Posted: 17 Dec 2010 01:19 AM PST
JAKARTA, Dec 17 — Indonesia's selection of less aggressive candidates to head anti-graft institutions and failure to make progress on big corruption cases show its drive to reduce graft has faltered — but that is doing little to deter foreign investors.
President Susilo Bambang Yudhoyono attracted voter support and increased investor confidence last year on hopes he would make further progress in his second term in reforming graft-ridden institutions in one of Asia's most corrupt countries.
But the continued depth of the problem has been highlighted in recent months by the success of vested interests in weakening anti-graft body KPK, and by revelations of an allegedly corrupt tax official who bribed his way his way out of prison.
Analysts say Yudhoyono is unlikely to achieve much reform of corrupt legal or tax systems that increase risk for investors, but impressive stability in managing Indonesia's finances and strong economic growth will draw further portfolio and foreign direct investment (FDI).
"When you weigh up the risk factors, the opportunities in Indonesia are a lot greater. While there is corruption, actually there is corruption everywhere," said Julia Goh, an economist at Malaysian bank CIMB, whose Indonesian subsidiary saw third quarter profits jump 46 percent and its shares triple in 2010.
Fund managers say corporate governance is the biggest risk for equity investors, but that has not stopped a 41 per cent rally in Jakarta stocks to record highs this year.
An exception was top coal miner Bumi Resources , whose stock slumped about 30 per cent by mid-year on concerns over governance and high debt, but that was seen as a buying opportunity despite the risks and the stock has rebounded.
"It will always be an issue. Over the last year or two markets have been less focused on the corruption issue because of the favourable environment," said Chua Hak Bin, director of global research at Bank of America Merrill Lynch in Singapore.
"This issue may come back to haunt — it's probably a bit worrying that investors have been willing to push it aside, not just corruption but other reforms, and as valuations get higher investors may get more demanding."
While corruption acts as a drag on the economy, booming exports of commodities such as coal and rising consumer spending mean solid six percent growth is expected again next year.
For bond investors, who have piled into government debt to drive down 20-year yields by 1.45 percentage points this year, this growth plus falling government debt levels and the prospect of a ratings upgrade to investment grade status next year are likely to outweigh any graft risk.
Corruption has not stopped the government's finances from improving and so long as it does not hit the currency or lead to a political backlash, it may continue to be overlooked by investors with a short time horizon, Chua said.
Criticism of the government's progress has been rising. The Indonesian public's perception of Yudhoyono's battle on graft, on a 0-100 scale, slid to 34 in October from 84 a year earlier, a poll by the Indonesia Survey Institute showed.
The KPK, which had achieved some success and struck fear into government officials since being set up in 2003 with jail sentences for "untouchables" such as members of parliament, an in-law of the president and a former central bank governor, saw its leader convicted this year for 18 years on murder charges.
Two KPK deputies had graft charges against them dropped after evidence they were framed by police, prosecutors from the attorney general's office and a businessman whose brother was a KPK target, but they could still face prosecution.
The weakened body has since been aiming to take on smaller regional cases than going for big fish in Jakarta, according to anti-graft watchdog Indonesia Corruption Watch.
Campaigners hoped a new KPK chief would revitalise efforts, but the choice last month of softly spoken academic Busjro Muqoddas by the parliament — fearful of further convictions of parliamentarians — left many disappointed.
This was followed up by Yudhoyono's choice of a former deputy attorney general to become a new attorney general, leading to even more dismay, as an insider from an institution widely considered corrupt was not seen as likely to clean it up.
"Indonesia has no priority nor road map, and probably doesn't want any significant change. The corruption fight is being done at the periphery to appease the public," said Teten Masduki, of anti-graft group Transparency International Indonesia.
Transparency International's 2010 corruption perception index for Indonesia stood at a score of 2.8 for 2010, the same as last year, and a worse rating in its scale of 0 to 10 than Thailand's 3.5 and Malaysia's 4.4.
"In business you need to build relationships of trust and support. But here it feels like everyone is opportunistic, trying to get something out of everything you do," said the foreign head of an IT firm. "You cannot work well like this."
The central bank told Reuters the risks for doing business were seen as the biggest obstacle to an investment grade rating.
Money open doors
Pessimism among the public has turned to anger after the revelations of junior tax officer Gayus Tambunan, being tried for bribing a judge to avoid charges of taking millions in payments from firms to slash their tax bills.
