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Deborah Amos: From American Public Media, this is The Cost of Corruption, an American RadioWorks documentary. I'm Deborah Amos.

[Music]

Amos: Every day, somewhere in the world, a bribe changes hands.

Man 1: Judges and politicians are paid on the order of $10,000 a month. TV stations are paid something like half a million dollars to $1.5 million per month.

Amos: Corruption entraps entire countries, leaving ordinary citizens in poverty.

Man 2: It's impossible to comprehend the scale of the black economy in Georgia. There was robbery at every stage.

Amos: But around the globe some people are fighting corruption.

Man 3: Today we are going to send an ordinary citizen with a hidden camera to the office of the chief of police, and we hope to get some evidence in order to arrest him.

Amos: In the coming hour, The Cost of Corruption, from American RadioWorks. Part of public radio's special coverage, Think Global. First, this news update.


Segment A

Amos: This is The Cost of Corruption, an American RadioWorks documentary from American Public Media. I'm Deborah Amos. Bribes soak as much as $1 trillion from the world economy each year.

Corruption diverts desperately needed money and resources, locking millions of people in poverty. In the next hour, we'll visit three countries where global forces contribute to corruption, but where a global movement for greater openness is helping people fight back.

First, Peru, one of the most corrupt countries in recent years. There, the country's spy chief, Vladimiro Montesinos, set up an elaborate web of corruption to take control of the Peruvian state. Unlike most corrupt politicians, Montesinos left an astonishing record of his bribes. He recorded them on thousands of video tapes. Michael Montgomery reports.

[sound: voices talking over video tape]

Michael Montgomery: In a government office in Lima, Peru, a hidden camera recorded two men making a deal. The video shows one man in a suit and tie. The other wairs an expensive polo shirt and slacks. He does most of the talking.

Man 1: So right now I hand over the 500,000 in my briefcase, and I'll give you the other 500,000 next Friday.

Montgomery: The man in the polo shirt starts counting out the money. A pyramid of cash slowly rises on a coffee table.

Man 1: 25 plus 25 plus 50 makes 100,000. Here we have 25, 5, 10, ….

Montgomery: This might seem familiar, perhaps a government official taking a payoff from a wealthy patron. But in this case the man taking the cash is a Peruvian newspaper owner. And he's being paid by the country's intelligence czar, a man named Vladimiro Montesinos.

Vladimiro Montesinos (man one): Three, four, five. There you have the 500.

Montgomery: It was a scene repeated countless times in Peru during the 10-year presidency of Alberto Fujimori. As Fujimori's spy chief, Montesinos ran much of the country. He used vast amounts of embezzled money to bribe judges, politicians, bankers and journalists. Montesinos's network reached far outside Peru, allegedly to leftist guerrillas in Colombia, international arms dealers, drug traffickers and money launderers.

Just how much money disappeared? Well, one Peruvian investigator came to this number.

Javier Diez Canseco: More than $8.5 billion.

Montgomery: $8.5 billion. That's a lot of zeroes as they say.

Canseco: That's a lot of zeroes, yes. Especially for a poor country.

Montgomery: Javier Diez Canseco is a Peruvian congressman who led a parliamentary investigation into government corruption in Peru.

Canseco: So it's a very large amount of money what you lose because of corruption and obviously you lose something that you cannot repay, which is public trust.

Montgomery: Diez Canseco says the corruption caused widespread damage in Peru. Savings were wiped out when banks deliberately failed. Some hospitals bought expired medicines purchased through kick-back schemes. And bids were rigged for big public projects.

Peter Eigen: This is a tremendous case for learning how corruption can destroy a society.

Montgomery: Peter Eigen is chairman of Transparency International, an independent, anti-corruption group based in Germany. Eigen says the true coast of corruption in Peru, and in other countries, is many times the amount of money actually embezzled.

Eigen: Do not forget that the whole essence of paying a bribe is that you want to buy a wrong decision. A wrong decision about an investment program, a wrong decision about the sizing and timing of a huge project in a country, a wrong decision about the indebtedness of a country and the allocation of scarce resources. Then it becomes clear that corruption is the main reason for poverty in these countries and the reason for despair and hopelessness of billions of people who are affected by this.

Montgomery: Transparency International ranks Alberto Fujimori's Peru seventh on its list of most corrupt countries. But two factors further distinguish Peru. One is a vast archive of videotapes recorded by Vladimiro Montesinos, showing his many secret deals. Another is that while millions of dollars were being stolen in Peru, much of the world saw the country as a budding, free-market democracy. Peru held elections, convened a parliament and had a vibrant media. Peru also secured billions of dollars in credits through international financial institutions and was a strategic partner in the United States' war on drugs. But the democracy was a façade. Behind it was Montesinos' dirty network.

John McMillan: We normally think of bribes as being a way of enriching yourself. This is the reverse. Montesinos is paying bribes; he uses the bribes as a means of political control. He's exercising power by bribery.

