draining development.pdf - Khazar University

Governance and Illicit Flows 45and most countries of South Asia, Southeast Asia, and Latin America. Incontrast, fragile developers are countries, such as the Democratic Republicof Congo or Somalia, in which a minimally sustainable political settlementamong the contending forces in society does not exist and inwhich the fundamental problem is to construct this in the first place.Our analysis of illicit capital flows from intermediate developers canbe simplified by distinguishing between political and economic actorsaccording to their motivations for making decisions about financialflows. The former are likely to be concerned about threats to the processesthrough which they accumulate resources and about the politicalthreats to these resources; the latter are likely to be primarily concernedwith profit opportunities and expropriation risk. In reality, political andeconomic actors may sometimes be the same persons; in this case, wehave to look at the motivations jointly. The simplification may nonethelesshelp one to think through the different analytical issues involved sothat appropriate policies can be identified in particular cases.Financial outflows driven by political actors. An obvious reason whypolitical actors in developing countries may engage in capital flight isthat their opponents may expropriate their assets if the opponents cometo power. A significant amount of the resource accumulation is likely tohave violated some aspect of the structure of formal laws. The legalitycan be questioned by the next ruling coalition for a number of reasons,including expeditious political reasons, for instance, to undermine theability of previous ruling factions to return to power. Let us assume thatthis capital flight is immediately damaging because it represents a loss ofresources. The issue from the perspective of an analysis of (illicit) capitalflight involves assessing the consequences of hypothetically blockingspecific financial outflows in these circumstances. The important pointis that patron-client politics cannot be immediately replaced by fiscalpolitics because these countries are developing economies with a limitedtax base. Therefore, the fundamental mechanisms through which politicalentrepreneurs gain access to economic resources are unlikely to disappearin the short run in most developing countries, with the exceptionof those that are close to constructing Weberian states.Given the nature of political settlements in developing countries,attempting to block financial outflows driven by politicians is unlikely to