GFI, But Who Receives Those Illicit Financial Flows?

Illicit Financial Flows.
One indicator that showed healthy growth trend throughout the last decade according to Global Financial Integrity was Illicit Outflows. Illicit outflows are those capital outflows that stem from crime, corruption, tax evasion, and other illicit activities. 2010 showed a “healthy” growth [double digit] of 11% over previous year at US$ 859 Billion. This estimate is based on new GER+HMR method, which represents a highly conservative estimate for illicit financial outflows. Had the method used in previous reports followed, the figures for 2010 would have been US$ 1.138 trillion and an increase of 26%. The figure of capital lost [GER+HMR] by developing countries in the last decade comes to whopping US$ 5.86 trillion. India ranks 8th *best* on the list with China, Mexico and Malaysia way ahead with more than double the accomplishment. But if one considers the illicit outflow in 10 years as a percentage of gross GDP at current US$ for respective 10 years together, then the picture changes dramatically, though India doesn’t fare any *better*. 
Malaysia’s pre-eminence comes as a surprise because Mahathir Mohamad [Prime Minister until 2003] was at the helms only for 3 years out of the 10 under consideration. That means corruption is a systemic problem and not really personality driven. While talking about drivers of illicit financial flows [IFF], the report says, ^^Bribery, kickbacks, and the proceeds of corruption continued to be the primary driver of illicit financial flows from the Middle East and North Africa, while trade mispricing was the primary driver of illicit financial flows in the other regions^^. The latter part of the statement is misleading because *mispricing* is not a driver of IFF, but rather is an instrument of disguising IFF. This fact is bore out by a statement at another place on GFI website, ^^Trade mispricing was found to account for an average of 80 percent of cumulative illicit flows from developing countries^^. Comparatively richer countries, three of them oil/ gas producing, gave way to poorer countries in the top 10 when compared to earlier years: ^^Qatar, Kuwait, Venezuela, and Poland were all displaced from the top-10 illicit financial flow rankng, and were replaced by the significantly poorer countries Philippines, India, Indonesia, and Nigeria^^.
While this reporting of IFFs by GFI is important and welcome, it is lopsided and worrisome because it does not report who benefited from these flows or who received them on beneficiaries behalf. In absence of this information its scholarship is half-baked at best or ideological at worst. Aren’t those who help in salting away these IFFs equally guilty, and need of exposing?
China Innovates.
 China has been called the workshop of the world, an economic powerhouse, and what not. But one thing that would have USA really worried is if it turns into an innovation powerhouse. Now, number of patents filed is not a reliable indicator of how innovative the nation is, but it surely tells the value and faith its citizens put on innovation. Once that happens and proper incentivised climate is provided through policy framework; would quality innovations be far behind? 
China has nudged both USA and Japan from the top in 2011. 
Sunil Jain’s Column.
The column Lipstick on a Pig in Financial Express by Sunil Jain very ably points out why the *reforms agenda* unfolded so far by UPA government would not yield desired results because new investment is unlikely to flow in, if it sees past investment is doing badly. ^^For one, getting banks to hawk their better-performing infrastructure loans to IDFs may actually make their books look shakier….Two, consider a new telco that bids R12,000 crore, say, for a pan-Indian 2G licence (that’s roughly the base price today). Will a bank, any bank, be willing to lend R15,000 crore or so to fund the telco’s licence and capex when it knows the market leader Bharti Airtel has been seeing pretty disappointing results for several quarters now and when it is up to its neck in debt with a debt-ebitda of an uncomfortable 2.8 times projected for FY13?^^.
0 0 0 0 0 0 0 0 0 0 0 0 0 0
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: