SAARC Common Currency and Corruption Legalization

View with images and charts

SAARC Common Currency and Corruption Legalization


After the Second World War, the world experienced a major change in terms of economic cooperation. The growth of regional economic cooperation arrangement is one of the major developments in the post war period. The formation of regional integration has been greatly successful in brining historically hostile countries together. Both economic and political factors are responsible for the formation of regional agreements, but economic factor is the prevailing factor in pushing a country towards regional integration. The classic example is the states in the European Union and the Southeast Asia where economic dimensions have brought long time foes in the same dais.

The basic premise on which SAARC was founded was that by activating cooperative cultural identities and economic interests, political conflicts and tensions in South Asia could be moderated, if not completely eliminated. SAARC now stands at a critical stage of are evolution where, given the right push, it can overcome past constraints and barriers to emerge as a dynamic factor in the peace and prosperity of more than a billion South Asians. The recent SAARC head of states conference in Dhaka showed a hint of improved cooperation among the member countries. The activation of SAFTA is a step towards more integrated economic cooperation.

A common currency’s attraction is that it doesn’t represent the currency of any single country. From an economist’s point of view, it’s advantageous to deal with a lesser number of currencies since each time one converts a currency there is a huge loss. From the perspective of comparative advantage enjoyed by some of the South Asian countries in export of certain items like tea in the case of India and Sri Lanka, jute in the ca e of Bangladesh and India, basmati rice and cotton in the case of India and Pakistan, it looks advantageous if SAARCcountries could adopt a single currency-substantially enhancing their bargaining power together in the world market.

This report evaluates the opportunity of introducing a common currency for the SAARC and also examines the feasibility of that common currency while taking overall current situation under consideration.

Common Currency:

Common currency means that individual countries do not have their own currency, and whole task of currency creation and monetary policy is agreed at a regional level with agreements on national component of currency and money creation. Interest rate hand exchange rate policies are also centralized. That system requires surrender of monetary sovereignty associated with currency creation and monetary expansion.

In the context of European integration movement, the first stage was introduction of European Currency Unit (ECU), a composite monetary unit consisting of a basket of European Community currencies and the process of consolidation under European Monetary Union (EMU) before gradual evolution to the single currency, Euro.

Rupa the suggested name of common currency

Rupa, the suggested name for the proposed common currency of SAARC countries, gets a thumbs-down from image-builders

What’s in a name? Everything, it seems. With news of the proposed common currency for SAARC countries being announced, the suggested name ‘Rupa’ has already raised its share of chuckles. Rupa? It sounds like someone is soliciting! guffaws ad film-maker Prahlad Kakkar, ‘‘Imagine, you walk into a shop and ask for the price and they say, paanch rupa!’’

Tut-tuts Cyrus Oshidar, vice-president and GM (creative and content), MTV Networks India, It sounds like a bad joke. They need to hire an ad agency to come up with something better.’’ The jokes continue with theatre director and adman Rahul Da Cunha: It’s an awful name for a common currency. It would be so embarrassing for a woman with the same name!’’

The proposal for the common currency, to be commissioned with the help of WTO by 2010, has yet to be ratified. However, former Pakistani foreign secretary Niaz Naik has reportedly stated that his country would support the proposal in the wake of improved relations between India and Pakistan.

But in the land of numerological-enhanced, tongue-twisting Kkusum and Kasautii Zindagi Kii, a name is not just a name. And with semantics coming into play, connotations raise their head. ‘‘Rupa sounds like a banian,’’ says Cyrus, ‘‘A lot of thought should be go into the selection of the name. It’s about semantics, really. We have to focus on what we are projecting. For instance, the Euro connotes a unified Europe. When we choose a common name for the SAARC currency, it’s important that it should project a positive image —one with local sound and colour which evokes a forward-looking picture of the region.’’ Says Prasoon Joshi, national creative director, McCann Erickson, ‘‘A name should be more than just an abbreviation.’’ But the finance guys don’t necessarily agree. Says ABN Amro Bank CEO Ramesh Sobti, ‘‘As the rupee is the dominant currency, the name is good enough.’’

Any off-hand suggestions for names? Prasoon picks his three choices: ‘‘Yaari —to signify the friendship between SAARC countries; Mudra, meaning currency; and Daulat, meaning wealth.’’ Prahlad’s suggestion: ‘‘Rupiyah, because it is used in other South East Asian countries.’’ Rahul would opt for ‘‘SAARC — for all the SAARC countries.’’Any takers?

Discussion In Light of European Union & Euro

As discussed in the introduction, political and economical factors are the stimulus for pushing countries towards regional integration. European Union is the precise example in this case. After the Second World War, the whole Europe was left, by economic and human destruction. The then European political leaders realized that the only way to recover from this devastating situation was to go for a greater cooperation among the European Countries. Many organizations were formed, including the European Economic Community (EEC), which eventually emerged as the organization that would bring together the countries of Europe into the most power full trading bloc in the world. The EEC, later called the European Community (EC), and finally the European Union'(EU), set about to abolish internal tariffs in order to more closely integrate European Markets and allow economic cooperation to help avoid further political conflict. EU ultimately succeeded in pursuing its goal and currently EU is the only monetary union in the world.

