Source - Business Day Website (Eng)
May 05, 2006


WILLIAM PESEK JR
BLOOMBERG
A CLASSIC chicken-or-the-egg dilemma faces Asia;Does it receive
scant international capital because it sometimes disappoints investors,or
does it disappoint because it doesn't get enough?
It's hardly an academic question for Asian policy makers arriving
in Hyderabad,India,this week for the Asian Development Bank's annual
meeting,One explanation may be that China's boom is sucking up most of the
capital that Asia once shared.Another deserves more attention:corruption.

Asia,to varying defrees,has made less progress than hoped in
cleaning up its business culture in the nine years since the region's
financial crisis in 1997.The meltdown was partly fueled by Asia's "crony
capitalism."

Now for the good news: The World Bank is rolling up its sleeves to
tackle corruption and,this time,it means business.Last month, World Bank
President Paul Wolfowitz stepped up the push in Indonesia,a logical place
give that it's Southeast Asia's largest economy and one of the region's most
corrupt.

Corruption "is a major obstacle to achieving the development
successes this country is capable of and which the Indonesian people
deserve," Wolfowitz said in Jakarta on April 11. "Where corruptionis
rampant,contracts are unenforceable,competition is skewed and the cost of
doing business is stifling.When investors see that, they take their money
elsewhere." It's a painfully obvious point,though you wouldn't know it from
the lack of urgency with which many governments approach the issue.

At the heart of recent turmoil in Thailand and the Philippines,for
wxample,were allegations of corruptionby the leaders of both nations.South
Korean markets are again being roiled by allegedly improper activities by
family-owned conglomerates.

Indonesia's callenges are much greater.Suharto hasn't been
president since 1998,but thepolitical and financial systems he created in
his 32 years in power linger.While things are improving in Indonesia,the
vestiges of Suharto rule prevent most of the nation's 238 million people
from getting the benefits of 6 percent growth.

Indonesia ranked 137th in Transparency International's Corruption
Perceptions Index for 2005,in the same category as Iraq,Liberia and
Uzbekistan.It means many of those in power-or close to them-hoard resources
better spent on reducing poverty and improving health care,education and
urban planning.The lack of trustworthiness will complicate President Susilo
Bambang Yudhoyono's plan to attract $426 billion in investment by 2009 to
build roads,power plants and ports as the country aims to cut unemployment
and poverty rates by half in the same period.

"Corruption is the key to so much of what is wrong with
Indonesia's economy,and indeed many in Asia," Vivek Sharma,Singapore-based
director of development economics at the business graduate school
Indead,told me in Jakarta last month.Less corruption would allow Asia's
consumers a bigger share of economic growth.Bond investors would enjoy more
legal certainty of being repaid and less volatility in yields.Greater
corporate transparency and independence from politicians would serve equity
aficionados.

It's heartening to see the World Bank,and other lending
institutions,putting corruption front and center.But you can't blame
investors for being a bit cynical;we've been here before. In late 1996,then
World Bank President James Wolfensohn delighted many by describing
corruption as a "cancer" on the global economy.Before that,the issue was
rather taboo;the word "corruption" was ofter avoided in World Bank
documents.Almost 10 years on,there's been little progress in Asia on that
issue.

Perhaps the biggest accelerated,there was less urgency for the
microeconomic upgrades needed to clean up economies,Fast growth lets Asia
paper over its problems.

It's becoming harder to sweep corruption under the rug.If longtime
Asia investors such as Marc Faber,managing director at Hong Kong-based Marc
Faber,are right that the world's economic power is shifting toward Asia
faster than many realize,its time for this region to prepare.

Amid risks ranging from record oil prices to bird flu to terrorism
to a plunge in the US dollar,Asia must strengthen and integrate its
economies faster,someting for which the Manila-basec Asian Development Bank
has been pushing.At the top of Asia's to-do list is figuring out how to grow
better,not faster.For decades,Asia made the mistake of measuring progress
with high GDP rates.A better gauge is how the lives of people from the
richest to the poorest are changed.Few things would do more in that regard
than reducing corruption.

Asis doesn't have a monopoly on crony capitalism;the unfolding
Enron trial in the US is a case in poing.Still, Asia's poverty challenges
make it a more pressing issue.It's good to see the World Bank developing
strategies to mobilize all its instruments-loans,grants,research,technical
assistance and private-sector investment-to strengthen governance and fight
corruption as a means of boosting investor confidence.

Outside pressure can only do so much,though.The real push must
come from the inside as leaders realize corruption's high cost.With the
Asian Development Bank predicting 7.2 percent growth in Asia (excluding
Japan) this ywar,there's rarely been a better time.--End--

 

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