The Asean Economic Community and Corruption

Cr. http://www.fungglobalinstitute.org/publications/articles/the-asean-economic-community-and-corruption-400.html
The Asean Economic Community and Corruption

AUTHOR(S): BARBARA MEYNERT
DATE: 07 - Mar 2013
TAGS: Asean , Thailand , Infrastructure development , Corruption
THEME(S): Governance
As countries in Asean gear up for economic integration in 2015, Fung Global Institute Director, Barbara Meynert, asks whether corruption in Thailand will derail crucial inter-regional infrastructure projects.
The 10-member Association of Southeast Asian Nations (ASEAN) was founded in 1967 for the purpose of fostering regional cooperation, which was manifested in 1976 with the agreement on A Common Effective Preferential Tariff Scheme (CEPT). This led to the Asean Free Trade Area (AFTA) in 1992. The next step is the establishment of the Asean Economic Community (AEC), which will build on AFTA to create a single market and production base with the aim of becoming a highly competitive economic region and fully integrated into the global economy.

When AEC comes into being in 2015, it will provide a market of 600 million plus people who live in fast developing economies. The plan is that inside AEC there will be a single regional market with free flow of goods, services, investment capital and skilled labour. Furthermore, in support of greater integration with the global economy, Asean is actively seeking to negotiate on the Regional Comprehensive Economic Partnership (RCEP) with China, Japan, Korea, India, Australia and New Zealand with each of whom it has an existing free trade agreement. Once completed, RCEP (Asean+6) will be the largest free trade area in the world. The potential for Asean members is huge, as is the potential for business.

Infrastructure development is critical

AEC is very much work in progress and its eventual success will depend on many factors, one of the most important being infrastructure development. And this is being actively planned for, often with the help of such institutions as the Asian Development Bank. For example, there is a plan for three highways linking Asean – the North/South route linking South China through Myanmar, Thailand, Laos and Vietnam; the East/West Corridor linking Myanmar, Thailand, Laos and Vietnam; and the South/South route linking Myanmar’s Dawei deep seaport to Thailand’s Laem Chabang and Cambodia. It is clear that Thailand, centrally located in the landmass of Southeast Asia, is well placed to become an important transport hub for Asean.

The Thai Government has taken significant steps to position the country for this opportunity. It has been in talks with China about building a high-speed train linking the Chinese rail system with Laos, Thailand, and down to Malaysia. Even more importantly, it has developed a massive infrastructure programme, which was announced in early 2013. The programme calls for 55 projects worth over US$66 billion (the largest ever allocation) to be executed in eight years, starting in 2013 and to be completed by 2020. The projects will include highways, railroads including high-speed trains, water transport and airport developments.

Will corruption derail the infrastructure projects?

The level of bribery and corruption is high in Thailand, as it is in many other Asean countries. According to Transparency International’s Corruption Perception Index (which ranks the perceived level of public corruption in 176 countries on a scale of 0-100 where 0 is the most corrupt and 100 the cleanest), Thailand scores 37. Six other Asean countries score lower – Philippines 34, Indonesia 32, Vietnam 31, Cambodia 22, Laos 21 and Myanmar; and two countries score higher – Malaysia 49 and Singapore 87 (the highest Asean score in the world!).

Thailand’s track record of corruption on public works together with the size of the new infrastructure projects has given rise to serious concern. The huge investment will necessitate substantial borrowing by the government. If corruption were to continue on these projects, Thailand will not achieve its stated aim of being the transport hub of Asean, and Asean will not get the connectivity that it needs to become an integrated market. The massive funds will merely represent a transfer of wealth from the country to a privileged group of people, and the world will be the poorer.

In response to mounting concern, the Thai Government announced that it will require contractors undertaking transport infrastructure projects to sign “integrity pacts” to prevent bribery in the government procurement process and allow for independent scrutiny at all stages of the project. There is, however, little faith that the government is serious about stamping out corruption either generally or specifically in relation to the new infrastructure program. For example, the newly formed public-sector anti-corruption committee chaired by the Finance Minister met only twice – it had its first meeting at the end of 2011 and its second meeting one full year later, at the end of 2012.

Private-sector initiatives to combat institutional corruption

If there is any ray of light it is coming from private-sector initiatives. According to media reports, the Anti-Corruption Organisation of Thailand (ACT) is actively engaged with the government to ensure that the integrity pacts will actually be implemented. ACT comprises members of the Thai Chamber of Commerce, Thai Bankers Association and the Federation of Capital Market Organisations. Another private-sector initiative, the Collective Action Coalition Against Corruption (CAC), led by the Thai Institute of Directors, has been running a campaign for companies to adopt clearly defined internal anti-corruption policies and demonstrate good governance at the highest level. To date, 131 companies, 74 of them listed on the Stock Exchange of Thailand, support the CAC.

Sceptics say that corruption is so ingrained into Thai culture that fighting it is a lost cause. Advocates expect the anti-corruption bandwagon to gain further momentum as more companies acknowledge publicly that corruption leads to higher costs in doing business in Thailand; they also point to Singapore and Hong Kong as examples of countries with a similar “relationship culture” that have successfully combatted corruption. Let’s wait and see.