It is a pleasure to speak with you this evening. I would like to thank Tim Haas for that introduction, and President Carter and the Carter Center for hosting this conference which focuses on what I believe is an absolutely critical issue for the developing world, including Latin America: Corruption. Corruption, is of course, a moral and social issue, but tonight I would like to discuss corruption as a critical economic and financial issue, and what the developing world, the industrial world and multilateral institutions can do to combat it.

Since taking office more than six years ago, the Clinton Administration has worked intensely to promote reform and growth in developing countries around the world, in part because of the increasing importance of the developing countries to our own economy. In recent years, they have purchased over 40% of our exports. Latin America, as all of you know well, has undergone a remarkable political and economic transformation in the past decade, and has been the fastest growing market for U.S. exports over the past four years, accounting for nearly 50% of total U.S. export growth. The United States now trades almost as much with Latin America as with Western Europe.

The longer I have worked on promoting growth in developing countries and in the countries transitioning from communism the more I have come to believe that corruption is a prime impediment to economic growth and economic well being.

Of course, no country can claim purity in this area corruption certainly exists in the industrial world and among developing countries there is a wide range in the severity of the problem. But corruption is particularly pernicious in the developing world because it diverts the scarce resources that are needed so badly for critical priorities such as health, education and housing. In some developing countries, it may even be the single most important impediment to sustained economic growth.

The global financial crisis of the last two years highlighted the economic dimension of corruption. In some countries, corruption increased vulnerability to crisis. In others, corruption was a significant impediment to implementing the necessary response to crisis and to restoring confidence in global financial markets.

Corruption and especially the widespread or even pervasive corruption found in some countries -- affects the economies of the developing world in a number of ways. It benefits the few at the expense of the many. It distorts normal business and public policy decision-making, leading to inefficient resource allocation. It discourages small businesses and entrepreneurs who simply cannot afford the costs of bribery. It creates uncertainty, which discourages investment, and it particularly discourages foreign investment.

Another way of saying this, is that corruption undermines the rule of law, and can become the way business is conducted. This is the anti-thesis of the effective legal system that is a principal requisite for a successful economy. Moreover, by undermining the rule of law and by undermining confidence in public institutions, corruption diminishes the willingness of people to pay taxes, which reduces resources available for essential public sector services and public investment, and undermines fiscal stability.

Finally, corruption creates an environment conducive to organized crime in fact, corruption and organized crime can create a vicious cycle. Drugs, organized crime and even street crime feed corruption, and corruption undermines or can even preclude efforts to combat drugs, organized crime and street crime and these too are severe impediments to economic activity.

I have spoken with CEOs of large American companies who have told me that they simply will not undertake a major operation in a particular otherwise promising country because of organized crime, extortion and street violence.

When you consider how corruption can become integrated in the normal conduct of commerce, how it can become intertwined with organized crime, money laundering and narcotics trafficking, and how it can become pervasive in a political system, you get a sense of both how critical reducing corruption is and how difficult that can be. Having said that, however, there are a number of developing countries that are relatively free of corruption with some notable examples in Latin America, and a few where high rates of corruption have been substantially reduced. The challenge is very great -- indeed, some at Treasury who know this issue feel that if anything world-wide corruption has increased over time --but can be met. It is valuable to look at countries that have shown success in combating corruption to see what we can learn, to apply elsewhere.

As I have focused on this issue, it seems to me there are at least five elements critical to effectively combating corruption.

First, although it may seem obvious, nations should have sensible, clear laws and regulations, since ambiguity and complexity create greater opportunities for corruption in administration and adjudication. Then, the court system must be independent of political pressure, and to the extent possible adequately funded, and complemented by honest, well-trained and adequately compensated regulators, judges, prosecutors and law enforcement officers. This is difficult for poor countries that cannot afford proper training, adequate salaries and all the rest, and that puts an even greater onus on the international community to help. And that is happening, as the IMF, the World Bank, and IBRD focus more on good governance and combating corruption, but more should be done.

Second, is to eliminate all non-essential licensing, regulatory approvals and other discretionary controls. Reducing administrative discretion of government can greatly reduce the potential for corruption. If a license is no longer required to engage in some activity, then that is one less opportunity for bribery.

Third, is to create a well-supervised, soundly regulated and competitive financial system that operates on a commercial basis and is not subject to credit decisions based on personal or political connections. As part of the Summit of the Americas process, the finance ministers are working together to promote financial sector regulatory reform. But, again, this can be very difficult for a resource constrained developing country, and the World Bank and IBRD have substantially increased assistance in these areas.

Fourth, is to increase the transparency and accountability of government operations and decision-making. Shining light on the activities of government by publishing information about its operations and decision-making, and where appropriate, by including public participation in those decisions, is a powerful deterrent to corruption. Let me also add that a free and vibrant press and the active participation of non- governmental organizations can make an enormous contribution here. At the Vice President's conference on combating corruption, the Secretary of Finance of the City of Buenos Aires noted that exposing the bidding for municipal contracts to the press and NGOs has significantly cut costs for the city.

