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Posted at 10:13 AM ET, 01/31/2011

Where is the money? Financial transparency norms for a new reality

By Dr. Sanjeev Khagram

The theme of this year's WEF meeting in Davos was "Shared Norms for a New Reality." This focus was right on the mark given the tremendous changes the world has witnessed over the past two decades, and even more recently over the past few years with compounding global crises (food, fuel, financial, economic and of course climate).

Much of the Davos discussions elaborated the contours and dynamics of the new reality. Less was the actual dialogue about which norms should be the bedrock for shared governance in a global world, and how we might establish them.

A razor-like focus on transparency norms (and associated practices), and in particular financial transparency norms, should have been highlighted by all -- whether from the private, public or civil society sectors.

While some of the mood at Davos was somber -- for example about the slow economic recovery in the West -- some was also quite optimistic. The banking sector for example seemed to see the troubles of the financial crisis mostly past and came in with a positive future outlook.

But the major proposal from banks about how not to have another crisis -- creating more transparency in the sector -- still has not been accomplished. Transparency norms for the banking sector are absolutely essential if there is to be a healthy and vibrant global financial system.

At the same time that Davos began, the world was watching as unprecedented protests in Tunisia and Egypt. The demands of these ordinary people of their governments were manifold, no doubt. But certainly one of the major demands was knowing where had the government budgets that came from their taxes been spent?

Indeed, the overall state of government budget transparency in the world is poor at best. According to the International Budget Partnerships' Open Budget Index (OBI), only a modest minority of countries can be considered to have open budgets, while a large number of countries all across the world provide grossly insufficient budget information to their citizens. The average Open Budget Index score for the countries surveyed in 2010 is 42 out of 100.

If global problems are to be solved, the world needs global norms on financial transparency -- where money is coming from and going and how is it being spent. At the top of the agenda is the institutionalization of international norms on government budget transparency and this is not far off -- there is already widespread agreement on the eight budget documents governments should produce.

But all sectors need to adopt and implement financial transparency norms in order for the new reality to really usher in progress, equality and sustainability.

Dr. Sanjeev Khagram is a Professor of Public Affairs and International Studies at the University of Washington, and Lead Steward at iScale -- Innovations for Scaling Impact.

Return to the Insiders' Guide to Davos 2011 page.

By Dr. Sanjeev Khagram  | January 31, 2011; 10:13 AM ET
Categories:  Dr. Sanjeev Khagram  
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