December 16, 2008 / 12:25 AM / 11 years ago

Tough graft battle in Asia despite campaigns

SINGAPORE (Reuters) - Fugitive former Thai Prime Minister Thaksin Shinawatra is looking for an exile home to avoid a prison sentence for corruption. An ex-Indonesian central bank chief has been sent to jail for five years on corruption charges.

Corruption in some Asian countries creates a barrier to investment and economic growth. REUTERS/Graphics

Malaysia’s ruling party is shaken to its foundations after voters lift the opposition to unprecedented gains on a groundswell of revulsion over patronage and corruption. Philippine President Gloria Arroyo dodges impeachment over deals with China that were canceled due to suspected graft.

For years, corruption has greased the wheels of commerce and politics in Southeast Asia, a favored destination for investors in emerging markets.

Today, government leaders across the region are on the defensive over corruption issues. Anti-graft campaigns have acquired momentum. Empowered anti-corruption bodies are cracking down. Invigorated judiciaries are prosecuting the miscreants.

Companies looking at tempting but unfamiliar markets are also waking up to corruption risks to avoid costly penalties and to protect their brand names.

So have things really improved?

Actually, not a whole awful lot, experts say.

INDONESIA MUCH BETTER

Global corruption watchdog Transparency International has found little discernible change in the emerging markets of Southeast Asia in its 2008 table of perceived corruption. Indonesia has significantly improved. Malaysia and the Philippines have slipped a few rungs. Thailand is more or less the same, while others such as Cambodia and Myanmar are wallowing at the bottom of the league tables.

Indonesian President Susilo Bambang Yudhoyono, perhaps with an eye on elections next year, has cranked up an anti-graft campaign in a country long viewed as among the most corrupt in the world. Not only was former Bank Indonesia governor Burhanuddin Abdullah jailed for bribing members of parliament, a relative of the president by marriage was questioned in the scandal.

The five-year-old Indonesian Corruption Eradication Commission, has acquired something of a cult status in the world’s fourth-most populous nation. Last month, it signed an agreement with the FBI for help with training and investigation.

Fauzi Ichsan, an economist with Standard Chartered Bank in Jakarta, said corruption is no longer seen as one of the main barriers to foreign investment in Indonesia. “The government’s anti-corruption campaign has been quite revolutionary,” he said.

What concerns foreign investors the most is not the run-of-the-mill bribes that must be paid to get a phone installed or a shipment through customs — some developed countries even allow companies to take tax deductions for these “facilitation payments” — but institutionalized corruption.

“While under-the-table payments are a relatively common thing, what multinational companies object to most is crony corruption that gives special privileges to selected groups with government connections, those winning plum government projects,” says Varakorn Sarnakoses at Bangkok’s Dhurakij Pundit University.

Thailand has been embroiled in three years of political chaos whose proximate cause has been allegations of crony capitalism and corruption in the administration of Thaksin Shinawatra, ousted in a 2006 coup.

Thailand’s army-backed 2007 constitution now provides for political parties found guilty of electoral fraud to be dissolved. “The fact that two of our last three prime ministers have lost criminal cases should make politicians wary of being caught on the wrong side of the law,” Varakorn said.

Crony corruption and political patronage is deeply embedded in neighboring Malaysia, largely due to its system of special privileges to uplift majority Malays, especially government contracts that tend to go to well-connected tycoons.

Lame duck Premier Abdullah Ahmed Badawi, who like Yudhoyono was elected in 2004 on a clean government campaign, finally introduced anti-corruption legislation in parliament last week — after his ruling coalition suffered its worst electoral showing since independence from Britain in 1957.

Abdul Jalil Rashid, fund manager for Aberdeen Asset Management Malaysia, calls corruption “a huge barrier” to investment in Malaysia.

“There’s also lack of transparency which then leads to the perception that something is going wrong,” the manger of a $1.38 billion fund told Reuters. “If you compare Malaysia with other countries, I think it is large-scale here rather than petty.”

The Philippine government has been mired in a series of scandals that the Arroyo government has failed to explain to the public. Chief among them was a botched $329 million national broadband deal with China that was scrapped over allegations of bribery and deal-fixing involving the president’s husband.

MOST FIRMS EXPERIENCE CORRUPTION

A PricewaterhouseCoopers survey of senior executives around the world found two-thirds of them had experienced some form of actual or attempted corruption in their business dealings.

Almost 80 percent of the executives said their company has some form of anti-corruption program, but only a fifth of them were very confident that it was working.

More than half of the executives said in the August report “Confronting Corruption” that enforcement had increased over the last five years and would strengthen further in five years.

Executives said they felt particularly vulnerable when doing business in emerging markets.

“The search for new opportunities is increasingly taking companies into emerging markets ... where they confront unfamiliar business practices,” the PricewaterhouseCoopers report says. “Being able to manage risk in new environments is a necessity as businesses compete globally.”

Transparency International’s annual “Bribe Payers Index,” released last week, found that firms from emerging economic giants such as China, India and Russia are seen to be routinely engaged in bribery when doing business abroad. (Belgian, Canadian, Swiss and Dutch firms were the cleanest.)

Institutions in the region that were perceived to be most amenable to taking bribes were Indonesia’s parliament, Malaysia’s police, and Philippine customs agents.

The record, then, is mixed across the region. Many countries appear to be cracking down on the routine bribes and kickbacks that have long characterized business dealings in Asia. Companies, for their part, no longer see these kinds of payments as a necessary evil for doing business.

But systemic corruption, poor governance and lack of transparency continue to be significant issues.

World Bank analysts Daniel Kaufman, Aart Kraay and Massimo Mastruzzi concluded in a recent study: “We certainly do not have any evidence of any significant improvement in governance worldwide, and if anything the evidence is suggestive of a deterioration, at the very least, in key dimensions such as regulatory quality, rule of law, and control of corruption.”

Slideshow (4 Images)

The massive growth of international trade and globalisation over the past two decades has greatly expanded opportunities for corruption, as well, and has brought new players into the fray such as multinational firms from China and India with different business cultures from that of the West.

“Through globalization, competition has increased, and so has competitive corruption.” Transparency International Malaysia President Ramon Navaratnam noted in an interview.

“All is fair in love and war and business and so you have incentives for corruption.”

Additional reporting by Darren Shuettler in Bangkok, Sara Webb in Jakarta, Neil Chatterjee in Singapore, David Chance in Kuala Lumpur and Raju Gopalakrishnan in the Philippines; Editing by Megan Goldin

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