Fifth, and finally is to create a sound civil service system with strict conflict of interest rules, appropriate sanctions for malfeasance and adequate compensation for employees. This has proven to be a difficult problem for many of the poorer countries of this hemisphere, in part because they lack the resources to pay their civil servants adequate salaries. In some countries, it may well be desirable and feasible to have fewer government employees, and to pay them better.

While much of the responsibility for putting in place these five elements to combat corruption lies with developing nations, there is much the rest of the world can do. The international financial institutions including the International Monetary Fund, World Bank, and the Regional Development Banks have greatly increased their involvement in combating corruption, and they can and should do more.

IMF Managing Director Camdessus has been outspoken in his condemnation of corruption, and the IMF is increasingly giving explicit consideration to weakness in governance and to corruption in all its country programs including Latin America. The Fund has developed a code of fiscal transparency, which calls for governments to accurately track and disclose expenditures and thereby make them more accountable for their spending decisions. The Fund also is increasing its support for open and transparent markets, price decontrol and trade liberalization, each of which will reduce the opportunity for bribery and corruption.

Under President Wolfensohn's leadership, the World Bank has become highly engaged in the fight against corruption. The Bank has developed new methodologies and techniques for analysis of the nature and extent of corruption in specific countries. Eleven countries, including Bolivia and Ecuador, have adopted this approach to help understand their corruption problems and to formulate targeted anti-corruption programs. An important aspect of the Bank's approach is to increase transparency and accountability by encouraging grass-roots involvement of "civil society" such as the media, schools, churches, and business and consumer organizations. The Bank also has made loans to support judiciary reforms, and has begun to integrate anti-corruption measures into its overall lending programs.

The Inter-American Development Bank is by far the largest multilateral lender in Latin America, which creates particular opportunities in the fight against corruption. The IDB organized a very successful and well-attended conference last year on transparency in public sector procurement, but we believe the bank can and should make this struggle an even higher priority.

It is also critically important to recognize that corruption is a two way street: For every bribe taker, there is a bribe giver. Developed countries must deal with their own involvement in developing country corruption. For the last several years, we have been urging the OECD countries to do more to discourage bribery. The OECD Bribery Convention, which was signed in December 1997 and required that bribery of foreign officials be made a crime, went into effect this year in the United States and eleven other countries. Signatories to the Convention including Mexico and non-OECD members Argentina, Brazil, and Chile who have not yet ratified and implemented the convention should so do promptly. Moreover, there are still a few OECD countries that have not yet eliminated the tax deductibility of bribes, and that is simply inexcusable.

There is also another international treaty pending, the OAS's "Inter- American Convention Against Corruption." We are working to obtain U.S. ratification and to build support for an effective monitoring process. Since four major Latin American countries signed the OECD Convention and thus will participate in that Convention's explicit provisions for mutual evaluation and monitoring, we would hope that other Latin American nations also will be agreeable to an effective monitoring mechanism.

Industrial nations can also help by increasing technical assistance and financial aid to developing nations for implementing the sorts of measures I discussed a few moments ago. In addition, all nations can combat corruption by cooperating in combating money laundering, since the corrupt often need to launder the proceeds of corruption into useable legitimate assets.

In the last few years, there has been real progress in international cooperation on money laundering, but there is much still to do. Reflecting, in part, the work of the Summit of the Americas process, Caribbean Financial Action Task Force, and OAS CICAD, a significant number of states in the Americas have criminalized money laundering, enhanced the regulation of their financial services sectors to more readily spot money laundering and instituted measures to improve assistance on investigations and prosecutions. At the same time, the United States Treasury has worked directly with many of the nations of the Hemisphere, providing technical assistance and training on a host of anti-money laundering issues. However, much more needs to be done, by all nations of the Hemisphere including our own.

Let me conclude by saying again that corruption is a critical economic issue for developing nations and the countries transitioning from communism, and combating corruption is a daunting task. Having said that, the increasing recognition of these realities, and the increasing work in that area, are important steps forward. I can remember not so long ago when discussing corruption in any conference like this would have been unthinkable, taboo. Similarly, last year, I visited Kenya and gave a speech on corruption and the level of interest and the wide ranging discussion we held afterwards, involving students, government officials, business people, and representatives from non- governmental organizations, on the impact of corruption on Kenyan society, was remarkable.

Just a few months ago, the Vice President hosted a conference on corruption, and now President Carter and the Carter Center have brought together an impressive group of individuals from this hemisphere to focus on the problem in the Americas. Such conferences can contribute greatly, by the work product they develop, by identifying and promulgating best practices, and by increasing awareness of corruption and its corrosive effects on a society and an economy. This last, in turn, can help make corruption socially unacceptable, which may deter both the givers of bribes and the recipients of bribes. Along these lines, my own view is that far too little has been done to expose to public shame the providers of bribes from developed countries, and the developed countries themselves that are not acting energetically to combat corruption in developing countries. As I mentioned earlier, there are still OECD members who have not eliminated the tax deductibility of such bribes, or ratified the OECD convention criminalizing this activity. All of us must continue to work together developed and developing nations, groups like the Carter Center, the international financial institutions, and NGOs like Transparency International to move forward in the crucial struggle against corruption. And by doing so, I believe we will importantly contribute to helping lay the groundwork for stronger economies around the world, which will benefit all of us. Thank you very much.