Why Indonesia is positive it can reach its potential
1 May, 2009
Zeti defends Bank Negara’s go-it-alone stance
4 May, 2009

IFR Asia, May 2009

It’s widely accepted that corruption is a problem in the developing world, and that the worst of the consequent economic hit is to the poor. Development projects such as those supported by the Asian Development Bank are especially vulnerable: they take place in some of the poorest parts of the world, with the lowest ability to supervise, and the greatest incentive to steal. But what to do about it?

Kathleen Moktan is the director for public management in the governance and participation division at the ADB, and is practice leader on public management and governance. She has been a part of the bank’s farthest-reaching initiatives in this area, including the Second Governance and Anticorruption Action Plan (known as GACAP II), approved in 2006, which aims to improve the implementation of governance and anticorruption policies in sectors where the ADB is active; and a joint initiative with OECD which aims to harmonise approaches and share good governance practices.

In Moktan’s reading, corruption is not necessarily any worse in Asia than elsewhere, it just has a greater effect. “Corruption will occur, fraud will occur, crooks are everywhere in the world,” she says.

“The difference is the way institutions deal with it. Institutions in the developing world are weaker so vulnerability is higher. In the developing world the returns from corruption are high and the risk of prosecution is low, so the risk/return tradeoff is different.” The other difference is the impact: the poor and disenfranchised are the worst hit by corruption, and in countries where a greater proportion of the population is below the poverty line, the effect is naturally greater.

Changing the risk/reward tradeoff is at the heart of the ADB’s attempts to tackle the problem in Asia. By strengthening institutions – the independence of the judiciary, the experience of auditors, the accountability and monitoring of public financial management systems – the ability to catch perpetrators is improved.

It’s a slight shift in approach, enshrined in the GACAP II documents launched in 2006. “Past institutional and governance efforts have tended to be too short term and spread across too many sectors,” that document says. “To few resources have been allocated toward preventing corruption and building systems and capacity in public financial management and procurement.”

But it’s not all at the top level, or at least not anymore. “In one country we looked at we noticed that corruption was not occurring at the bidding or tender process, but instead there was collusion at the build phase,” she explains. “The ADB would pay for 100% of a bridge but find they actually only got 80%. Instead of three inches of asphalt, there was one inch, or 10% less reinforced cement.” In this instance the monitoring needed to be taking place at implementation, not the bid.

At the top level, Moktan believes implementing agencies around the region are getting a lot better at spotting what she calls “red flags, where something may be amiss. We’ve trained them to look for things that don’t seem right.” That might mean noticing that the phone number in the letterhead is the same on three separate shortlisted bids. “Executing agencies now are picking these things up more often than not.”

So is it working? It’s a difficult thing to assess: do high numbers mean improving supervision or rising corruption? The Office of the Auditor General, Integrity Division (OAGI) reports that in 2008 the ADB imposed sanctions on 41 firms and 38 individuals in 2008; that brings the tally to 552 firms and individuals banned from working for the ADB since it began investigating corruption allegations in 1998. OAGI, whose headcount dropped from 15 to 12 in 2008, opened fewer new investigations in 2008 than any year since 2002, but at the same time the complexity of investigations is increasing and the number of open investigations in 2008, an average of 105, is higher than previous years.

“I think the biggest measure of success is the extent to which corruption is openly discussed in most countries in Asia and the Pacific,” says Moktan. “10 years ago, nada. It was all viewed as too highly sensitive. Now I can have a meeting with 50 people in the region discussing the nature of political corruption and how it impacts their ability to deliver as government officials.” There has been a certain amount of diplomacy in this process: Moktan says it is best to depersonalise the conversation. “It’s rare you meet public officials now who will not discuss vulnerability to corruption – but if we start with ‘sir, we think you’re a crook’, they won’t,” she says. “If we start with ‘what do you want to achieve and let’s look at where your own goals are at risk’, most are willing. If you don’t put on a western value label, you can have a meaningful discussion.”

Chris Wright
Chris Wright
Chris is a journalist specialising in business and financial journalism across Asia, Australia and the Middle East. He is Asia editor for Euromoney magazine and has written for publications including the Financial Times, Institutional Investor, Forbes, Asiamoney, the Australian Financial Review, Discovery Channel Magazine, Qantas: The Australian Way and BRW. He is the author of No More Worlds to Conquer, published by HarperCollins.

Leave a Reply

Your email address will not be published. Required fields are marked *