Montgomery: John McMillan is a business professor at Stanford University. Together with a colleague, Pablo Zoido, McMillan closely studied Montesinos's illicit network.

McMillan: Montesinos has essentially complete control over the judiciary, the legislature and the press. That must be extremely unusual if not unique. Suharto's Indonesia is maybe another example. But Suharto didn't pretend to be running a democracy.

Montgomery: To avoid the kind of sanctions imposed on outright dictatorships, Montesinos didn't openly take control of the media, the courts, and the legislature. Rather, he bought people off through bribes, favors and blackmail.

Televisions station got the biggest pay-offs, as Montesinos describes in this recorded meeting with an army general.

Montesinos: Each channel takes $2 million monthly, but this is the only way. And that's why we've won, because we've made this kind of sacrifice.

Montgomery: In exchange, Montesinos tells the general the stations owners signed away their editorial control

Montesinos: They're all lined up already, with their papers signed, the whole thing. We've made them sign contracts and everything. Every day I meet with them here and at 12:30 we plan what will be on the evening news.

Montgomery: John McMillan says each contract is highly detailed, not surprising since Montesinos was trained as a lawyer.

McMillan: It specifies how much paid each month, it specifies that the payment will be back by letter of credit from the TV station to Montesinos. It specifies exactly what TV station should do, which in summary is to let Montesinos see in advance what is going to be broadcast over the news. So the entire news of the TV stations is dictated by Montesinos, and in some cases, he writes the news stories himself.

Montgomery: But one media owner said no.

[sound of news report]

Montgomery: In 1996, Peru's Channel Two began airing hard hitting investigative reports on a program called Contrapunto or counterpoint.

The stories raised allegations about Montesinos's links to death squads, drug traffickers and even the U.S. Central Intelligence Agency.

Channel Two's owner is Barcuh Ivcher, an Israeli who became a naturalized Peruvian citizen in the 1980s. Ivcher says one day, Montesinos sent emissaries with a proposal.

Barcuh Ivcher: They offered me $19 million, and they only asked one condition, one thing.

That was for Ivcher to hand control of his news program Contrapunto to Montesinos. When Ivcher refused, he says Monteisnos revoked his citizenship and forced him into exile.

Montgomery: Why didn't Montesinos just kill you?

Ivcher: Very good question. The question should be, first, why Montesinos gave money to the owners of the TV station instead of taking the TV station. They wanted to sell to the world that they are democrats.

Montgomery: From exile, Ivcher tried to convince the world that Peru wasn't a democracy. He lobbied congress and enlisted human rights groups, but Montesinos was considered a valued ally to United States intelligence agencies

Bruce Goslin: He was the go-to guy. He was one of the principle contacts we had with the most senior levels of the Peruvian government.

Montgomery: Bruce Goslin is retired CIA field agent. In the mid-1990s, Goslin was assigned to Peru where he worked as an agency liaison to Montesinos. Goslin says for years, U.S. intelligence agencies maintained close ties to Montesinos despite concerns about his possible links to death squads and drug traffickers.

Goslin: We used to call him the dark prince. I think he fancied modeling himself after Machiavelli. He enjoyed being behind the scenes and pulling the strings of power.

Montgomery: Goslin says the relationship with Montesinos was closely controlled by officials in Washington. The CIA declined to comment, but Goslin says the agency passed millions of dollars to Peruvian intelligence units in the 1990s. Some of that money may have been diverted by Montesinos for use against his political opponents. But Goslin says U.S. support also helped the country.

Goslin: Peru, in many instances, can point to successes in terms of intelligence programs and how it helped them win the war against the Shining Path. Obviously there were a lot of abuses and they did a lot of things wrong and there were a lot of horrific human rights violations, but there were some very good instances where there were not human rights violations and things were done correctly and I think the U.S. government played a role in that.

Montgomery: With American support, Peru captured the head of the Shining Path guerrillas. Abimael Guzman. That victory helped Alberto Fujimori secure two re-elections. But in 2000, it all unraveled. Montesinos's penchant for video taping his deals proved his undoing. A tape showing Montesinos bribing a Peruvian congressman aired on a cable station in Peru. Montesinos fled the country. Within months the government collapsed. President Fujimori took up residence in Japan. Montesinos was captured, extradited to Peru, and locked up here.

Ten miles north of Lima is a sprawling naval base. Five days each week, Montesinos is on trial in a courtroom here. He and hundreds of others are facing 79 separate indictments in one of the worlds biggest series of corruption trials. Journalist Sally Bowen co-authored a book about Montesinos and has been covering his trials since they began in 2001.

Sally Bowen: We're inside the Kiaol Navil Base. Now this is famous or infamous because here is where Montesinos himself had built six cells to house Peru's most dangerous terrorists, including Abumael Guzman. And now very paradoxically Montesinos is in a cell alongside Abumael Guzman, the man he hunted down.

