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Corruption still overshadows Asia economy

TOKYO: Wanted a highly skilled professional to head a hit squad at the Asian Development Bank to probe allegations of fraud and corruption across the region.

The Manila-based ADB's recent advertisement for someone to head its fledgling anti-corruption unit is just one sign that collusion and cronyism are still flourishing in Asia despite lip service paid to the need to attack vested economic interests.

From a senior official in China executed for taking more than $650,000 in bribes, to Japan's top bank regulator forced to resign for suggesting leniency in inspections of smaller banks, abuse of the insider's privilege runs the gamut in Asia.

Peter Pedersen, the ADB's general auditor, said traditional ways of doing business and the financial structure of some countries made Asia fertile ground for graft.

"In some of the cases of collusion we see, it seems to come as a surprise to people that it's considered illegal when we raise the issue and say it's against our guidelines," he said.

Brokers say growing frustration at the slow progress in promoting good governance and transparency is one of the reasons why the Bangkok, Jakarta and Manila stock markets in particular have performed poorly so far this year.

In Thailand investors have been waiting to see what happened in a case involving the country's biggest debtor, Thai Petrochemical Industry. A Thai court on Wednesday ruled TPI was insolvent, and ordered its restructuring in a case keenly watched by investors to see if the firm would be put in the hands of creditors, who are owed $3.4 billion.

"We expect the TPI ruling to be a key gauge of the speed of debt restructuring to come," said Philip Wyatt of investment bank Warburg Dillon Read.

Slow-moving bankruptcy courts are also a major concern in Indonesia, where several high-profile suits have been rejected to the great frustration of the International Monetary Fund.

"There is nothing wrong with the bankruptcy law. It's the application of that law where the problems come," John Dodsworth, the IMF's senior representative in Jakarta, said on Tuesday.

Dodsworth also warned the government that the IMF could again halt vital loans if the key figures in a scandal involving Bank Bali are not brought to justice.

-- In the Philippines, investor confidence is crumbling after a stock market price manipulation scandal involving a firm majority-owned by a close associate of President Joseph Estrada.

"Our analysis so far reveals a broad consensus in government, non-governmental and international circles that corruption in the public and private sectors in the Philippines is pervasive and deep-rooted, touching even the judiciary and the media," the World Bank said in a recent preliminary study of the scourge.

The World Bank estimates that widespread corruption can reduce a country's growth rate by as much as one percentage point as well as drastically reduce inward investment.

"We believe that corruption could add maybe 20-100 percent to the cost of the goods procurement contracts and can cost a government as much as 50 percent of their tax revenues," according to Pedersen of the ADB.

"Even more importantly, corruption is a highly regressive type of tax. Its burden falls disproportionately on poor people."

Besides setting up an anti-corruption unit, which will have seven members, the ADB now incorporates specific provisions against fraud and corruption in its loan agreements.

The bank suspended disbursements to Indonesia at the peak of the Bank Bali scandal and has since had to issue several more threats. "It has actually helped every time that we suddenly got an audit report that was much more acceptable," Pedersen said.

The ADB has investigated 60 allegations since it launched a crusade against fraud and corruption in 1998, resulting in action against 10 firms involved in project procurement.

"Our role in fighting corruption by investigating cases and sanctioning companies is a very small drop in the ocean, but it does lead to a huigher awareness of the problem," he said.

The Anti-Bribery Convention agreed last year by the 29-nation Organisation of Economic Cooperation and Development, which makes it illegal to bribe foreign officials, was also having an impact.

"We've had some consultants and contractors come here and say they were concerned about participating in projects in Asia because they felt it was difficult not to violate their domestic laws now that bribery is a criminal offence," Pedersen said.

Malaysian Trade Minister Rafidah Aziz, speaking at a recent conference in Tokyo on investment opportunities in the Association of South East Asian Nations, admitted that a reputation for corruption was damaging ASEAN's credibility.

She said it was up to governments and investors alike to take a stand against graft. "You cannot say there's no corruption, of course there is. But help us to weed it out. Don't abet it. Don't be a party to it!" Rafidah urged.-Reuters