The World Bank and International Monetary Fund will use the Hong Kong annual meetings to repeat their pledge to crack down on corruption. Both agencies have set out strategies to identify, correct or punish the misuse or abuse of their assistance. Bank president James Wolfensohn and fund managing director Michel Camdessus have made tackling corruption a keystone of their administrations. The Organisation for Economic Co-operation and Development also has focused on corruption and international business transactions. Mr Wolfensohn has described corruption as a 'cancer' that needs to be eradicated. The cost of corruption is incalculable because of its distortion of the allocation of resources, impact on productivity, erosion of morale and undermining of international esteem. There is a widespread suspicion that billions of dollars has been misdirected, siphoned off or stolen by governments across the globe. One calculation puts the additional cost of doing business in Mexico, where corruption is high, at about 20 per cent compared with Singapore. The bank's World Development Report argued that in a sample of 39 advanced and developing countries, high levels of corruption, combined with low predictability of the level and outcome of bribes, lowered the rate of investment in gross domestic product from 28.5 per cent to 12.3 per cent. Corruption is broadly defined as the abuse of public office for private gain. It flourishes where officials are given wide discretion, public wages are low, there is weak monitoring and rich companies or individuals willing to pay bribes. The complexity of the problem is propounded by governments in Asia and Latin America being effectively funded by drug money. In Washington, the World Bank head of poverty reduction and economic management network Masood Ahmed said: 'Over time there develops a culture of corruption. There is no international pattern but the more you have discretion, weaker institutions, lower paid bureaucrats, the more likely it is to arise. 'While there is growing awareness of the problem there is little evidence to suggest that it is getting smaller.' During the 1970s and 1980s the agencies were prevented from acting by charters excluding them from 'intruding in the internal affairs' of recipient nations. This meant they often had to sit idly by and watch as millions of dollars directed to their balance of payments and aid funds was lost. Both agencies recently agreed to apply a use a 'good governance' record as a factor in assessing aid decisions. Mr Ahmed said: 'Our practices can minimise the probability of corrupt deals. For example, tightening procedures for procurement deals; improving audits; strengthen penalties and being more open and receptive to people who are making claims.' Mr Camdessus said the impact of corruption extended beyond the mere cost of a bribe. Its real damage was undermining confidence in the system and directing resources away from their best use. Mr Masood said: 'We have fiduciary responsibility to make sure our aid is used for the purposes for which it is required. The bank will become more explicit in its concern about corruption. 'For example, the bases for expanding our involvement in a country will be determined by our ability in grappling with these issues. It will define our involvement. 'While we will not do a national corruption assessment, all the pieces of information together give us a picture of where corruption is. The question we are asking is whether it is a significant impediment to economic development.' Former director of the bank's China and Mongolia department Nicholas Hope said a key way to eliminate corruption was to encourage competition and deregulation. Mr Hope, now the bank's chief of staff for Europe and Asia, said: 'It is extremely hard to have bribes where you have to compete tooth and nail with other companies.' The bank last week unveiled its blueprint for tackling corruption at its source. It covers procurement, disbursement and borrower accountability and will seek to identify and reform institutions that are corruption targets. Both agencies' first response to evidence of corruption will be to raise their concerns with the relevant government. If persuasion fails then the agencies can ultimately withdraw their assistance, as was evidenced by the IMF when it recently withdrew a US$75 million loan to Kenya. Mr Masood said: 'In cases where corruption is systemic then we can adopt a more selective approach through dialogue with the country. In this way we can try to find out whether the impediment is being removed.' He said the bank could focus on public service accountability but that the 'real will [to eradicate corruption] has to come from within'.