Corruption in crisis management

Laura writes*

In 2015, Nepal was struck by a 7.8 magnitude earthquake followed by a 7.3 magnitude aftershock, resulting in over 9,000 casualties and almost 22,000 injured people (BBC, 2015). Entire villages were decimated, 2.8 million people were displaced, and 4.2 million people were in urgent need of medical assistance (WHO, 2015).

Source: BBC, 2015

The international community responded immediately by sending in rescue teams, necessary materials, and various forms of humanitarian and financial aid (MSF, 2015). Although this aid helped the Nepali community tremendously, not all resources reached the intended target groups. Why?

Primarily because of corruption.

Corruption – the ‘abuse of public office for private gain’ (Schleifer & Vishny, 2003) – is a notorious problem in development aid and affects resource allocation greatly. According to Ban Ki-Moon, the former Secretary General of the United Nations, corruption absorbs a baffling 30% of all development assistance that never makes it to its final destination (UN News, 2012), and there is increasing evidence of a strong statistical correlation between corruption and a loss of life in earthquakes (Messick, 2015).

In Nepal, corruption hampered post-earthquake aid allocation in a number of ways, which are important to examine to avoid the further loss of resources. First, corruption diverted aid away from target groups into private pockets. This is a principal-agent problem, as is exemplified by volunteer staff who reported that Nepali government officials required bribes and a share of the resources to allow the inflow of earthquake resources from India (Francis, 2015) . In addition, the Nepali government tried to “wrest control of relief” by demanding that all aid allocation should flow through the Prime Minister’s Disaster Relief Fund, which centralized aid funds and made it easier for bribes to be extracted (Francis, 2015).

Second, the presence of corruption disincentivized international donors from providing humanitarian or financial aid in future crises (Francis, 2015). For example, Britain’s International Development Committee announced large budget cuts to their development program to combat corruption in Nepal and in other earthquake-stricken countries to penalize the governments for it (Griffin, 2021). Consequently, it not only hampers short-term allocation of aid, but long-term trust in the government to allocate the aid.

Although the international community knows that corruption takes place and that it hinders development aid from reaching those in need, it still has long ways to go in identifying where and how it inhibits aid allocation. This is a strong reason to conduct case studies of corruption in post-crisis management, such as in Nepal.

Bottom Line: Corruption disrupts development aid from reaching those in need. To avoid a further loss of resources, the international community needs a better understanding of the origins and mechanisms of corruption.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

7 thoughts on “Corruption in crisis management”

  1. I’m very curious on what kind of influence the international community has on these mechanisms. As you showed the demands from the Nepali government to work through a fund of the prime minister, makes providing aid more shady. Is the international community able to refuse such demand and still be able to provide the needed help? I think most people in the richer countries believe that most of the given money ephaporizes into thin air and therefore they are not donating anything. Should there by a international organisation that can provide development aid without the permission of governments to evade such corruption problems? So that people who are willing to donate can do so without the fear of losing it to corruption.

    1. Hey Haydar, thank you for your questions!
      The more I read about it, the more I realize that foreign aid allocation is a very delicate and complex process that requires a multitude of actors to work together (including the host government, foreign embassies and their respective aid teams, NGOs, and even individual donors). It also makes it even more complicated that countries have different systems of foreign aid allocation (i.e., different government structures and differing levels of democracy), and that each actor has their own set of rules that they are bound to. So, to answer your questions, I will try to break this process down in the most straightforward way possible.
      “Is the international community able to refuse such demand and still be able to provide the needed help?” The short answer is ‘yes’. Each international actor has a degree of control about where their financial, humanitarian, and resource aid is allocated to. For example, foreign embassies whose tax money is donated to countries like Nepal after the earthquake are required to provide proof to their taxpayers that their money is actually reached those in need. In order to do so, they have to document where their aid allocation is going, and in order to document it, they have to stay in control of it and not hand that responsibility over to the government. This is one argument they can use (and in fact, have used) to ensure that the money is not channeled through the government. In short, aid allocation is not bound by a set contract that forces international donors to allocate it to a particular place: they have the power to decide where it goes.
      “Should there be an international organisation that can provide development aid without the permission of governments to evade such corruption problems?” This is actually already the case with most donors: they do not need the permission of the government at each stage of aid implementation. For example, a lot of the smaller donors (i.e., individuals and small foundations) have a considerable degree of freedom to choose where their resources go, without the government approving it. This was very evident after the earthquake in Nepal: the regions which had the most international connections prior to the disaster also received the most international aid. Essentially, although governments can request help from the international community after disasters, they do not have as much control over it as you may think. This may be a good thing on the one hand as it makes corruption more difficult, but can also be a bad thing on the other hand, because it lacks a unified and coordinated approach of the government and the international community after disasters.
      This is a very simple summary, but let me know if you have any more questions!

  2. Hi Laura,
    I really appreciate your concern about Nepal. I’m Sujaan, an econ major from Nepal. I do believe that foreign aid is not a great relief for developing countries like ours, when it comes to managing crisis. For me, foreign aid is essentially taking money from the poor people of rich country and giving it to the rich people of the poor country. One of the main reasons for corruption in Nepal is lack of transparency because we don’t have culture of keeping track of data. Once data is open to the general public, I think it will help sidestep the waste, corruption, and inefficiency. While we make sweeping generalisations about all gov. bureaucrats being corrupt, there were still people like Kulman Ghising, Swarnim Wagle, Leela Mani Poudyal working tirelessly on Needs Assessment Report in order to set up National Reconstruction Authority. Overall, a good read! Enjoyed. :))

    1. Hi Sujaan,
      I am glad you enjoyed this blog post! As you mentioned, I think it is important not only to consider the role of corruption during foreign aid allocation, but to consider the wider implications of how foreign aid impacts countries such as Nepal. I also think it is interesting how you mentioned that the absence of a ‘culture of keeping track of data’ is a large obstacle to reducing corruption. I agree that an increased collection of data would not only improve transparency, increase accountability, and make corruption more risky for government officials, but it would also help the country tremendously at improving their general socioeconomic indicators.

      1. Hi Laura, thanks for clarifying it. Indeed. Not just foreign aid but in every dimension of public finance. Sad to say, but I think Nepal government has forgotten its responsibility and has depreciated its political capital & public trust. Even I have tried to access government services over past few years and it’s almost impossible to get anything done without pulling strings, utilizing your connections, or even paying a small bribe. There’s much anger from the public around these issues, for instance, even at this midst of COVID-19 second wave, governments have failed to maintain equitable distribution of vaccines due to nepotism, favouritism, and corrupted procurement system. Glad you raised this important issue. It’s always pleasant to see someone from the western having a keen interest in our region. Please convey my warm regards to Professor Zetland as well. I have watched all his lecture series on ‘Environmental Economics’ uploaded in youtube and I was deeply inspired by the work of Elinor Ostrom.

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