Asia's Most Corrupt Countries

03.10.10
Hana R. Alberts
Forbes Asia

A new report shows business executives look down on Indonesia in favor of Singapore and Australia.

HONG KONG--Investors seem to have a love-hate relationship with Indonesia. Many are confident, boosting the country's benchmark stock index 115% in 2009. At the same time, Asian business executives just voted it the most corrupt country in the region.

The world's largest archipelagic nation ranks worst on the list of 16 Asia-Pacific regions, according to a report released Wednesday by the Hong Kong-based Political & Economic Risk Consultancy (PERC).

PERC asked 2,174 middle and senior executives--both expatriates and those who hail from Asia--to rank the behavior of their political, civil and economic agencies, including leaders, police, courts, stock markets, taxation systems and militaries.

Indonesian President Susilo Bambang Yudhoyono, commonly known as SBY, was overwhelmingly re-elected for a second term last July by a populace that craved not only economic stability but growth. And he delivered: Global demand for the nation's natural resources fueled the uptick in many fortunes on Forbes' ranking of Indonesia's richest people. (See the complete list.)

But not six months later Yudhoyono and officials he appointed came under fire when the government's bailout of a small bank was criticized as a means of funneling money into other politicians' pockets. Further dinging public confidence was the ruling Wednesday by Indonesia's House of Representatives that Century Bank's 2008 rescue was unjustified.

Ranked barely less corrupt than Indonesia in PERC's ranking were Cambodia and Vietnam, followed by the Philippines, Thailand, India and China. The cleanest places were Singapore, Australia, Hong Kong and the U.S. (America was included as a benchmark.)

The economic downturn increased respondents' perceptions and criticisms of corruption in their midst, according to the study.

"It is so much easier to link cause and effect when people can relate rising unemployment and falling incomes to acts by greedy businessmen, civil servants and politicians that go unchallenged when economies are booming and everyone is making money," PERC's report says.

Indeed, in a separate survey by Transparency International that measures corruption in 180 countries, the latest corruption index shows that 75 of the nations surveyed scored below 3 on a scale of governmental honesty where 10 is the top mark--an increase from 72 countries in 2008. (See Transparency International's ranking of the world's most corrupt countries.)

Perceptions of corruption have increased over the last year, PERC's report says, in part due to political elections in which contenders lay bare opponents' misdeeds and in part due to the increasing publicity of civilian-generated complaints aired through the Internet or text messaging.

The problem is not limited to Asia. Corruption is a fixture in countries like Egypt, India, Indonesia, Morocco and Pakistan, where 60% of executives surveyed reported having been solicited for a bribe, according to Transparency International. That organization figures bribes consume an estimated $20 billion to $40 billion a year worldwide.

While PERC cautions that its study captures merely the beliefs of a slice of the Asian business community, it believes the results are useful to investors.

"They help to determine where individuals and companies select their investment sites and the magnitude of risk premiums they attach to investments in certain locations. They influence the choice of partners, suppliers and joint-venture partners," the report says. "Politicians that ignore the perceptions of their populations and foreign investors do so at their own risk."

Smarting from PERC's report, the Jakarta Globe published a story joking that Indonesia "has made it onto a list of superlatives. Unfortunately, not for something the nation should be proud of." It seems, though, that residents of the world's fourth-most population nation hold out hope for Yudhoyono and his cronies. In response to a solicitation for reader comment, Julius Phang wrote the paper: "Why would anyone be surprised? Come on Indonesia, it's time we show the world that we, too, can be clean."