Montgomery: On this day, Montesinos watches stoically in a brown suede jacket as the presiding judges talks with defense lawyers who are about the question a witness. It's just part of a huge crackdown on corruption.

Bowen: We have generals, the head of the armed forces, we've got high-level media owners, owners of TV channels, owners of newspapers who sold their services to Montesinos, we've got judges and electoral authorities.

Montgomery: Montesinos has refused to cooperate in court, but his videos have been invaluable to prosecutors. So it's puzzling why he made such a damaging body of evidence to begin with. Some experts say the videos fed Montesinos's addiction to power and his belief that he would never be caught.

Stanford professor John McMillan says another reason was simple bookkeeping.

McMillan: He's got 1600 people, at least, he's bribing. You can't keep this in your head. You need records.

Montgomery: Some of the videos reveal not just Montesinos's deals with Peruvians, but his warm relations with the CIA. In one video, Montesinos throws a party for the departing CIA department chief. In spite of this relationship, U.S. officials say they were as surprised as anyone else by the scale of Montesinos's corruption when the videos came to light. But Peruvian journalist Gustavo Gorriti says the U.S. should have known what Montesinos was up to, in part, because reports were writing about it.

Gustavo Goritti: They decided not to know. Not to look into the matter deeply; to try to look the other way and they were very efficient at that. Don't ask, don't tell and they didn't ask but they were told and that's the interesting thing. They were told.

Montgomery: Vladimiro Montesinos has been convicted on some lesser charges, but the big trials lie ahead. The mass corruption has left many people in Peru deeply suspicious of the new democratically elected government, and the country is again facing turmoil.

Still, Peter Eigen of Transparency International sees a silver lining in cases like Montesinos's garner huge publicity.

Eigen: There seems to be the perception now that there's more corruption than before, but I think society is more vigilant, and therefore there an attempt to flush out misbehavior in the private sector and the public sector. People do not trust their elites anymore.

Amos: Coming up: Targeting corrupt officials

Man: Today we are going to send an ordinary citizen with a hidden camera to the office of the chief of police, and we hope to get some evidence in order to arrest him."

Amos: I'm Deborah Amos. You're listening to The Cost of Corruption from American RadioWorks, part of public radio's special coverage, Think Global. To see video of Vladimiro Montesinos bribing a Peruvian media owner, visit our web site, American RadioWorks.org

Our program continues in just a moment, from American Public Media.


Segment B

Amos: From American Public Media, this is The Cost of Corruption, an American RadioWorks documentary. I'm Deborah Amos.

People around the world are fighting to rid their countries of corruption. In some places, bribery and fraud are so deeply rooted in society there seems little hope of change. In the former Soviet Republic of Georgia, people have to bribe everyone from doctors to police, with money percolating up to the highest levels of government. Georgia's new leader has promised to tear apart this corrupt system. Tim Whewell of BBC Current Affairs reports that ordinary citizens are taking part in the crackdown.

[footsteps]

Tim Whewell: This is a tiny shabby room at the end of a long corridor in a sleepy, almost forgotten provincial town. The plaster is peeling. The parquet floors creak. Outside there are ramshackle old Soviet apartment blocks and the snow-covered peaks of the Caucuses Mountains.

[phone rings]

The phone goes off this very old fashioned handset. Someone is ringing Gori 71874.

[Woman answers phone]

The call is taken by a young woman called Tea Sameya Tashvilli.

Here in Stalin's hometown, it's the start of a social revolution.

Whewell: What was that call about?

Tea Sameya Tashvilli (through translator): (She says) it was a call about the case when a lady is trying to get a pension for her father who is disabled already for four years. She cannot because she needs a document from a hospital saying that her father is actually disabled. So the doctor demands 100 Lari to issue this document, as a bribe. Those people, they don't have 100 Lari. Every day we received 30, 40, sometimes 50 calls from people whose rights were violated. Most of the cases are related to bribery and they call us the new government and ask us to help them stop it.

Whewell: This hotline, staffed by young volunteers, was set up here in the governor's office in Gori after the revolution that overthrew Eduard Shevardnadze; a revolution whose aim was to rid Georgia of corruption. Under the old regime, the state had become so rotten that it had almost ceased to exist - everything was for sale. Since then, some of the highest officials have been led off in handcuffs to jail.

In Tbilisi, in the capital, there were incredible scenes where people stood in the main street day after day after day demanding the resignation of Shevardnadze's government. In the end the man who became the president, the 36 year old baby president as they call him, Mikhail Zha Kashvilli, he went, he walked with a rose into Parliament in the middle of a speech that Shevardnadze was making and he told Shevardnadze to get out. Everybody danced. What happened here in Gori?

