Wednesday, 16 October 2013

Fixing Asia’s corruption could be make or break for region

It wouldn't be the revelation of the century to recognise that Asia is an advancing economic powerhouse, but ten years ago it was. There might be economic troubles looming on the horizon for the region but the OECD is confident some of the more impressively performing countries - China, India and Southeast Asia - will maintain an average growth rate of 7.4% by 2017.

Yet Asia could be far stronger if it could curb the more insidious forms of corruption and graft. According to the recent Asia-Pacific Fraud Survey Report published by London-based accountants Ernst and Young endemic graft is significantly holding Asia back from succeeding in greater growth. Their survey polled close to 700 executives in eight countries. 

The study points to the slowing growth of the region, weak systems, and disconnect between the anti-graft policies and their actual practise as major factors in businesses and officials cutting corners. To pick just two examples, 34% of respondents in China said that company management is likely to take shortcuts when economic conditions are tough, and 36% of executives in Indonesia say it is commonplace to use bribes to win contracts in their industries.

Ernst and Young suggest five calls to action for companies to effectively manage the risks posed by fraud, bribery, and corruption. These include open two-way communication, sharing accountability from the top to the bottom of an organisation, localising solutions and taking account of cultural customs, conducting regular assessments by independent parties, and investing in resources and tools to deal with the corruption problems of tomorrow.

The United Nations Office on Drugs and Crime agrees that there is greater need for more supervision considering Asia’s growing influence on the world stage.

It is difficult to measure how much economic activity is lost due to corruption, but some of the figures suggest the corrosive effect of graft undermines growth enormously. The American based Centre for International Policy calculates US$2.7 trillion in illegal funds left China between 2001 and 2010 as a result of tax evasion, corruption, criminal financial deals or other activities.  

In response, the new Chinese government led by Xi Jinping is taking a focused approach to exorcise corruption.  The effort has already resulted in multiple high-profile arrests, including disgraced official Bo Xilai. Not even money can immunise as Beijing’s effort snatches up billionaire entrepreneurs and important business moguls alike.

The colourfully-named Central Commission for Discipline Inspection led by Wang Qishan, a historian-turned-economist nicknamed “Fire Chief Wang”, now encourages Chinese citizens to report corruption directly to the government using the portal of the internet.

The graft is similar in many other Asian countries. According to the World Bank for instance, 40 of the Philippine’s richest families control 76% of the country’s GDP. Philippine President Benigo Aquino III is trying to enforce good-governance initiatives but he faces an uphill battle to turn around a fairly well entrenched way of business.

Thailand appears to have more of a problem now than 10 years ago as an enormous US$64 billion of illegal funds departed their economy between 2001 and 2010 in much the same way as experienced in China. Dishearteningly, a recent poll conducted by the Transparency Institute showed that 66% of respondents believe corruption has increased since 2011.But just like China, Bangkok has introduced a smartphone application to give Thai citizens a simple way to expose graft and inform the authorities. 

China is trailblazing the new path to stamp out corruption. Beijing’s effort is praised by independent agencies, but some of the arrests and investigations – as in the case of Bo Xilai - could be more politically motivated than economically as Xi Jinping continues his manoeuvres to consolidate control over the Communist Party.

Those attempts by China are catching on as a good model for the member countries of the Asia-Pacific Economic Cooperation (APEC). APEC considers corruption a threat to social and economic development. In the 21st APEC Summit held in Bali between October 7 and 8, leaders issued a statement outlining a new task force which should strengthen “informal and formal regional and cross-border cooperation to fight corruption”.

Ultimately, moving to disincentivise graft will still be a long term goal as evolving policies and more effective policing will probably fall into second place behind the more gradual generational changes of mindset. With all the new money floating around in Asia, the disparity between the very rich and the very poor continues to grow, which exacerbates the potential for corruption even as rates of education are on the rise.

Compounding the issue, many Asian and foreign analysts of Asian nations now worry that easy credit has masked huge structural problems in the foundations of most of the region’s countries. The economies of Asia are much bigger now than they were 15 years ago when a financial meltdown crippled the region in the late 1990s.

As their economies move through the inevitable boom and bust cycles, the temptation and pressures on officials and businesspeople may encourage illegal activities. A crisis in Asia could affect the entire international economy which puts into perspective just how critical the changes to curb graft in Asia actually are. Rooting out corruption could prove to be the make or break policy pursuit for many of the emerging economies.

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