Through globalization, competition has increased, and so has competitive corruption



Tough graft battle in Asia despite campaigns
By Bill Tarrant Bill Tarrant – Mon Dec 15, 9:27 pm ET
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.

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."

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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