Tashvilli: Yes, of course we danced. We were shouting "Misha, Misha" - Misha is the name of our president, right - and we were dancing, kissing each other. We had these fireworks, and people [were] happy, simply happy.

Whewell: Since then some of the highest officials have been led off in handcuffs to jail. But here in Gori they understand that you can't clean up a whole country just by chopping off a few heads. Everyone's got to fight corruption at every level, even in themselves.

Tea has just pulled something out from behind the desk. It's a shirt and pinned on the back behind the breast pocket. What is it? It's a hidden camera! Tiny. It's about one inch square. She's just showing me how it's put on so it would look like a slight rumple in your shirt if you were wearing it.

Whewell: So, you use that hidden camera to trap people?

Tashvilli: Yeah. Right. The person who phones here gets one these camera and goes and records the process of bribing.

Whewell: Can we see it happening?

Tashvilli: (She says) Yeah, of course. We can record it and you can see everything yourself.

Whewell: A day later, they're about to fit a camera onto Nana Karolibza, who phoned up to say that a doctor was demanding a large bribe: 100 Lari, in order to issue her father with a disability certificate. There's a real sense of idealism here among these young people of excitement of the prospect of nailing somebody who steals from her fellow citizens. After a final flurry of instructions of how exactly to behave, Nana's off striding down the corridor, one soldier in the fight against corruption.

But faster than I could have imagined, she just walked back in through the door.

Whewell: Nana, did it work?

Nina Karolibza (through translator): (She said) now the doctor refused to take the money. And goes like, "Now you have to bring your father here and he should be checked by all the doctors."

Whewell: Why do you think she's changed her attitude?

Karolibza: They are pretty sure that the information was leaked. The doctor probably knew that she was wearing a hidden camera.

[Television sound]

Whewell: It's not surprising Georgians are becoming more honest. Each TV news bulletins brings a new sensational report of fresh corruption arrests. Once-untouchable grandees have been shown stumbling into police vans. Even police investigators have been swept up for taking bribes. In general, the chain of corruption extends in almost every occupation, from bottom to top.

It's hard to persuade anyone to explain the process in detail, but one former traffic policeman has agreed to talk to me anonymously. He's under investigation himself after a TV report showed a motorist offering him money. He says they can't prove he accepted it that time. Although he admits he usually had no hesitation in taking bribes.

Man: Under Shevardnadze, the system was created in a way that you had to take bribes to survive. Otherwise, you would not simply feed your family. The salaries were really low. There was no other way to get some money except taking money from people, a little bit from anybody. And we were actually the victims of this system.

Whewell: Just explain how low the wages were.

Man: The average salary of a policeman was about 100 Laris, which is about 30 pounds a month.

Whewell: If you had to live on 100 Laris a month, what would you be able to eat? What would you be able to do?

Man: For 100 Laris a month for a family, the maximum of what you can have is bread and sugar, nothing else.

Whewell: That's incredible! Bread and sugar. That's all. What did you have to do to become a traffic policeman?

Man: To get a job as a traffic police inspector was pretty, pretty difficult. Either you would have some really strong connections there, or you just had to pay some money to start actually working.

Whewell: How much would you pay?

Man: It was about $2,000 or $3,000 to start working.

Whewell: $2,000 or $3,000! The way you're describing it, it would take a long time even to get that back for yourself. Tell me how you got the bribes, what you actually did to motorists.

Man: On the road where I worked, the smugglers smuggling goods were passing by all the time. They would pay us money for letting them through. Then we, the traffic policemen, would give the money to the boss, to our boss. But we definitely knew that he would not keep all the money. Nobody would let him keep all the money. This money would go really high up for maybe deputy minister, maybe minister. At the end of the month around 350 Laris would go to the boss and about 60-70 would remain for us, for each policeman.

Whewell: If he would not pass the money on, what would have happened to you in your job?

Man: It was very simple. If you would not pay, you would lose your job immediately and you would be unemployed.

Whewell: The higher up people that you had to pass the money on to, what has happened to them since the Revolution?

Man: Well, my bosses are not there anymore. They were fired.

Whewell: But the money they collected through you, can that money ever be recovered?

Man: When you start a criminal case against a person, you need facts to prove he's guilty. In that case, there are no facts.

Whewell: It's impossible to comprehend the scale of the black economy in Georgia. Far larger than the formal economy, it sucked in citizens' earnings, the state's earnings from customs and taxes, and the states' expenditure. There was robbery at every stage. And the collapse of the state not only left roads and hospitals and schools crumbling, worse still, it left citizens defenseless against crime. Much of the police force was simply in the pay of criminals.

Today I'm traveling with the deputy governor of this province, Vasil Makherashvilli, who's personally masterminding a sting operation in a neighboring town that started off from a complaint on the hotline. I should say that Vasil isn't exactly what you might think a deputy governor would look like. He's only 26. He comes from a non-governmental organization that specifically existed to monitor corruption. He's a very broad-shouldered young man in a standard black leather jacket and jeans.