The three stages to achieve EURO as follows:

1. Reduction of the fluctuation margins between Member States’ currencies, broad guidelines for economic policy at Community level, co-ordination of budgetary policy, preparation of Treaty changes to facilitate later stages of EMU.

2. Integration of financial markets and banking systems to create free movement of capital, progressive elimination of exchange rate fluctuations, closer co-ordination of short-term economic policies and budgetary and fiscal measures.

3. Irrevocable fixing of exchange rates between participating national currencies, convergence of economic policies, establishment of a Community ‘system of central banks.

European Monetary System

Following a Franco-German initiative, the Community decided to re-launch monetary integration at the Brussels European Council by creating a European Monetary System (EMS), with the objectives of stabilizing exchange rates, reducing inflation, and preparing for monetary integration. The EMS entered into force on 13 March 1979. The system consisted of three elements:

1. Currency basket (European Currency Unit or ECU);

2. Monetary stabilization mechanism (Exchange Rate Mechanism or ERM);

3. Mechanism for financing monetary interventions (European Monetary Co-operation Fund or FECOM).

The ERM gave each currency a central exchange rate against the ECU, which also gave them central cross rates against each of the other participating currencies. Participants were then required to maintain their exchange rates within a 2.25% fluctuation band above or below each bilateral central rate, except Italy, which had a margin of6%, and the United Kingdom, which initially remained outside the system.

The Euro system’s primary objective is the maintenance of price stability. It meets its objectives through:

(a) Deciding and implementing monetary policy;

(b) Conducting foreign exchange operations;

(c) Operating payment systems’. The NCBs’ of the participating Member States played a key role in the smooth transition to the euro. Their responsibilities have included:

(a) Introducing the euro in their respective countries;

(b) Managing the changeover from national currencies to the euro;

(c) Creating the necessary systems to effectively circulate the euro banknotes and coins;

(d) Withdrawing national currencies; and

(e) Providing advice about and promoting the use of the euro.

Steps Needed to Introduce a Common Currency

Economic cooperation is an integrated process. To achieve economic integration such as introduction of common currency, a certain level of integration is necessary. Otherwise it will never be possible to introduce a common currency in any such region. Before economic integration there are levels of cooperation exists. In the following they are described in brief:

South Asia will have to wait for at least a few decades to make Vajpayee’s dream of common currency come true. Regional economic integration is a long process and can be broadly divided into two phases,

1. Shallow integration and

2. Deep integration.

The first stage of shallow integration is included-

the formation of Preferential Trading Area (PTA). In this stage trading partners offer preferential tariff to each other. SAARC Preferential Trading Arrangement came into existence in 1995 and at present members have reduced tariff on more than 6,500 products. This, however, has not resulted in a substantial increase in intra-regional trade because the reduction on tariff is not significant and the products on which reduction have been offered are not those that have high trade potential for other members.

The formation of Free Trade Area(FTA). In this stage members remove all tariff and non-tariff barriers among themselves but are free to fix their own tariff rates on imports from non-members. Architects of regional integration in South Asia envisioned having SAARC Free Trade Agreement (SAFTA) by the end of 2002. This though could not be achieved and now the officials are working hard to finalise the draft in the forthcoming twelfth SAARC Summit in Islamabad. The eleventh SAARC Summit held in Kathmandu in 2002 had proposed various dates for moving towards the establishment of an economic community in South Asia. It proposes that the least developed members remove all tariff and non-tariff barriers by 2010 and other members by 2008 so that SAFTA will be fully established by 2010.

The formation of a Customs Union. In this stage members, in addition to removing all tariff and not-tariff barriers among themselves, also set a common level of tariff for non-members. The architects of regional integration in South Asia envision having a South Asian Customs Union by 2015.

The first step of deep integration –

the formation of a common market. This stage is characterized by the harmonization of some institutional arrangements and commercial and financial laws. In addition to the free movement of goods and services, a common market will also have free movement of capital and labor.

The final stage of regional integration is the formation of an Economic Union. This stage involves the integration of national economic policies including tax and a common currency. The eleventh SAARC Summit held in Kathmandu in 2002 proposed that measures to establish South Asian Economic Union (SAEU) be completed by 2020.

Regional integration in South Asia is still in the first stage and its entry into the second stage is proving difficult. This was evident from the failure of officials to finalize SAFTA draft before the twelfth SAARC Summit to be held in Islamabad from 4-6 January 2004. Given the fact that the performance in the first stage has not been encouraging, it is questionable whether the dates proposed by the eleventh SAARC Summit in Kathmandu for various stages of economic integration within South Asia will be realized. In this light, Prime Minister Vajpayee’s proposal has taken many by surprise.

Rationale behind Common Currency

In this report we are trying to develop a hypothesis. This hypothesis we are callings the rationale behind economic cooperation that is introducing a common currency. The introduction of common currency will be beneficial up to highest point if there is interdependency between the member countries that are going for a common currency. For example the inter trade among the European Union countries was a significant amount. For this reason the transaction cost of converting currencies was huge. Since they were heavily independent and the inter trade cost them a lot, they went for introducing a common currency.

