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Corruption and the Asian crisis

By John J. Brandon / July 28, 1999



Two years ago, the first tremors of Asia's financial crisis were felt in Thailand. But before July 1997, Asia's economies were widely praised for their rapid growth. The World Bank coined the term "East Asian Miracle" to describe the region's robust economic growth, and the development strategies of the region were held up as models for other developing countries to emulate.

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The "miracle" came to a crashing halt when the value of many Asian currencies was halved, stock markets plunged, banking systems collapsed, and millions of people lost their jobs in societies without social safety nets.

It's now fashionable to blame Asia's economic woes on corruption. This is understandable. Corruption, broadly defined, is the abuse of public roles and resources by public or private parties for personal gain. It's been endemic in countries like Thailand and Indonesia for decades. When Thai military dictator Sarit Thanarat died in 1963, he'd amassed a fortune that, factored for inflation, was equivalent to 26 percent of Thai government expenditures in 1990. Time magazine alleges former Indonesian President Suharto and his family are worth $15 billion - despite his $36,000 annual salary and no exceptional business acumen shown by any family members.

Despite such egregious greed, one must ask: Did corruption cause Asia's financial crisis?

For centuries Asians accepted that officials could treat their office as a private domain and a legitimate tool for generating illicit revenue. Before the crisis, Indonesia, Thailand, and South Korea had relatively high corruption ratings, according to Transparency International's Corruption Index. Yet these nations were among the world's fastest growing economies since the 1980s.

In all of these nations there was a close relationship between government and the private sector. While these relationships promoted long-term investment and growth, they also fostered corruption. But there was no sudden increase in corruption in the five years prior to the crisis, according to the International Country Risk Guide.

Because of the fundamental difference between a certain and an uncertain cost for investors, some argue that predictable corruption - where the bribe amount is known and no further bribes are demanded - is less damaging than corruption that causes uncertainty.

But globalization adds new urgency to the corruption problem. What was formerly "business as usual" is no longer tolerable. Economic globalization increases the probability the effects of corruption will resonate through the world economy. Widespread corruption threatens the basis of an open, multilateral global economy which is trust and the expectation others will play by standard rules. Those who engage in corrupt practices are a threat to the international economic system.

The Organization for Economic Cooperation and Development's 1997 convention calling for the end of tax deductions for bribes is a response to the threat. Now, calls for greater transparency to prevent financial crises are commonplace.

At a minimum, corruption produces inefficiency and unfairness. It also undermines the rule of law. Corruption need not be destabilizing, but when conducted on a grand scale as in Indonesia, it can undermine the political legitimacy of the state.

Improvements in education, growing affluence, and the emergence of the Information Age have created a marked decrease in the willingness of the public to tolerate corrupt practices by political leaders and economic elites.

Asians understand corruption is bad - not so much because money changes hands, but because it denies them representation and a voice in public policy decisions and debates.

A positive by-product of the Asian crisis is that it has fostered political reform and strengthened civil society, particularly the media and nongovernment organizations. If the crisis hadn't occurred, Thailand wouldn't have promulgated the most democratic constitution in its history, Suharto would be firmly ensconced in power, and Kim Dae-Jung may not have been elected president of South Korea.

It's unrealistic to assume corruption will be wiped out in Asia - or anywhere. Yet it is reasonable to expect Asian nations will need to devote more resources for institutional reform and to improve transparency if they are going to compete effectively in the global economy. The ultimate responsibility for reducing corruption lies with Asian leaders and - most importantly - with the citizens and civic groups that must hold them accountable.

*John J. Brandon, a Southeast Asia specialist, is assistant director of The Asia Foundation, in Washington, D.C. The views expressed here are his own.

(c) Copyright 1999. The Christian Science Publishing Society