Vasil Makherashvilli (through translator): We suspect that the chief of police is protecting criminals. Today we are going to send an ordinary citizen with a hidden camera to the office of the chief of police. We hope to get some evidence in order to arrest him.

Whewell: We're arriving now in the little town where we're going to mount this operation. This is a little town of pot-holed streets, small, tin-roofed houses surrounded by vines. Perhaps 300,000 people here. I've already been told 300 to 400 policemen. That means effectively one policeman for every 80 or 90 inhabitants. An extraordinary number that indicates very well how profitable people must think it is to become a member of the police force.

The ordinary citizen we've come to see is 63, a silver haired old woman who lives in this small, bare, unheated flat in a filthy tenement block. She phoned the hotline over a very complicated problem that's tearing her family apart.

Woman (through translator): (She said) my family is being destroyed because my son's mother-in-law is a drug dealer. This woman, she had destroyed my family. I lost my son because he became drug-addicted. She would deliver him drugs for free. My granddaughter is 17 years old and even the smaller 12 year-old are used to transport the drugs. I've called police so many times and the police is helping them actually so I could never get them arrested.

Whewell: Why don't they do it?

Woman: I think they took some money from her.

Whewell: What evidence do you have for that?

Woman: Because we were all sitting as a family together at the table. My son and his mother-in-law were talking on the telephone to a chief policeman and we could hear they would negotiate the price for a bribe.

Whewell: For a bribe? For what?

Woman: For a bribe to a chief policeman so he would not arrest them.

Whewell: The deputy governor is taking out the secret recording equipment. What I think she's planning to do is to go confront the police chief to ask him why the drug dealer isn't arrested.

Whewell: So you think he'll admit he's protecting them?

Woman: Yeah, I'm sure he's going to say it, because he's always saying that.

Whewell: The women have been gone for a couple of hours now and we're getting quite tense. We're crammed into this little old battered car. We've got no idea what's going on. Let's ask the deputy governor.

Whewell: This will be one of the biggest stings you've mounted. You worried?

Makherashvilli: Not myself. But I'm pretty nervous for them in case they get found out.

[Women's voice on loudspeaker]

Whewell: The women are back. We're back in their flat and we've got the camera straight out to have a look at what's on the film. There's a grainy picture of a man sitting in an office. She's coming to the point now.

[Woman exclaims.]

Whewell: We've got to that point and everybody is leaping up and down for joy. They're leaping up and down. They're punching the air!

Makherashvilli: Ok, he's said - the chief policeman has admitted, has said on camera, that he helped the drug-addicted brother.

Whewell: Helped him how?

Makherashvilli: He let him go and he should not let him go.

Whewell: And probably that he accepted money.

Makherashvilli: And most probably he took some money.

Whewell: Is this the first time that a local police chief in Georgia has been caught in this way on camera?

Makherashvilli: Yeah, this is the first time.

[Music. Restaurant. A toast. Glasses clink.]

Misha Karelli: Let's drink to that! To living our life for truth.

Whewell: That toast - the last I hope of many - came from Misha Karelli, the 28-year-old governor in Gori. He's entertaining me at a sumptuous feast. I must say, it's hard not to be charmed by Georgia's new rulers. You don't often find such honesty and idealism among leaders in this part of the world. The Georgian government is so overwhelmingly popular. You can see it might be tempted to misuse its authority. But I'm more worried that its goal of ending corruption is simply too ambitious. That's what I'm going to ask President Saakashvili himself. He's supposed to meeting me at what's now considered a quite normal time of 11:00 at night.

Whewell: To Georgians, what does corruption mean?

Saakashvili: It was a pandemic system that basically amounted to the denial of opportunities to the whole nation. It's still not unrooted. All these bribes went to all the way through up to the leadership, to the ministers, to the president and to his family and that's gone. Basically the corruption had been beheaded. The head's gone. But it still the convulsions are there. I don't want to look. It's very gruesome.

Whewell: So you're fairly confident in the long run that if the head is lopped off the body will die?

Saakashvili: I hope that we will unroot it. But you really need to go against it every day. I was telling the business community that we were going to change the rules of the game. The main issue is that you all should be equal. So we keep telling them that we will lower the taxes, reduce the number of government officials. We don't need say 80,000 policemen in this country. What we need to do now to undergo this painful process of reducing the number of government officials, but at the same time, giving them much higher salaries. My dream is that you have a police officer opening a grocery store over the corner of his street, and going there and leaving his job.

Whewell: It's a fabulous dream that you're outlining, but it demands an awful lot of people. You're talking about a lot of people losing their jobs in a situation where there's already high unemployment in the country.

