Rights
monitor
Corruption:
Consumers pay the price
Dr.
S. Sothi Rachagan
Asia
is reputed for many positive values. It is also reputed
for corruption. Corruption has permeated the entire social
system of many countries in Asia. The sad fact is that
corruption is more evident in the countries that can least
afford it, the countries in which most of the world's
poor live. Bribes have to be paid for places in schools
and universities for children, approval and renewal of
business registration licences and permits, sundry applications
to local authorities and even healthcare in public hospitals
and redress in the local courts.
Each
dollar diverted into corrupt hands comes from consumers.
Consumers end up paying more than necessary for essential
public goods and services and ordinary citizens are deprived
of their rightful share of development.
Corruption
is unacceptable wherever it occurs but, it is even more
despicable when development aid is diverted away from
those mired in poverty and living under distressed circumstances.
In the case of rice distribution, there are many cases
of how corrupt officials prevented food aid from reaching
the intended beneficiaries, such as:
*In Cambodia, the United Nations World Food Programme's
(WFP) US$72 million food-for-work programme, designed
to help 1 million needy people for three years was riddled
with fraud. From January 2003 until it was frozen in late
February 2004, about 44% of the food sent out was stolen
or diverted by government officials who inflated recipient
lists with fake names and invented fictitious work projects.
The WFP estimates that about 4,000 tons of rice failed
to reach the impoverished families for whom it was intended.
*In
Indonesia, the then parliamentary speaker and Golkar Party
chairman, Akbar Tanjung and two others were convicted
of corruption charges in September 2002 for misappropriating
US$4.7 million in state funds from the National Logistics
Agency (BULOG). They were sentenced to three years jail.
The money was earmarked for sembako (nine basic food items
including rice and other staple commodities) for the poor
during the peak of the economic crisis in 1999. Instead
of employing state officials, Tanjung appointed an unknown
Muslim foundation chaired by one of the co-accused, a
property tycoon, to distribute the sembako. They in turn
gave the job to a private contractor, the other co-accused.
According to prosecutors, there was no evidence any food
was delivered. Just before the trial began, the co-accused
returned the money. On appeal in February 2004, the Supreme
Court, with one judge dissenting, overturned the conviction
of Tanjung due to what is widely believed to be undue
political pressure on the judiciary. The conviction of
the two co-accused remained but their jail term was reduced
to 18 months. In December 2003, an external audit of the
Attorney General's Office in Indonesia by PricewaterhouseCoopers
revealed a shocking level of corruption. The audit report
said that the Indonesian justice system would collapse
without payments from rich companies and individuals to
the AG's Office. The report said that payments originate
from the police (who receive part of the bribes) and,
brokers or lawyers looking for an advantage for their
clients. Payments are made and received by prosecutors
to pervert the course of justice, such as to bury dossiers,
file weak charges, impose negligible sentences or release
a criminal after conviction. (Indonesia is ranked among
the bottom 10 countries of Transparency International's
Corruption Perception Index 2004, at 133 out of 145.)
*In
India, the spectre of bumper harvests and overflowing
granaries amidst famine, deaths from starvation and farmer
suicides continue year after year. India exports millions
of tons of rice at Rs 5.65 a kg. But in many parts of
the country, the price of rice is much higher. In Andhra
Pradesh state for instance, the government sells rice
at Rs.6.40 a kg. The export price of wheat is even less
than the below-poverty-line (BPL) rate of that item in
many states. Investigations show that those who had died
of starvation had drawn their full quota of rice. But
what really happens is that the poor mortgage their BPL
cards in distress to moneylenders, unable to afford the
rice themselves. The moneylenders in turn buy the rice
at BPL rates and "loan" it at higher prices
to their victims. Corruption and inefficiency is systematically
dismantling India's public distribution system, which
was established to distribute food to the poor at lower
prices.
The
leading global NGO, Transparency International, estimates
that the amount lost due to bribery in government procurement
is at least US$400 billion per year worldwide. This is
a major loss of public funds much needed for education,
healthcare and poverty alleviation.
Corruption
must cease to be a way of life in Asia's poorest countries.