So if we can show that there is great deal of interdependence among the South Asian countries then, it can be viable basis for introducing a common currency. In the following, a statistics is given in percentage terms of inter trade among the South Asian nations. In the following statistics India is considered to be the base country. Then we have tried to compare that how much each of the other six countries is dependent on India in terms of Trade.

Economic indicator: Trade

Table 01: Inter regional export (Major partners)



The above table shows the percentage figures of inter regional export of South Asia. The blank space indicates either insignificant export or no export relationship with ”the countries. From the table it is evident that 35.55% of Bhutan’s total export is to India. Similarly Nepal exports 54.4% of its total export to India. Sri Lanka on the other hand exports only 7.2% to India. Maldives export 13.4% of its total export to Sri Lanka. Bangladesh and Pakistan have no significant export trade relationship with any of the South Asian countries.

Table 02: Inter regional import (Major Partners)



The above table shows inter regional import trade relationship. From the table it is evident that except Pakistan, all the countries have import relationship with India and they are quite significant. Bangladesh imports 14.70% of its total import from India and in fact India is the highest import partner of Bangladesh. Same thing goes for most of the countries.

So from the above two tables it is evident that though all the countries are not that much dependent to each other in terms of export, they are very much dependent on India terms of import. Since these countries are importing significant amount from India, it involves a transaction cost during currency conversion. So if a common currency can be introduced then, this transaction cost of currency convertibility can be eliminated and all the member countries will be benefited. A rough guide to the significance of these purported economic benefits is provided by the importance of intra-SAARC trade in relation to the total trade of SAARC countries.

This ratio has hovered in the range of only 4-5 per cent over the past decade, despite SAFTA and various bilateral free trade agreements among SAARC countries.

Contrast this low number with 50 per cent plus for the North American Free Trade Agreement and 20 per cent plus for ASEAN. (Incidentally, there isn’t much impetus for a common currency in even these more successful regional trading arrangements.)

Furthermore, intra-SAARC cross-border flows of capital are even less significant in relation to total investment flows into SAARC nations. Therefore, as a first approximation, it is clear that the benefits from a common currency are likely to be modest for SAARC members.

Comparative Analysis of Economic Indicators

The inflation rate of the South Asian countries is quite unstable. The rate has been 1994-2003 significantly. Instead of being members of a common region, their inflation rates do not follow the similar trend. The only exception is India where the inflation rate is almost stable for the last five years. No wonder, India has the highest GDP among the SAARC countries, as it possesses the largest population as well as largest’ country size and resources. The GDP growth rate of the seven SAARC countries during the period 1994 – 2003 lacks steadiness. Although, India and Bhutan show a stable growth rate in GDP, other countries suffer from significant fluctuations. Specially, Nepal and Sri Lanka had an experience’ of negative growth rate and Pakistan had its least growth of 1.0% in 1997 from 4.8% in 1996.

All the seven SAARC countries have trade deficit. Taking the individual country size, population and the deficit trade amount under consideration, we see that Pakistan has shown a better performance in the last few years of that period. Obviously India and Bhutan have the largest and lowest trade deficit respectively because of their population size.

The foreign reserve amount of India has a steady growth since 1994. India experienced a sharp increase in reserve fund from 2002. Opposite scenario is found for Sri Lanka. It had a decreasing trend from the year 1994 to 2000, and afterwards the reserve has been increasing gradually. Pakistan had a very much fluctuating reserve condition up to the yea- 2000. Then it has started increase its reserve significantly. Bangladesh had its best reserve in 1994 and then reserve went through some fluctuations up to 2001. Since then, Bangladesh has been increasing its reserve amount.

At the end, by observing all the relevant economical features of the seven SAARC counties, we can come to a conclusion that these countries lack homogeneity. They differ from each other at a large scale in terms of inflation rate, GDP growth rate, trade balance and foreign exchange reserve.

Benefits of a Common Currency

The common currency regime, when achieved, can present substantial benefits to the region. With uncertainty about exchange rates removed, and transaction costs reduced trade and investment in the region can get a big boost. Also with money creation under regional guidelines, there would be better prospects of synchronization of inflation, interest rates and GDP growth, all of which can contribute to accelerated growth and poverty reduction. In fact, a common currency regime can eventually play an important role in convergence towards a target of 7-8 per cent per annual GDP growth for all countries of the region, which is essential. South Asia could benefit most if a common currency is instituted for the whole region. The benefits could be:

** Reduction in transaction costs across the frontiers. In fact, conversion of one currency to another involves costs that increase the production and distribution costs.

** Facilitating the movement of scientific and technical manpower among member nations, as conversion losses will be neutralized.

** As the conversion costs are eliminated, a common currency could play a major role in reducing informal trade. If free trade is permitted in the region, much of this informal trade could be translated into formal trade that, in turn, could earn valuable revenue for the governments.