Saakashvili: Of course it is a painful process, but we need to go for it. The good thing about the whole present situation is that we still have high credit and high support from the population. Why revolution made them happy? Because it, kind of, empowered them. They have power to do things. They did it. Immediately after the revolution, I started to tell them, "You will all do it together. I cannot do it for you. I'm just one of you."

Whewell: You're hurrying and you have to hurry. Some people are already saying that you're hurrying so much that you're cutting corners, legal corners. It's been said, for example by the human rights ombudsman that, in some cases, there are now more violations of rights of suspects than there were before.

Saakashvili: That's one of the things that's worrying. I never forget about that because you cannot unroot injustice by injustice. But you should also understand that this is an old police force. These are old prosecutors. And of course, until we inform them profoundly, these things will persist. My impression of other countries is that if reformers make compromises, if they wait for too long, the window of opportunity will be shut down quite soon.

And this window of opportunity is not only for Georgia. We are kind of our own model for all these former Soviet states. If we are successful they will follow the lead. It's a risky business. But if we don't try then we are 100 percent losers anyway.

Amos: Our story was reported by Tim Whewell of BBC Current Affairs. You're listening to an American RadioWorks Documentary, The Cost of Corruption, part of public radio's special coverage, Think Global.

Coming up: A tiny island discovers oil. But who'll get the profits?

Man: The amount is enourmous, when you think that there are 120-140,000 people on this island

Major funding for American RadioWorks come from the Corporation for Public Broadcasting. To order a CD or download an MP3 of this and other American RadioWorks documentaries, visit our web site, AmericanRadioWorks.org.

The Cost of Corruption continues in just a moment, from American Public Media.


Segment C

Amos: This is The Cost of Corruption, an American RadioWorks documentary from American Public Media. It sounds like a fairy tale: A tiny African country so poor that most people don't have electricity. Then one day, it finds itself sitting on billions of dollars in oil. That is just what's happening to Sao Tome and Principe. The twin island nation sits off the west coast of Africa, smack in the middle of a major oil find. But for many developing countries, finding black gold is a curse. Corruption flourishes, and most people stay poor. Now, crusading economist Jeffrey Sachs wants to help save Sao Tome from the oil trap. Reporter David Hecht traveled to the island to examine the quest for a happier tale.

[voices in hotel]

David Hecht: Every boomtown in the tropics has a spot like the Miramar Hotel: a palm-shrouded gathering place where everyone from heads of state to embezzlers wheel and deal. Times are good for Miramar's co-owner, Manfred Galland, a German who's lived in Africa for more than 40 years.

Manfred Galland: Before, we used to be 30 percent, 40 percent full. Now we're most of the time full, full, full. Before, nobody wants to know us. Really. We didn't have anything except bananas and cacao. But now, with oil, everybody wants to come.

Hecht: Sao Tome is one of the world's poorest countries. It's a former Portuguese colony isolated 180 miles off the western coast of Africa. Geological surveys report the island could be sitting on billions of barrels of oil. Some say enough to make millionaires out of every islander.

Galland: The amount is enormous. When you think that there are 120 - 140,000 people on this island. Where is it all going to go?

Hecht: All of a sudden, Sao Tome is entering the global marketplace. Galland sees lots of big shots coming through his hotel, trying to drum up business.

Galland: Swedish companies looking for telecommunications. Belgian companies: construction, Taiwanese: very much involved here.

Hecht: In February, a consortium led by Chevron-Texaco signed a deal to explore a tract of ocean floor off Sao Tome. The government's $55 million take of the signing bonus is equal to its annual budget.

The United States is also looking more closely at Sao Tome. Washington recently assigned a military attaché to the island. The U.S. hopes to build up Sao Tome's army, which currently has no planes, no boats, not even a car. The reasons for American interest are clear. Western Africa produces a sweet crude that's easily refined into lead-free gasoline. And most countries here are not OPEC members, so they're not bound by its production quotas. David Goldwyn, a development consultant with Goldwyn and Associates in Washington, says another factor is that global oil production is stretched to the limit.

David Goldwyn: That means that if a bomb goes off in Saudi Arabia or there's a strike in Venezuela, we don't have too many places to go to keep oil from going to $75 a barrel and that means that every drop of oil is important and the 15 percent of U.S. imports that come out of west Africa is indispensable.

Hecht: That number is expected to approach 25 percent as Sao Tome's oil starts to flow. But for now, the only place to find local crude is in the dense rainforest a few miles from the Miramar hotel. A guide leads me to a clearing where oil bubbles up from the ground.

Man: Don't go there Amigo

Hecht: It smells strange. Bubbling up is the oil? Yes

Man: They call it "oil water", Agua Petrolia.

Hecht: And nothing grows here?

Man: No.

Hecht: Local legend has it that this slimy stuff is the excrement of a vengeful spirit.

In a nearby village, young men in shorts and t-shirts sit outside a former plantation, whiling away their time.

