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As Dani Kaufmann and others on this blog have rightly pointed out, the issues of “grand corruption” and “state capture” are increasingly being viewed as central to promoting more accountable and transparent governments, whether in the developing world or in wealthier countries.  The West has little to show to the developing world by way of successful models, and all countries clearly have plenty of homework to do when it comes to curbing the influence of special interests on the policy process.

In the Global Integrity Report: 2008, we created our first ever Grand Corruption Watch List. This list identifies 13 countries with exceptionally weak anti-corruption safeguards in key areas that lead us to worry about the potential for large-scale theft of public resources.  As national bailout programs and stimulus packages are being rolled out worldwide, these are the countries to keep a close eye on for disappearing funds at the highest levels of government.

How did we create the Grand Corruption Watch List?

Countries made our Watch List in 2008 for failing tests on three red flags: poor or non-existent controls over money in politics (our Political Financing indicators); weak or poorly enforced conflicts of interest regulations across the three branches of government (our Government Accountability category); and poor oversight over large parastatals (our State-Owned Enterprises indicators).  Countries falling below our “Very Weak” rating on those variables unfortunately earned a spot on the Watch List.  That list for 2008 includes:

Angola, Belarus, Cambodia, China, Georgia, Iraq, Montenegro, Morocco, Nicaragua, Serbia, Somalia, the West Bank, and Yemen.

(For details of the Global Integrity approach, see our methodology, download XLS data or dig into the country scorecards).

Impact: Government Stimulus Packages and International Aid

As citizens of Watch List countries turn to their governments for help in the current global economic downturn, our concern about the potential for large-scale theft is only heightened. Without the proper mechanisms in place to keep tabs on the flow of money through government, there is a high likelihood that funds will go missing.

We have already seen stimulus plans enacted in some of the countries on the Watch List. China took action on a US$600 billion dollar stimulus program in December 2008. That same month, the Montenegro government bailed out a national bank in trouble (a bank controlled by the president’s brother; how surprising). While no formal bailout has been agreed in Morocco yet, the government has announced its commitment to support its weakening auto and clothing sectors.

In addition to these internally-funded bailout programs, the IMF has approved or re-extended loans for Georgia and Serbia. A fellow member of the Grand Corruption Watch List, Belarus may accept bailout loans from Russia in the near future.

Whether the Watch List countries are receiving outside loans or spending their own capital on stimulus packages, the massive increase in money flowing through these systems relative to the lack of safeguards sends up big, bright red flags.  Caveat donor.