** Pre-empting a South Asian Central Bank, which will facilitate further economic integration.

Disadvantage of Common currency & Impediments to Economic Union

The biggest disadvantage of economic integration is that there has to be a regional central bank and that bank will be the sole authority in making regional monetary policies. Like the European Central Bank, a similar South Asian Central Bank has to be created in odder to supervise the common currency. Now this means individual countries cannot make their own monetary policies. This is where the problem begins. The considerations, of sovereignty have traditionally weighed heavily on South-Asian Countries. They have been averse to surrendering their decision-making powers on a wide range of issues.

Collective decision-making is a slow affair in the SAARC network. Even matters of vital importance lie in balance for decades without any decision being made. The issues of the creation of SAPTA and SAFTA are good instances. The creation of both would have enabled all countries of the region derive vital producer and consumer surpluses. But decisions on this issue have been notoriously slow.

Another awkward block is the peculiar geography of the region. India is bigger than all the other countries of the region put together. This has driven the smaller countries to believe that India is the ‘dominant big brother’. Consequently, any meaningful effort on India’s part is looked upon with suspicion.

This region also lacks in homogeneity in terms of economic variables like inflation, GDP growth rate and some other. This lacking in homogeneity is a big impediment in introducing common currency. South Asia is also weighed down by its weak economic fundamentals. For the creation of the monetary union, controlling inflation within a fixed range is a pre-requisite. But in the South-Asian region, different countries are at different levels of economic development.

As for economic costs arising from the loss of policy autonomy, the literature on ‘optimum currency area’ indicates that such costs are likely to be higher to the extent that business cycles across member states are not synchronized and to the extent that member nations are subject to different (in time and degree) shocks, to which their economies have to adjust.

The huge economic costs recently suffered by Argentina at the collapse of its unsustainable currency board system (a weaker version of a common currency with the US) should offer some warning to armchair proponents of currency union for SAARC.

Recent econometric studies by Maskay (e.g. in South Asia Economic Journal, 2001) and others have shown that there has been no significant synchronization of economic cycles (as reflected in trends in GDP growth and inflation) among SAARC countries during 1980-2000.

What this means is that the monetary authorities in each SAARC country had to contend with rather different business cycle conditions at any given point in time.

Conversely, any uniform monetary and exchange rate policy imposed by a regional SAARC central bank would not have been in the interests of individual member countries.

These studies also suggest that the pattern of exogenous political and climatic ‘shocks’ experienced by SAARC countries was quite diverse, despite some emerging trends of convergence in trade and exchange rate liberalization.

Overall, the empirical studies point to substantial divergence in the pattern of business cycles and shocks across SAARC countries. This, in turn, means that SAARC countries are better off retaining the freedom of policy action available with separate central banks and independent monetary and exchange rate policies.

Present Political Problems in South Asia

Intra-state conflicts

There is no single factor as main cause of conflict in South Asia. It involves many issues and provides a disappointing picture in every social, economic and political context. This is due to the fact that South Asia is almost perpetually burdened by various inter and intra-state conflicts and crisis stemming from the careless approach of the ruling forces toward resolution of such problems which are based on narrow considerations of caste, religion, ethnicity, language, community, and the like. This distorts the, national integrity and the overall law and order situation of the affected states.

Furthermore, South Asia is an area of tremendous political complexities. States: like Pakistan have been largely ruled by authoritarian military rulers. India, as such faces several unresolved issues that stem from internal as well as external sources These include ethnicity, border disputes, separatist demands, terrorism and subversive activities, communalism, religious problems and so on.

In Nepal, for example, the series of democratically elected government failed to produce any better result than the old royal regime due to widespread corruption and crisis of good governance. The political fundamentalists such as Maoists and mainstream political parties are posing major threat to democracy in Nepal. In addition to creating law and order problems, increased human rights violations and a heavy reliance on security forces have undermined the question of legitimacy of governance in Nepal. Moreover, the problem of civil violence in recent years has emerged as a more serious security issue than the problem of inter-state warfare in South Asia. India has been variously preoccupied with separatists and religious conflicts such as in the state of Punjab and Kashmir, an issue that remains controversial between India and Pakistan. Also the conflict with separatists of Mizoram, Assam, and Nagaland (Eastern India) for autonomy and in Gujarat, Mumbai and other parts have certain religious, ethnic, psychological and economic underpinnings.

Sri Lanka has also had its own set of problems. Democracy in this tiny island-nation remains overshadowed by the civil war originating from Tamil-Singhalese ethnic conflicts. These conflicts in Sri Lanka have pushed successive governments on the edge of collapse. Ruling parties in Sri Lanka failed to reform economic policies due to polarized political debate. In Pakistan, the society faces periodic bursts of violence derived from ethnic, sectarian and religious differences in its diverse community. For instance, conflict in the Sindh province between ethnic Sindhis and those residents who migrated from India following partition has made the province, especially its capital Karachi, ungovernable. Conservative religious elements are also very powerful in Pakistan leading to tensions and conflicts over religious differences, which has also played a major role in sustaining the Indo-Pakistan disagreement over Kashmir. Religious fundamentalism is also evident in Bangladeshi society manifesting itself in attacks on cultural groups, judges, prominent non-governmental organizations (Bangladesh Rural Advancement Committee and the Grameen Bank). Recent series of bomb blasts in Bangladesh are the evidence of fundamentalism which terrorized the whole nation.