Portuguese landowners abandoned cacao plantations like this after Sao Tome's independence in 1975. Families now squat in the ruins. These young men are poor, and they expect they'll stay poor despite the discovery of oil.

Man (through translator): We are a poor guy in the country. We don't go to see the man from the oil. The big men will take all the money. We think so.

Hecht: Many Sao Tomeans share this belief that oil profits will be stolen. And for good reason, says William Easterly. As an economist at the World Bank, Easterly saw first hand the squandering of aid money and oil profits.

William Easterly: Not far from Sao Tome is Nigeria, which is a much larger country, but has had $300 billion worth in oil revenue since discovering oil. Today, it has a lower income per person than it did when it discovered oil. That's, unfortunately, been a huge pattern. All kinds of unsavory politicians, not to mention businessmen from outside the country start circling like sharks trying to get their hands on the money. Unfortunately, the consequences are very oftern that the money doesn't reach the ordinary people.

Hecht: Now, Sao Tome's government wants to break that pattern.

[music]

Hecht: A cool tropical breeze blows over Sao Tome's presidential palace. On its terrace, an eight-piece band plays a medley of local hits. Sao Tome's President, Fradique de Menezes welcomes the guest of honor.

Jeffery Sachs: What a beautiful place.

President Fradique de Menezes: Thank you

Hecht: He's not an oil executive or politician, but a jet-setting economist named Jeffrey Sachs. Sachs is an author and senior advisor to the United Nations. He also heads a team of experts from Columbia University focusing on helping the world's poorest nations.

President de Menez and his ministers are dressed in tropical shirts. Sachs stands out as the guy in the suit. He's come to Sao Tome with a formula to lift people out of poverty while pressing the government to keep corruption at bay. One half of his big idea: A crash development program to build health clinics, schools, roads, and power lines

Sachs: Don't let anyone tell you, for example, that you can have a modern economy without electricity. This is the major challenge of development in this country, because without the basic infrastructure, nothing else can happen economically.

Hecht: And in a new oil economy like Sao Tome's, Sachs says it's vital to show quick results so poor citizens don't feel left behind. But officials at the World Bank and the International Monetary Fund, the biggest lenders to poor nations, disagree. They say sudden infusions of capital overwhelm poor countries just as too much food can kill a starving child. These international financial institutions are telling Sao Tome to go slow. Better to lock away most of the oil revenue, not spend it, so it doesn't disappear.

Man: This is a member of parliament.

Hecht: Sachs meets with a parliamentary committee charged with preparing an oil revenue law. He asks the committee chairman how much the World Bank and the IMF say the government can spend of its future oil profits:

Woman: Only the interest. There you've hit the problem.

Sachs: The first year, you'd spend 5 percent of $10 million. The next year you'd add an extra $10 million and you'd be waiting a long, long time before you even start spending the money. That's too conservative.

Hecht: Sachs says he's frustrated by the advice the rich world is giving poor countries like Sao Tome.

Sachs: Frankly speaking, we're talking about a small country of 140,000 people. If all these big agencies, the IMF and World Bank and so forth, can't figure out how to help, then I don't know what their business is. The rich world has long promised to help the most impoverished places in the world escape from extreme poverty and yet the rich world hasn't done that. I'm not saying spend what you don't have, but I'm also saying, emphatically, not simply to save what comes now and put it off for some illusory future.

Hecht: Sachs takes the same approach around the globe. As a United Nations Undersecretary General, he co-authored a plan to eradicate world poverty, in part by calling for a huge new infusion of Western aid. But critics say his big push plan is naïve and reckless. William Easterly says it will likely make a big mess in Sao Tome just as similar efforts have done in other countries.

Easterly: The money is spent on white elephants, like new national capitals. … The highways are built, but with massive corruption. And Africa is just as poor today as it was at independence because of the failure of these aid-financed big pushes.

Hecht: Economists have long debated the connection between corruption and poverty. Are some countries poor because they're more corrupt? Or does corruption spring from desperate conditions of poverty?

Hecht: This is where the second half of Sachs's big idea comes in: To stave off mass corruption that goes with big spending plans, Sachs is pushing for more openness and more accountability to outside donors.

He explains part of the idea to local U.N. representatives.

Sachs: We'll cooperate and if you cooperate we cooperate again next year. You cooperate again next year, we cooperate again the third year. And it's not that the Sao Tome side has to do everything perfectly, because this is hard, but that it has to do everything in good faith and it has to do everything up to its capability and money can't just go missing.

Hecht: Sachs and other experts contend that governments, and international companies, will behave more responsibly if they publish all the details of their deals. Until recently, oil companies resisted this idea, preferring to work in the shadows, often in league with brutal dictatorships. But that seems to be changing. In February, Chevron-Texaco agreed to make public all its payments, as part of its deal to explore waters between Sao Tome and its giant neighbor, Nigeria. David Goldwyn says the deal is part of a growing trend among oil companies.

