Corruption unbowed in Southeast Asia
International Herald Tribune
October 28, 2005
Wayne Arnold

SINGAPORE The chief justice of the Indonesian Supreme Court is under investigation for alleged bribery. The son of Malaysia's top law enforcement official has been charged with graft. And Bangkok's new $4 billion international airport faces criticism that it is riddled with corrupt contracts for everything from its parking garages to its baggage scanners.

Corruption, it seems, is alive and well in Southeast Asia, eight years after the Asian financial crisis spawned efforts to uproot it. This month, Transparency International's annual corruption perceptions index found that international businesspeople and analysts still rank most Southeast Asian nations among the world's most corrupt. And while things seem to be improving in a few countries, the group's research found, in most it is as bad as ever. In the Philippines, it found, the situation appears to be getting worse.

"Southeast Asia doesn't do too well out of this," said Peter Rooke, regional director for the Asia-Pacific region for the Berlin-based Transparency International. "There are a number of countries in Southeast Asia that should be doing better than they are."

While affluent Singapore came out near the top of the list of "clean" countries, Malaysia ranked 39th and Thailand came in 59th, tied with Cuba. Vietnam, which recently arrested a senior anticorruption investigator for allegedly taking bribes, was tied with Zimbabwe at 107th. Below it was the Philippines in a dead heat for 117th with Afghanistan and Uganda. Near the bottom of the pile was Indonesia, ranked 137th beside war-torn Iraq.

Of course, there is more art than science to these rankings, as Transparency International readily admits. Its scores are based on several different independent surveys, which record subjective perceptions among participants.

Still, Southeast Asia's low rankings are disappointing. Graft deters investment, and in the global economy, economists say, being perceived as corrupt is a distinct disadvantage when it comes to attracting development capital.

"It's a much more competitive world," said Manu Bhaskaran, head of economic research at Centennial Group, a consultancy in Singapore. "While in the past you could have gotten away with being a little less clean, now the system doesn't forgive you."

Corruption has long been a part of business in Southeast Asia, but the dangers it poses to a country's financial system became painfully clear during the 1997 crisis, when "connected lending" by the region's banks exposed them to hitherto unforeseen risks and caused many to fail.

Financial restructuring programs, imposed on Thailand and Indonesia by the International Monetary Fund, included efforts to strengthen institutions against corruption. But the political will to push these changes was lost when the region emerged from the crisis in 1999.

More than being simply a nuisance to investors, economists say corruption exacerbates the region's already deep inequities and subverts public policy, inhibiting development. In government projects, corruption favors unscrupulous contractors over qualified ones, meaning the public pays more for shoddy work. Corruption squanders foreign aid and in countries like Indonesia and Thailand has contributed to environmental abuses like illegal logging.

It also generates public cynicism and helps to motivate extremist groups like Jemaah Islamiyah, the militant Islamic group responsible for the Bali bombing of 2002. Security experts suspect that members of the group have been slipping between Indonesia, Malaysia and the Philippines with the help of corrupt border officials.

Perhaps one of the biggest reasons why corruption remains so deeply entrenched is that for so long it was part of systems that succeeded in delivering steady economic growth. In Indonesia, for example, corruption was institutionalized under former President Suharto's 32-year "New Order." Big investment contracts were funneled to companies controlled by Suharto's children, who were also given monopolies over critical industries and commodities.

"The New Order under Suharto was basically a system of tax farming," said James Castle, a longtime executive and head of his own consultancy in Jakarta. "Your job was to get the bridge built and as long as it got built nobody asked questions."

That roughly describes the situation in Malaysia during former Prime Minister Mahathir bin Mohamad's 25-year rule as well. Under his "New Economic Policy" promoting ethnic Malay entrepreneurs to help reduce the dominance of ethnic Chinese over the country's business, Mahathir's government placed trusted Malay tycoons at the helm of conglomerates and fed them a steady stream of contracts. Mahathir spent the last years of his rule trying to unravel the worst of this crony network.

Mahathir's successor, Abdullah Ahmad Badawi, has also taken strides to reduce corruption, analysts say. An anticorruption drive has fingered two cabinet ministers and a pair of powerful businessmen. Despite these high-profile cases, however, perceived corruption is as bad as ever and Malaysians surveyed by Transparency International for its Global Corruption Barometer predicted little progress in reducing corruption where they consider it most severe - among the police.

Still, most Malaysians say they have never personally had to pay a bribe. The same is not true in the Philippines, where corruption appears to be more pervasive than almost anywhere in Southeast Asia, according to Transparency International's surveys.

The Philippine president, Gloria Macapagal Arroyo, has fended off attempts to impeach her for allegedly trying to fix last year's presidential election. She sent her husband and one son into exile after they were alleged to be involved in illegal gambling rackets.

More problematic for the Philippines, though, is corruption among revenue officials that enables all but a minority of Filipinos to evade income taxes and keep the government perennially in the red. Computerizing tax records and new money laundering laws have helped to some extent, but Filipinos remain pessimistic, and most told Transparency International that they believed corruption will only worsen.

The fall of Suharto opened avenues of corruption for anyone with authority, and graft pervades officialdom from powerful politicians to lowly civil servants and soldiers. Corruption scandals claimed the presidencies of Suharto's two immediate successors, B.J. Habibie and Abdurrahman Wahid, as well as a head of the central bank.

Prosecuting corruption, however, is complicated by evidence that some among Indonesia's judiciary are also corrupt. Three years after Suharto, businesspeople in Jakarta complained that the problem was not having to pay bribes; it was knowing whom to pay and getting what one paid for.

This underscores the fact that officials cannot be corrupted unless there is someone willing to corrupt them. All too often, foreign investors are willing to oblige despite the legal risks.

When General Electric bought the company that sold X-ray scanners to Bangkok's new airport, it discovered that the company appeared to have knowingly used agents who bribed officials not only in Thailand, but also in the Philippines. It paid nearly $2 million in fines for violating its Foreign Corrupt Practices Act.

But when Indonesia attempted to renegotiate Suharto-era contracts with U.S. companies that it said involved kickbacks and other forms of corruption, the U.S. government intervened to pressure Jakarta to honor them anyway.

Indonesia has made some progress in curbing corruption, according to Transparency International. President Susilo Bambang Yudhoyono has shown his willingness to do more than just promise to prosecute corrupt officials. Late last year, Indonesia formed a Corruption Eradication Commission that has already won a 10-year prison sentence for a provincial governor convicted of corruption. The former president of the country's largest bank and the head of its election commission face similar charges.

"There is a serious effort there," Rooke said. But he cautioned against looking for quick results. "This sort of thing," he said, "is going to take a long, long time."

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