International donors and corporations must make the fight
against corruption a central theme of their effort. For
this they themselves must ensure that their dealings with
national governments are transparent. Much publicity is
given of government officials being caught with a hand
in the till. However, there is very little exposure given
of the companies seeking an edge over competitors by offering
bribes to secure tenders or contracts. One exception involves
the Gene Giant Monsanto, a leading provider of agricultural
products and solutions with headquarters in the U.S. It
was reported on January 7, 2005 that Monsanto voluntarily
notified US government officials following an internal
investigation revealing a bribe paid in Indonesia to bypass
controls on the screening of new genetically modified
cotton crops that were disguised as consultant's fees.
Monsanto said that it first discovered financial irregularities
in its Indonesian affiliates dating back to 2001. The
Gene Giant now faces US$1.5 million in penalties to be
paid to the U.S. Department of Justice and the Securities
and Exchange Commission (SEC) to settle the bribe charge
and other related violations. So, U.S. coffers are richer
by US$1 million; how does the Indonesian public get recompensed?
Corporations usually get away unscathed and unsullied.
Bribery by them is even excused as a necessary part of
doing business, and this is so both in developed and less
developed countries. Japan and South Korea are good examples
of countries where corruption saw the downfall of Heads
of State but not the corporate captains who enlisted their
treachery.
Even
more damning is the fact that most projects that are tainted
by corrupt practices are often not needed in the first
place, are more expensive than they should have cost and
in some cases become white elephants that are a continuous
drain on the national purse. Consumers end up paying the
debt owed by the country through higher prices or cut
backs in much needed public services. The following cases
illustrate this point:
*The
US company Westinghouse Electric Corporation won a contract
in the early 1970's to build the Bataan nuclear power
plant in the Philippines. It was alleged that it gave
President Ferdinand Marcos US$80 million in kickbacks.
The plant cost US$2.3 billion three times the price of
a comparable plant built by the same company in Korea.
Filipino tax payers have spent US$1.2 billion servicing
the plant's debts even though the plant never produced
a single watt of electricity because it was built at the
foot of a volcano near several earthquake fault lines.
The Philippines government is still paying US$170,000
a day in interest on the loans taken out to finance the
nuclear plant and will continue to do so up to the year
2018.
*
The UK's Barclays Bank was one of eight banks that syndicated
the loan for Paiton 1 and Paiton 2 coal-fired power complex
in Java, Indonesia. In December 1998, the Wall Street
Journal reported a series of corruption scandals associated
with Paiton 1. Members and friends of the Suharto clan,
among them Hashim Djodjohadikusomo, a relative of Suharto,
as well as Agus Kartasasmita, a brother of the Energy
Minister and later Minister for Economic Affairs, had
been attributed a 15% stake without payment. Djodjohadikusomo
and Kartasasmita were also awarded the contract to supply
coal for the plant, without public tendering, despite
their company having no previous experience in the coal
business. The Indonesian Audit Commission estimated that
such corrupt contracts increased the cost of Paiton by
US$600 to US$1,000 million. These costs were shifted to
the government by charging PLN, the state electricity
board, an extremely high price for the electricity it
purchased from the Paiton plant. The final electricity
tariff was set at 8.6 cents per kilowatt of electricity,
32% higher than comparable tariffs in Indonesia and 60%
higher than in the Philippines.
Concluding
remarks:
Corruption is criminal activities, it taints the giver
and the taker in equal measure. Tough sanctions are needed
to combat this perversity and the sanctions need to be
directed at those who give and take bribes. The parties
involved need to be prohibited from all future bidding
in the country concerned and blacklisted globally. Anti-bribery
legislation, corporate governance and anti-corruption
compliance codes need to be put in place.
Consumer
organisations must do their part in exposing corrupt practices
and seeking redress for those affected by such practices,
especially the poor. Without public exposure, shame and
severe punishment, rampant corruption will not be abated.
Consumers
are the ultimate victims of corruption. Corruption is
a consumer issue and the consumer associations need to
focus on efforts to fight corruption.
The
author is the regional director, Consumers International
Asia Pacific, Malaysia.