Goldwyn: The industry, as a whole, has realized that this is a critical, reputational issue. Their shareholders and investors care about these transparency issues and want them to operate in a way that makes public to the countries in which they operate, how much the government is taking in.

Hecht: Goldwyn says Sao Tome has become a test case for the so-called transparency movement.

Goldwyn: What's unique about Sao Tome is, you're able to work with a country that isn't rich yet. .So people are hoping to put in place measures to manage revenue, create transparency in governance, even build capacity in the government to manage the oil revenue which none of the other oil producing nations in the world have been able to do.

Hecht: But Sao Tome is not working in isolation. Together with Nigeria, Sao Tome established a Joint Development Authority to control oil exploration in waters claimed by the two countries. The Development Authority is based in Nigeria, a country awash in corruption. Jeffrey Sachs and other experts suspect the authority's budget has been inflated and that someone is skimming off millions. Of course, the books are hidden. No transparency here. Nigeria's ambassador to Sao Tome, Saidu Pindar, says the accusations are unfounded.

Ambassador Saidu Pindar: I don't think you have the information correctly.

Hecht: A lot of people have said that the budget seems inflated and that's the place where some of the money is going into people's pockets.

Pindar: Excuse me. Who are the people who are saying the budget is inflated? People who don't know what is happening start making allegations.

Hecht: Well one of those people is Jeffrey Sachs.

Pindar: Who is Jeffrey Sachs? Is he a Sao Tomean?

Hecht: No he's an economist.

Pindar: Is he a Nigerian?

Hecht: No

Pindar: I don't know any Jeffrey Sachs that works for Nigeria and works Sao Tome that has the right to get such a document.

Hecht: Jeffrey Sachs says he's worried about the Joint Authority's lack of openness.

Sachs: I'm not at all satisfied. In fact, I'm on my way to Nigeria. I'm going to be speaking with the president of Nigeria. I'm going to be speaking with the finance minister of Nigeria, because the Nigerians at the senior levels want to crack down on corruption as well, but it is also a country trying to get out of the mess.

Hecht: After several days of meetings with government officials in Sao Tome, Sachs dines with President de Menezes. The men celebrate their new plan on how to use oil revenue to develop the country.

[dinner sounds]

Hecht: Sachs promises to press the World Bank to boost aid to Sao Tome at least until the oil revenue begins to flow. The country's future looks promising.

de Menezes: Now professor.

Sachs: By next year, the life in the villages already should be changed.

de Menezes: Oh yes. Please professor! (laughing).

Sachs: That's what I want.

de Menezes: This a dream.

Hecht: But Sachs doesn't forget what he calls his "tough love" speech.

Sachs: Lets get to a plan and then you're going to have my effort to help get it funded. Unfortunately, the first time we ask for something big, the money comes and then it disappears, we're in trouble. So every time that something is promised it has to be fulfilled.

Hecht: At the end of December, Sao Tome's parliament passed the oil revenue law that Sachs and his team helped write. But international donors remained cautious. The World Bank pledged only a small amount of the aid sought by Sachs. Still, his fingers are crossed.

Back at the Miramar Hotel, owner Manfred Galland remains skeptical. Already there are signs that development projects are going awry. Heavy rains recently flooded the hotel and much of the capital. Officials suspect that companies hired to repair public drains cut corners. Galland believes that in spite of all the international attention, or perhaps because of it, Sao Tome's oil story will not end well.

Galland: Unfortunately, I have experience on the African continent with what oil does to a country and I don't think this will be an exception. It will spoil it. I am sure of that.

Amos: Our story was reported by David Hecht. Sao Tome's position seems unique. But many countries without oil or other natural wealth face the same dilemma. Will entering the global economy improve the lives of citizens or deepen their suffering? The good news is that many countries are not struggling alone. Non-governmental groups promoting transparency and good governance now connect citizens in countries across the globe. These global networks may be the best antidote to global corruption.

The Cost of Corruption was produced by Michael Montgomery. It was edited by Catherine Winter and Chris Farrell. Reporter Jason Feltch. Senior Producer: Sasha Aslanian. Project director: Misha Quill. Production Assistant: Ellen Guettler. Mixing by Craig Thorson. Web Producer Ochen Kaylan. The executive editor is Stephen Smith. The executive producer is Bill Buzenberg. I'm Deborah Amos.

To see a slide show of Sao Tome, to learn more about the state of corruption around the world, and to listen to this program again, visit our Web site at AmericanRadioWorks.org. There, you can sign up for our email newsletter and listen to our previous documentaries. That's at AmericanRadioWorks.org.

Major funding for American RadioWorks comes from the Corporation for Public Broadcasting. Major support for public radio's special coverage, Think Global, comes from the Ford Foundation, the Surdna Foundation and the Rockefeller Brothers Fund.

American RadioWorks is the documentary unit of American Public Media.

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