are printed, first galloping and hyper inflation follows.

Inflation destroys the value of a currency and impoverishes those who subsist on fixed incomes solely such as pensioners. n