Similarly Bhutan and Maldives – the two smallest members of the SAARC also have their own arrays of internal problems. The emerging internal political problems in Bhutan and the fallout of attempted coup in Maldives in 1987 have varying affects in uniting` the country for the cause of development. All this can largely be attributed to the fact, that political and governing institutions in most of the South Asian countries are weak while the political parties themselves lack strength, organization, discipline, and commitments. Taken individually, each of the South Asian states suffer from some kind of instability and consequently projects varying intensities of human deprivation.

South Asia is one of the critical regions with complex security in the world primarily due to the fact that most of the South Asian states are engulfed with varying degrees of conflicts and disputes. Inter-state conflicts in South Asia probably are highest compared to any other regional blocs. Bilateral relations are defined by hostility and mistrust. The differences between India and Pakistan over Kashmir, between Sri Lanka and India; over the nationality of Tamilian, where Sri Lanka accused India, especially state government of Tamil Nadu for supplying arms and providing trainings to the Tamil terrorists in its Southern areas are only two of the most outstanding examples in this regard. Dispute exists between India and Bangladesh over illegal migration from the Chittagong Hill Tracts (CHT) and the demarcation of boundaries involving fertile islands and enclaves and also in sharing the water of river Ganges. Recently when a series of bomb blasts occurred in Mumbai, India directly accused Pakistan and Bangladesh for facilitating; the attack.

The most pronounced security dilemma, however, stems from escalating arms race in South Asia, particularly between the two military powers – India and Pakistan. These disputes among countries further complicate the scenario and have created a lot of problems among the leaders for friendly talks.

Similarly the cultural diversity based in languages, religions and ethnicities is another factor that disables the region to unite. Rather it frequently exerts a negative impact on inter-sate relations in South Asia due to religious differences. Countries with widely differing political systems -A Common Currency in SAARC Countries 75

democracies, military dictatorships and monarchies, characterize the area. Though most of the South Asian states have emerged with shared colonial pasts, similar political experiences, common social values divergences, however, are still significant. India and Sri Lanka are said to have performed better than other functioning democracies with varying degrees of success. Pakistan and Bangladesh at the beginning of the 1990s witnessed a sweeping democratic transition in their domestic scenarios. Nepal’s transition to democracy is at the crossroad following the Maoist movement. Bhutan retains the authority of monarch as the dominant institution while the Maldives has yet to experience multiparty political systems. The troubles in South Asia, its widespread tensions, mutual distrust and occasional hostilities are largely considered products of the contradictions of India’s security perception with that of the rest of the countries of the area. India’s neighbors perceive threats to their security coming primarily from India whereas India considers neighbors as an integral part of its own security system. The supremacy of India in the South Asian power configuration given its geography, demography, economics, and ecology is something about which neither India nor its neighbors can do nothing but accept. But, the image of India in South Asia is that of a power that demands habitual obedience from its neighbors. Thus, the main theme of this doctrine is that South Asia is to be regarded as an Indian backyard. No wonder then, that there has always been certain psychological doubt on the part of the smaller states about their all-powerful neighbor India.

Corruption legalization

The term corruption legalization indicates to the making good of bad and legalizing of illegal, and allowing of forbidden things. Now a day it is most complex and controversial topic especially for researchers and criticizers. In context of Bangladesh the implementation of corruption legalization may lead the economy to a divested situation rather than bringing advantages. To legalize corruption we have to define the term of corruption at first.

Under this concept, all negative must be positive in a systematic way, so that negative things get reduction with negative things.

Definition of Corruption

Corruption is not just an economic exchange, generated by a monetary or ‘economic’ motive. Neither is corruption an exclusively political activity, motivated by a desire to attain or retain political power. The process of corruption is more than economic or political – it is a social process as well, existing side-by-side with, and sometimes complementing economic and political activity.

There are several meanings of the word corruption but when we use the term we usually refer to a specific kind of exchange, activity or behavior. For instance, corruption could mean a process of physical decay or degeneration; the loss of innocence; a state of moral impurity or moral deterioration; perversion in taste or language; and also the wrongful, negligent or willfully corrupt act of a public official in the discharge of his or her public duties. Even though corruption manifests itself as a force on its own and often generates its own momentum, it is linked to many other factors, and it is by understanding these factors that we can hope to understand corruption.

‘The misuse of public power for private profit’, it is this specific definition of corruption.

Causes of corruption

The causes of corruption divide into three categories, cultural, psychological, and system-related.

Cultural factors: “In many countries certain types of corruption are more or less acceptable often depending on the scale in the traditional, political culture.” Some countries have more of a reputation for corruption particularly because of traditional attitudes towards family, kinship, etc.

The other cultural factor is a weak tradition of the rule of law and low level of respect for the law.

