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PREVENTING FRAUD AND CORRUPTION IN PUBLIC

PROCUREMENT

The crucial role of “upstream phase”: grants to local governments and clientelism

Sorin Ioniţă

Sorin.ionita@expertforum.ro

EFOR, June 2014

Sources of corrupt practicesPetty corruption (administrative) the most

dangerous in NMS

Instead, it is Grand Corruption / State capture which is the problem

Main sources / policy domains, interlinked:● The public procurement proper (PP)● Inter-governmental financial transfers

(IGFT, center LGs), esp investments● State owned enterprises (SOEs)

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Sources of corrupt practices

3

State (central)

State (intermed, regional)

State (local)

Private actors (companies)

State (SOEs)

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PP: the broader view

The view of PP should be broader, for purposes of monitoring:

● IGFTs for investments (step 1) should be transparent, predictable, competitive

● National IGFT were expected to adopt best practices from EU funds

● If IGFT is opaque, discretionary and possibly corrupt, it is likely that step 2 (PP) will be likewise, too

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Step 1 (IGFT) – analysis

We measured discretionary allocations central government County Councils Local Governments: mostly investment instruments, but not only

6 types of grants = substantial sums; in the peak year 2008 they were 80% of the total own revenues in LGs (tiers I+II); and 70% of total sub-national capital spending

All sums from national budget; no EU grant

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Financial transfers

1. Emergency fund of the government (2004-2011): various destinations

2. Funds for county and rural roads (2005-2011): mainly spent by counties

3. Environmental fund (2008-2011): water-sewage systems, parks

4. Funds for schools (2007-2010, MinEd): investments, maintenance, but also current arrears

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Financial transfers

5. HG 577 / 1997 (2004-2011, MDRT): rural roads, water systems in rural

6. OG 7 / 2006 (2007-2011, SGG): water-sewage, bridges (small), rural sport facilities

Lack of sectorial coordination (water, roads) ministerial rivalries

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Discretionary IGFTs: volume

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2004 2005 2006 2007 2008 2009 2010 2011 -

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

1. Fond rezerva

2. DJ/DC

3. Fond mediu

4. Sume scoli

5. HG 577

6. OG 7

Total

Sume, RON

PSD, Năstase

PNL+PDL+UDMR,

Tăriceanu

PNL+PSD+UDMR,

Tăriceanu

PDL+PSD Boc

PDL+UDMR

Boc

Discretionary IGFTs: clientelism

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2004 2005 2006 2007 2008 2009 2010 20110

1

2

3

4

5

6

7

8

Clientelism index= funds for power LGs / funds for opposition LGs

1. Fond rezerva

2. DJ/DC

3. Fond mediu

4. Sume scoli

5. HG 577

6. OG 7

Total/medie

Clientelism index

PSD, Năstase

PNL+PDL+UDMR,

Tăriceanu

PNL+PSD+UDMR,

Tăriceanu

PDL+PSD Boc

PDL+UDMR

Boc

The clientelism index

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● Discretionary transfers increased after formulas were introduced (and enforced) for shared taxes, after 2005

● i.e. clientelism shifted from one mechanism to another

● The peak of clientelism = during the economic boom (2007-08); public budgets increasing fast bad governance (!)

● Discretionary transfers political migration of mayors, with a twist: “independent” mayors were most privileged

The clientelism index

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● Additional indicators of clientelism in could be built (contractors profit rates; energy)

● Similar indicators of clientelism in other countries needed early warning instrument

● Ro utterly failed to transfer best practices from EU funds to national investm funds

● The situation got worse in 2012-2013: less transparency, unpublished allocations

Discretionary IGFTs: clientelism

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Interactive map of allocations, the 6 instruments, 2004-2011http://expertforum.ro