[kitchencabinetforum] FOREIGN AID RECIPIENTS MUST STOP CORRUPTION

Hillary Clinton points out many wealthy people in low-income countries avoid taxes by hiding their money offshore, an outflow that by some estimates comes to more than $1 trillion a year. Now, to some degree, it is logical that low-income countries would raise less revenue internally than others. After all, some of the most common sources of income in developing countries are very difficult to tax, and building strong public institutions is a challenge for any nation. But we also have to acknowledge that wealthy countries share responsibility, so that is why, for instance, the United States is making it easy for other governments to know when their citizens are keeping money in American accounts. http://venitism.blogspot.com

Clinton wants to empower governments to collect precious revenues they use to build roads and power lines, to open schools and train teachers, to provide healthcare and invest in all the other drivers in economic activity. Corruption, lack of transparency, and poorly functioning tax systems not only deprive government of revenues; they inflict a quieter and in some ways an even more dangerous cost as well, because they corrode citizens' trust in each other and in their government. And when those bonds of trust crumble, it becomes much more difficult for communities and countries to make progress.

Clinton notes that corruption in poorly functioning tax systems put a strain on our partnerships with developing countries. The United States will continue to lead the world in providing assistance. But Clinton says very openly it is difficult to ask American taxpayers to spend money abroad when the elites in the countries themselves turn their backs on their own people, especially at a time of difficult budgetary decisions. It is not hard to imagine that an unemployed worker or a struggling business somewhere in USA would wonder why we would offer our hard-earned tax dollars to help those who will not reach the social consensus to help themselves.

As donor countries make our assistance more effective, recipient countries must do their part as well. When a country makes reforms in taxation, transparency, and fighting corruption, it ignites a virtuous cycle. Taxpayers see what they're getting for their money and they can no longer rely on the old excuses for not paying their share. Higher revenues means that the government can provide better services and pay decent wages to public employees. And so these reforms, in turn, create a more attractive climate for foreign investors and they strengthen the case we can make to our own citizens for continuing to support development programs. So if we partner with developing countries to break the vicious cycle and instead catalyze the virtuous cycle, we can not only help them provide more for their own people, but actually get on the path to self-sufficiency.

Now, there are many examples of countries that have made commendable progress; Clinton just mentions three. El Salvador has now broadened its tax base and made its system more equitable. South Africa has fought corruption and made its budget more transparent. Tanzania has introduced new systems to track taxpayers and payments and modernized its customs department. And each of these nations has seen its tax revenues climb significantly as a percentage of GDP.

Clinton points out the United States has made this a priority for a wide range of initiatives. The State Department, USAID, and our Treasury Department have supported many countries in their efforts to broaden their tax base, strengthen enforcement, simplify the payment of taxes, and improve the management of public funds. For example, with assistance from USAID, the Afghan Government is expanding its work to pay police officers by cell phone. This helps cut down on fraudulent payments and prevents corrupt officials from skimming from their workers' salaries.

The Anti-Bribery Convention commits countries to tackle the bribery of foreign officials, and the new Global Forum on Transparency is working to reduce tax evasion. The United States is proud to support the recently launched tax and development program and the OECD-NEPAD Africa Investment Initiative, two excellent programs for sharing best practices that have already benefitted the South Sudan, Tanzania, and others.

Other institutions including the G-20, the IMF, the World Bank, and civil society organizations like Oxfam and Transparency International have lent their expertise as well. And all of these efforts are critical and they should continue, but in the end, success will depend on more than funding and sharing expert technical solutions. It will depend on building the political will to implement them.

Any kind of change will take hard work, but these reforms will also take courage. Elected leaders will have to look their most powerful supporters right in the eye and tell them, "You need to pay your fair share for the good of your country." Budget officials will have to make their decisions public, even if it subjects them to tough criticism. And tax collectors will have to speak out against bribery and corruption. In short, behind every success story, there will be a committed group of people who refuse to accept the status quo, who stand up to entrenched interests and take on tough reforms. Without this essential leadership, technical solutions will remain necessary but unfortunately insufficient.

Building that political will is the goal of an effort we're calling domestic finance for development. We aim to raise these issues from the technical realm to the political realm, not just how to implement the reforms but how to spark leadership and action. And in the coming weeks, Clinton will issue policy guidance instructing every diplomat and every development officer at the State Department and USAID to elevate corruption as a focus of their work with other countries.

Clinton is also establishing an innovation fund to create incentives and boost political support for anticorruption efforts and tax reform. And Clinton will launch a pilot project to support a small number of countries in their efforts to make comprehensive, integrated reform in all three areas. Working with countries that have a demonstrated commitment to change, Clinton will help them identify areas for improvement, design solutions, and measure their progress in delivering results. Ultimately, Clinton's goal is to reinforce these countries and to create models of success.

Clinton announces that in July, the United States will host a meeting of the Open Government Partnership, which will bring together partners from many countries and sectors to support governments' efforts to become more transparent, accountable, and participatory. The meeting will pave the way for heads of state to participate in a summit on the sidelines of this year's United Nations General Assembly. http://venitism.blogspot.com