Gov­ern­ment is ‘los­ing grip’ on cor­rup­tion

An­a­lysts fear that Cyprus is pay­ing the price for a poor record in gover­nance

Financial Mirror (Cyprus) - - CYPRUS -

A World Bank re­port on gover­nance in­di­ca­tors sees Cyprus los­ing ground on five out of six cat­e­gories ver­i­fy­ing a feel­ing among Cypri­ots that there is in­sti­tu­tional cor­ro­sion.

Cyprus has slipped be­hind on in­di­ca­tors re­gard­ing con­trol on cor­rup­tion, the rule of law, gov­ern­ment ef­fec­tive­ness, reg­u­la­tory qual­ity and po­lit­i­cal sta­bil­ity in 2017.

Cyprus ex­hib­ited some progress – in the re­port pub­lished ev­ery five years - on the voice and ac­count­abil­ity in­di­ca­tor, reach­ing the lev­els it was at ten years ago.

The val­ues of the World Bank’s six in­di­ca­tors are iden­ti­fied via a sur­vey, which takes into con­sid­er­a­tion the an­swers given by cit­i­zens and na­tional in­sti­tu­tions deal­ing with so­cial and eco­nomic de­vel­op­ment of a coun­try.

The fi­nal value of each in­di­ca­tor is de­rived from the syn­the­sis of the re­sponses to sur­veys of spe­cial­ist opin­ion polls or large re­search in­sti­tutes. The fi­nal val­ues are be­tween -2.5 and 2.5. That means the higher the value of the in­di­ca­tor, the higher the con­fi­dence of the pub­lic to­wards the spe­cific area of gover­nance in their coun­try.

One of the most strik­ing find­ings of the sur­vey is the pub­lic finds that au­thor­i­ties are per­form­ing worse than in pre­vi­ous years when it comes to con­trol on cor­rup­tion. In the fight against cor­rup­tion, the Cyprus rat­ing fell to 0.78 from 1.25 in 2012 and 1.08 in 2007.

Cypri­ots gave the gov­ern­ment a lower grade re­gard­ing its ef­fec­tive­ness as it dropped to 0.92 from 1.39 in 2012 and 1.43 in 2007.

A dis­qui­et­ing find of the World Bank’s sur­vey is that the rule of law in Cyprus is show­ing a sig­nif­i­cant de­cline, from 1.12 in 2007 to 1.10 in 2012 and 0.88 in 2017.

Cyprus has also recorded a small drop in the Reg­u­la­tory Qual­ity in­di­ca­tor.

For­mer Gover­nor of the Cen­tral Bank Pan­i­cos Deme­tri­ades told news web­site Stock­watch the rat­ings are wor­ry­ing as “these in­di­ca­tors are de­ci­sive not only for sus­tain­able de­vel­op­ment but also for the gen­eral pros­per­ity of a coun­try”.

He said it was no co­in­ci­dence that coun­tries like Fin­land, Den­mark and Nor­way, which oc­cupy the top ranks in the World Hap­pi­ness In­dex, have the best in­sti­tu­tion qual­ity, ac­cord­ing to the World Bank.

“In the case of Cyprus, it is par­tic­u­larly wor­ry­ing that the coun­try is re­ced­ing in in­di­ca­tors such as con­trol on cor­rup­tion and rule of law, which are con­sid­ered to be the most im­por­tant for eco­nomic growth in the long run,” said Deme­tri­ades.

“At the same time, Cyprus has one of the big­gest de­clines in the Hap­pi­ness in­dex, rank­ing it in po­si­tion 130 from 141 coun­tries in the ta­ble,” he added.

Deme­tri­ades said it is no sur­prise that the de­cline in the gover­nance in­di­ca­tors of the World Bank is in line with a num­ber of other neg­a­tive devel­op­ments that be­gan with the ero­sion of the Cen­tral Bank’s in­de­pen­dence in 2013.

“Since then we have seen ef­forts by the Anas­tasi­ades ad­min­is­tra­tion to con­trol other in­de­pen­dent in­sti­tu­tions, as well as the me­dia,” said the for­mer banker.

He added: “We had the col­lapse of the Co-op bank and the gov­ern­ment’s in­sis­tence on in­tro­duc­ing the nat­u­ral­iza­tion pro­gram that cre­ates a cock­tail of eco­nomic and po­lit­i­cal risks (for ex­am­ple, the boom in high rise con­struc­tions for for­eign mil­lion­aires, which is not sus­tain­able de­vel­op­ment but, pos­si­bly, signs of a bub­ble) while ig­nor­ing pru­dent warn­ings from the Fis­cal Coun­cil and other econ­o­mists.” re­fusal to face our prob­lems, to re­form, to in­flu­ence the in­ter­ests of sta­tus quos, to change the bal­ances even though they may be out­ra­geously ab­surd.”

Ge­or­giades con­sid­ers the case of pen­sion sys­tem re­form as an ex­am­ple, an is­sue, as he said, for which there are no ide­o­log­i­cal dif­fer­ences and for which al­most ev­ery­one should agree.

“How­ever, be­cause we do not want to touch some of the in­ter­ests, that is, the power that em­ploy­ers and trade union­ists who are manag­ing the fund, the power en­joyed by the su­per­vi­sor, the sense of se­cu­rity of the em­ploy­ees who fear change, we are pre­vent­ing the re­form from go­ing ahead,” said Ge­or­giades.

He added: “The re­sult is that sav­ings have been mis­man­aged for years with losses of hun­dreds of mil­lions, cor­rup­tion is boom­ing, and we are cur­rently very close to leav­ing a gen­er­a­tion with­out suf­fi­cient re­tire­ment funds.”

This is only one area where a con­flict of in­ter­ests goes unchecked, said Ge­or­giades.

“One can only imag­ine what is hap­pen­ing with more im­por­tant is­sues where there are stronger con­flict­ing in­ter­ests and more cor­rup­tion, such as health, ed­u­ca­tion and jus­tice…”.

Talk­ing on the ef­fects that such re­ports have on Cyprus, Chris Savva, a fi­nan­cial an­a­lyst manag­ing one of the coun­try’s big­gest pen­sion funds, said this de­vel­op­ment will pose an­other ob­sta­cle in Cyprus’ ef­fort to at­tract in­vest­ment.

“We should be con­cen­trat­ing on draw­ing in­sti­tu­tional money from in­fra­struc­ture and pen­sion funds. In or­der to be able to do so you need to have a good gover­nance,” said Savva.

The fi­nan­cial an­a­lyst said that in­sti­tu­tional in­vestors are not only put off by the lack of con­trol on cor­rup­tion, as in­di­cated by the World Bank, but also by weak­nesses in the rule of law.

He ar­gued that in­vestors fear that if they find them­selves in a le­gal dis­pute, the Cyprus le­gal sys­tem will not only take a few years to deal with the case, there will also be gaps in the law.

“Re­gret­tably, most of our ef­forts seem to be to­wards at­tract­ing in­di­vid­ual and smaller in­vestors, thus not pay­ing at­ten­tion to bet­ter­ing our records when it comes to gover­nance,” said Savva.

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