perceptions indices are inaccurate, particularly in their use as proxies for corruption in infrastructure.

It is important to emphasize that these indices measure perceptions of corruption, not corruption itself. Argentina’s TI CPI rank dropped precipitously from 5.2 in 1995 to 2.8 in 2002 (Seligson, 2005). This may reflect declining governance, or perceptions may have been altered by the financial crisis, which began to unfold in 1999. In Peru, tapes of the head of the National Intelligence Service bribing legislators and others precipitated a significant drop in the country’s Corruption Perceptions Index –it fell from 4.4 in 2000 to 3.5 in 2004. But it is worth noting that the collapse came _after_ the tapes were released. There was no significant change in the index prior to the release of the tapes. The 1998 and 1999 rankings were 4.5, placing Peru ahead of the Czech Republic and the Republic of Korea, for example, even as over 1,600 Peruvians were receiving bribes from the intelligence service. Furthermore, the CPI continued dropping even as national polls suggested that the percentage of transactions which involved paying a bribe fell from 6.4 to 4.5 2002-2004 (Ausland and Tolmos, 2005).<sup>8</sup> This evidence that the CPI acts as a ‘lagging indicator’ even during perhaps the largest corruption scandal in recent history is a concern, if the index is to be used to guide policy and investment decisions.<sup>9</sup> As further illustration, Zimbabwe is a country that has seen a statistically significant increase in the perception of corruption over the period 1996-2004 according to the WBI control of corruption measure, for example (Kaufmann et. al., 2005). It has also entered a more widespread period of a crisis of governance. It is very plausible to imagine that this crisis of governance has increased levels of corruption, but it is also possible to imagine that a generally increased level of interest in the country and its broader problems has increased perceptions of corruption. For example, a Factiva search of major news sources worldwide found that there had been a doubling of news stories on Zimbabwe between the 1996-2000 period and the 2000-2004 period (Table 3).<sup>10</sup> There had also been an increase in the percentage of stories which mentioned corruption –from 3.5 to 4.8 percent. This one third increase in the proportion of stories mentioning corruption is only about the same size as the increase in the percentage of stories mentioning Africa that also mentioned corruption, however. Compare this to the tripling of stories mentioning Zimbabwe which also use the word ‘crisis,’ far ahead of the statistics for Africa as a whole. Over 15 percent of stories mentioning Zimbabwe used the word ‘crisis,’ compared to less than 5 percent mentioning corruption. It is surely plausible to argue that 8 We will see that there is evidence that the CPI correlates more closely with petty than grand corruption (Knack, 2006), but the Peru case is one example of the CPI not even tracking survey data on petty corruption very well. More broadly, Svensson (2005) notes that cross-country survey evidence regarding incidence of bribes is not significantly correlated with expert perceptions once GDP per capita is taken into account. Again, a survey of experts predicted that 54 percent of African respondents would suggest that they had been victims of corruption in the past year, whilst a population survey of Africans themselves suggested that only 13 percent reported being victims of corruption in the past year (Arndt and Oman, 2006).

> 9 Exacerbating this problem, and helping to explain the continuing decline in Peru’s CPI rank as other indicators suggested the corruption situation was improving, is that the CPI often incorporates data that is two to three years old.

> 10 <u>http://www.factiva.com/, search run 09/12/06.</u>

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