Psychological factors: There are a number of psychological factors that help to explain some types of corruption. Taking into account the internal factors of individuals some individuals are “naturally evil” and will commit criminal acts, including corruptones in any type of system. The external factors, individual’s relationship to the group is also important. According to Holmes (1993, p. 165) “the power of both peer pressure and peer-comparison can be great, for instance in the words of one artist “when the best of people take bribes, isn’t it the fool who doesn’t?” In other words if individuals see others around them benefiting from corruption, they may well choose to indulge too.” a position that can take bribes and don’t use their chance they will be considered by their coworkers as stupid men. So under the pressure of this factor many public officials during some period of time become corrupted. But in many cases because people choose their new job depending on the scale of opportunity for taking bribes and they know they should take bribe because this is the way of life.

According to Holmes (1993) “nepotism also as a form of corruption can be explained in

psychological term. “The blood is thicker than water” syndrome wanting to help one’s family. Nepotism can be explained in terms of individuals seeking to maximize their own power and the lust for power is a psychological variable.”

Human weakness: also may cause corruption. Some people find it difficult to reject offers from a person of a “generous” nature. Some officials will accept gifts because they know they are particularly helpful to someone and either feels they “deserve” a reward (that is they feel that a reward is not inappropriate), or else genuinely do not want to offend or embarrass a grateful supplicant.

System related factors: One way in which this occurs is trough the Privatization of services and industries that had once been run by the state. The poor drafting of laws and regulations also creates many opportunities for corrupt acts

Impact of Corruption

The moral impact of corruptions acts, especially when committed by the state. Although there is considerable debate about the causes of corruption, and also about the manner in which corruption manifests itself, there can be no denying the negative impact of corruption.

Developed and Developing World

It seems difficult to get away from the impression, therefore, that the industrialized countries of the North possess a ‘cleaner’ policy. A brief survey of the industrialized world demonstrates that far from being absent, corruption is both present and frequently disguised in the policy. We cannot assume that there is no corruption in the developed world. The distribution of public resources according to personal criteria, and/or the appropriation of public resources for private ends, appears to be normal among dominant groups in industrial societies. Here it is generally acknowledged that patronage plays a major role in the recruitment and cohesion of dominant political and economic elites. In the United Kingdom, for instance, it extends from the extensive kinship and friendship connections which closely connect members of the ruling classes or the ‘establishment’, to the regular dispensation of patronage by the ruling party through a well developed reward system. There is a distinct impression that developed societies have a ‘clean’ policy and developing societies do not.

There are two major reasons for this perception.

First, a close examination of the developed societies reveals that by far and large, there is little or no evidence of corruption in the visible, widespread, day-to-day, petty and routine aspects of public administration. In these societies, corruption exists in the upper, less visible, more exclusive domain of the rich, wealthy, senior members of government, bureaucracy and civil society.

In developing societies, on the other hand, corruption is not restricted to an exclusive elite network alone but extends to different levels of socio-economic and political activity. Corruption in these societies prevails at virtually every point of contact between the state and the market, or the public with the private. In Bangladesh, for instance, as has already been stated, there is ample evidence to show that corruption is not the exception to the rule. It is found at virtually every level of activity in which the state plays a role – from the national, political level to the far-flung rural level. Corruption permeates not only the relatively higher, politically sensitive, and sensitive aspects of state activity, but also its routine functions and structures. There is ‘more’ abuse of the public office in the developing world.

The second reason for the perception that developing countries are ‘more’ corrupt is modernization.

Modernization and Corruption: In this hypothesis, ‘modernization’ is offered as the ultimate goal of all civilized societies. Through this world-view, the developed world appears to display all the characteristics of a ‘modern’, ‘advanced’, socio-economic and political system. In dramatic contrast to this, ‘modernization’ seems to be absent in the developing world. Here, poverty and economic deprivation are linked inexorably to’ backwardness’ in social, economic and political organization.

Modernization cannot resolve the problematic inherent in the rational-legal ideal of bureaucratic transparency, nor can it account for the reality of patrimonial forms of organization in the developed countries. Furthermore, it cannot satisfactorily explain why, when the developed societies and states do come under socio-economic pressure, they tend to become as ‘soft’ as their counterparts in the developing world – the presence of large, immigrant, so-called ‘ethnic’, or socio-economically challenged communities, living on the margins of ‘civic’ life in the developed world, is a case in point and worth noting . We might also remember that public administration in the developing world is regarded to be ‘clean’ because it has seldom been tested – at base, it is a fragile system, prone to abuse and misuse, just like any other system.

Corruption and legalization – in perspective of Bangladesh

Corruption is a topic of most interest and concern in academic circles, in the media, among people of different professions, within the civil service, among members of parliament, politicians, government officials, members of the business and financial communities, students, foreign investors, aid agencies and non-governmental organizations. In other words, the term corruption is not new to Bangladesh. A survey found, among other significant data, that 95 per cent of respondents believed that the police were the most corrupt department in the land, followed very closely by the customs, the department of excise and taxation, the bureaucracy, and the judiciary. A solid 62 per cent of respondents believed that the primary responsibility for corruption in Bangladesh lay in the hands of government officials.

As a social process, therefore, corruption is everywhere in Bangladesh. It is present, for instance, in the process of political patronage, and/or the socio-political institutional arrangement called a patron-client relationship, through which public resources are appropriated by a select group of people, usually described as elites; it is visible in economic exchanges such as the process of rent-seeking which (regulatory requirements by) public servants impose on players in the market: also known as ghoosh or bribe; it is visible and invisible in a host of activities which range from outright bribery to more subtle forms of patronage or persuasion such as tadbir, from underhand deals involving vast sums of money at the national and international levels, to petty, everyday baksheesh which the doorman at a bureaucrat’s office extracts in order to perform his normal duties.

Most corrupted Spheres and Impact of corruption legalization in context of Bangladesh

True, there are arguments which claim that, under certain circumstances, corruption can be beneficial in oiling the wheels of a rigid, over-regulated economy, in providing a safety-valve from repressive regimes, in overcoming delays caused by administrative hurdles and even in personalizing what would otherwise have been an impersonal and uncaring distribution system.

Similarly, it is argued that in the developing world, corruption legalization is a form of indirect taxation which, if removed, would cause bottlenecks which would prevent the smooth functioning of government and business. Furthermore, analysts argue against the assertion that corruption is a waste of resources. They point out the fallacy in the assumption that resources ‘diverted’ into graft would otherwise have been spent productively, or redistributed to the poor, claiming that resources ‘saved’ from graft would most likely be spent on luxury items, not on development projects. In other words, in a situation of chronic scarcity which is what exists in the developing world, there would be other ways in which income inequities would be maintained.

There are several, most corrupted scopes in Bangladesh. If corruption is legalized then there may be miscellaneous effects. These are following —

Administration: the most and largest corrupted sector. It is true that under certain circumstances, corruption can provide some instrumental advantages. It is possible that without corruption, administration in many parts of Bangladesh would – at least temporarily – be impeded. It is also undoubtedly true that under certain conditions, corruption lends a humanizing aspect to what may otherwise have been an impersonal and rigid exchange. For the legalization the activities may be speedy but it would be very costly for a poor doing any tusk.

Business & trade: In economic terms there is no difference between illicit and licit goods indeed, as an economic exchange; corruption often stabilizes the business environment, functioning as an important medium through which the logic of the market asserts itself. Arguments in support of corruption can be applied to many developing societies, where a large bureaucracy is usually so extended and inefficient, that business and trade can only function with the aid of consistent corruption. In Bangladesh, certainly, although corruption is seen to be a serious problem, it is also evident. The distinct impression that without corruption, business would be paralyzed.

Granted that in the absence of exchanges which make the bureaucracy ‘flexible’, much activity in Bangladesh would come to a halt. But surely the illicit exchange, or the bribe, itself, is not the problem. It is extremely important to realize that the ‘benefits’ of corruption are, in all likelihood, masking symptoms of a seriously dysfunctional socio-economic or political system. It is more than likely that corruption has emerged because of other, hidden or deep-seated problems or, as is often the case in the developing world, corruption flourishes because structures have been imposed on people without due consideration of their applicability in these environments.

If it is legalized then it appears to be considerably less acceptable when the state is corrupt. This is partly because the state presumes upon the membership and loyalty of its citizens – something which a private body does not (cannot) assume. Consequently, because the state has a special position, and is regarded to be a neutral, impartial, and representative body which will provide for and protect the rights of the people, any perversion of this understanding is regarded to be far more serious than if the same act were carried out by a private body. The purchase of favors is nothing but an implement ring, speedy& productive exercise.

The effect of legalizing corruption on economic and political development:

As the world is diving into corruption and no one cannot avoid it in spite of imposing strict law and religious value. In this situation we can say that legal corruption is better than illegal corruption. Committing corruption is another basic human right under threat. Anticorruption turns to a culture in our society. To succeed in combating corruption, it is not enough that people should fear the law and punishment; they must also be ethical and poses the ethos that makes corruption fail to thrive.

To measure economic development we have some units and scale but to measure development in politics however, there is agreement neither on the units nor on a single scale to measure development. Political development cannot be defined only by one definition. According to many authors political development has various definitions. For example, it has been defined as administrative and legal development, democratic development etc.

J.S.Nye (1996) refers the term “political Development” to the governmental structure and processes to social change. We generally assume that this means structures and processes, which are regarded as legitimate by relevant sectors of the population and effective in producing outputs desired by relevant sectors of the population. So political development according to Nye (1996) means the growth in the capacity of a society’s governmental structures and processes to maintain their legitimacy over time.

Although the term “corruption” generally has a negative connotation, it according to many

authors can in some circumstances be a distinctly beneficial phenomenon. For example

Nathaniel Nathaniel Leff’s (1964) article “Economic Development through Bureaucratic Corruption” is the most frequently cited source for the argument that “corruption in the form of bribing can be an important arm in the hands of entrepreneurs seeking to do business with a hostile or indifferent government and may, indeed stimulate the development process.”

According to Leff (1964) in many developing countries excessive bureaucratic control and regulations creates serious uncertainty for entrepreneurs. So the bribery can help bureaucrats to get around excessive regulations and minimize uncertainty over enforcement. Then Leff see corruption as a auction mechanism where the most efficient firm will be able to pay the highest bribe for government single license or permit. In addition some authors argued that bribery could enhance efficiency by cutting the considerable time needed to process permits and paperwork.

“speed money” argument by showing a positive relationship between the extent of bribery and the amount of time that enterprise managers spend with public official. Bribing also tend to spend a greater share of management time with bureaucrats and public officials negotiating licenses, permits, signatures, and taxes.

Advantages of legalizing corruption

This term is the most controversial topic that requires various opinions and disputes.It seems to be impossible and satire matter for general people and criticizers. Although it has huge bad impacts it is also beneficiary for the society giving equal right for corruption in the opinion of watchdogs and analysts.

v Human beings have the tendency of enjoying and engaging in forbidden and illegal activities. If the corruption is turned to legal phenomena the repetition or practicing corruption may compelled to reduce or eradicated.

v No single one be affected to the curse of corruption.

v Committing corruption is another basic human right under threat. Anticorruption turns to a culture in our society.

v The corruption will be no more the matter of threats for specific people.

Disadvantages of corruption legalization

The bad side of corruption legalization cannot be explained in a word. It may affect all sectors and compel to a devastating situation.

§ May lead all people to be engaged in illegal corruption.

§ General movement of official task and job may be hampered

§ Economic growth and expansion compelled to be slow down

§ The number of corrupted people may increase in several folds as well as the corrupting affairs tend to cloud the world.

§ As everybody had the power and right of corrupting so they can misuse it for personal interest and jealous.

§ The extremist tendency regarding committing corruption may hamper the normal activities and behavior.

According to many authors’ investigations the excessive tolerance of corruption can have serious negative effects on economic and political development. According to John L. Mikesell (1995 p.65) “Not only is the budget a financial accounting of the receipts and expenditures of the government, it also sets forth a plan for allocating resources – between public and private sectors and within the public sector – to meet national objectives. Budget preparation, discussion, and improvement thus must be at the hearth of public decision making.” Even in a market economy, the budget represents the basic national economic plan, the chosen mix of public and private sector use of national resources. So in presenting the negative effects of corruption on economic and political development we would like to begin from the fact that corruption tends to shift government spending away from the social areas towards the construction of unneeded projects or lower quality investments in infrastructure. In most corrupted countries, corrupt politicians tend to choose investment projects not on the bases of their intrinsic economic worth, but on the opportunity for bribes and kickbacks these projects presents. Vito Tanzi (1995) for properly addressing corruption in public spending makes a distinction between political or high level and administrative or bureaucratic corruption. Political corruption takes place when political decisions are made about the budget; the administrative corruption takes place during the budget execution. Political corruption has particularly damaging effects on the allocation of resources because it tends to divert resources away from the function to which they would have been allocated in the absence of corruption. Tanzi and Davoodi (1997 p.10) found that “corruption tends to be associated with higher public investment and high corruptions tends to reduce Government revenue, which in its place reduces the resources available to finance spending, including public investment.” High corruption also tends to be associated with poor quality of infrastructure, this reduce its contribution to output. Large-scale corruption indeed has powerful effects on both the quality and the quantity of public investment. Because most current spending by governments reflects entitlements or previous commitments such as pensions, interest payments on public debt, salaries, and subsidies politicians have, in short run limited discretion to influence it. In contrast, there is nothing routine about the capital investment and its composition. Capital spending is highly discretionary. In formulating the capital investments, senior political figures must make the basic decisions. These decisions determine the size of the total public investment budget, the general composition of that budget, the choice of specific projects and their geographical location, and even the design of each project. Senior officials may have complete discretion over these decisions especially when a country’s controlling or auditing institutions are not well developed and institutional control are weak.

According to Tanzi (1995) “the widespread corruption in the investment budget will not only reduce the rate of return to new investment in a country, but will also affect the rate of return the country gets from its existing infrastructure.” As corruption has long been around the existing infrastructure has also been contaminated because past investments were administered or distorted by corruption. Moreover, higher spending on capital projects will reduce the resources available for other spending. Of other spending categories, one not protected by entitlements is operation and maintenance the current public spending required to keep the existing physical infrastructure in good working order. Too often, new projects are undertaken while the existing infrastructure is left to deteriorate. In cases of extreme corruption, the physical infrastructure will need to be rebuilt, thus allowing corrupt officials the opportunity to extract additional commissions from new investment projects. So corruption affects the development by reducing the efficiency of public investments directed it toward unneeded projects and during the long-term corruption it distracts the existing infrastructures which are also very important for political and economic development. Corruption not only affects the budget investments but also reduces the budget revenues, which is very crucial for further development. As we know corruption can lead to tax evasion and poor tax administration. The other effect of reduced revenue is the budget deficit. Corruption reduces State revenues, which in its place raise the budget deficit.

According to Miksell(1995 p ?) “The effects of continuing large budget deficits are expected to be largely long term. First international capital market effects promise to redu