Photographers spotted Tambunan sporting a wig at a tennis tournament on the resort island of Bali — when he was meant to be in jail. It turned out he had bribed the jail's head warden to slip out of the prison's doors more than 60 times and told a court it was a common practice his cellmates also did.
The grim picture of entrenched corruption has for years put firms off from investing directly, but FDI has grown a third to about US$14 billion (RM44 billion) in 2010, from existing mining firms and manufacturing newcomers, with more seen coming from North Asia to tap buoyant consumer demand and abundant mineral resources.
While some nations may be willing to deal with graft, there are also signs more Western firms are willing to take on the risks in Indonesia, which has had success in tackling other threats such as Islamic militant groups and currency volatility.
The world's biggest food group Nestle said this month it will invest in a new plant to produce Milo to meet growing local demand, while the government says US equipment maker Caterpillar Inc is considering making Indonesia its Southeast Asian production base.
Executives said they had learned to work around the problem.
"It adds time and complexity. Who needs to be paid what, it's such a complex situation. Every way you turn someone else must be paid," said a managing director of a Western software firm, who declined to be identified given the sensitivity.
"Thankfully we don't deal with it directly, we use other people for that. We cannot be seen to be engaged with anything like that." — Reuters
Posted: 17 Dec 2010 12:44 AM PST
SINGAPORE, Dec 17 — Confidential US Embassy cables released by WikiLeaks have shed unprecedented light on the biggest political risk faced by investors in Thailand — the prospect of a royal succession intensifying social conflict.
Strict lese-majeste laws make it hard for investors to make informed predictions, but the issue of succession looms large at a time of deepening tension in Thailand following the worst political violence in its modern history over April and May.
While 83-year-old King Bhumibol Adulyadej, the world's longest-serving monarch, commands supreme moral authority in Thailand, the leaked cables show doubts among key royal advisers about the suitability of his son and heir, 58-year-old Crown Prince Maha Vajiralongkorn (picture).
General Prem Tinsulanonda, the head of the privy council and a former prime minister, Anand Panyarachun, another former prime minister, and privy councillor Siddhi Savetsila all expressed concern about the prince as the likely heir in private conversations, according to a leaked cable written by former US Ambassador to Thailand Eric John.
"All three had quite negative comments about Crown Prince Vajiralongkorn," John wrote in a memo dated January 25, 2010, and posted on the Guardian newspaper's website on Thursday.
There has been no public comment by those quoted in the leaked cable on whether the comments attributed to them are genuine.
"We're not in a position to comment on the authenticity and accuracy of these documents because they did not originate from us," said Foreign Ministry spokesman Thani Thongpakdihe.
Although talk of the Thai monarchy's role and possible problems on the horizon are taboo and illegal, the topic is followed closely in Thailand's financial markets, which fell briefly last year on concerns over the King's health.
Siddhi, an Air Chief Marshall, acknowledged that "succession would be a difficult transition time for Thailand", the US ambassador said in the memo.
"While asserting that the Crown Prince will become King, both Siddhi and Anand implied the country would be better off if other arrangements could be made. Siddhi expressed preference for Princess Sirindhorn," John wrote.
Princess Maha Chakri Sirindhorn is highly respected by Thais, while there is widespread disapproval of the prince's lifestyle.
"Anand suggested only the King would be in a position to change succession, and acknowledged a low likelihood of that happening."
Analysts say privately that there could be a prolonged period of turmoil and even civil unrest if the succession does not go smoothly.
"It's the big issue, there is no doubt about it, and it comes up often in private discussions with our clients but it is not something to be aired in public," said a Singapore-based regional analyst at an international investment bank, who asked not to be named because of the sensitivity of the subject.
Another major bank said in a report that succession worries impose a political risk discount on Thai assets.
Thailand's financial markets are among the world's strongest this year. Stock prices are up more than 40 per cent and the Thai baht is trading at 13-year highs, making Thailand among several emerging markets vulnerable to a correction.
The prince and Thanksin
Prem, widely believed to have helped orchestrate a 2006 bloodless coup that ousted former Prime Minister Thaksin Shinawatra, said over lunch with John that the prince probably maintained "some sort of relationship" with Thaksin, a divisive figure reviled by Thailand's establishment.
Thaksin, a telecommunications tycoon particularly popular among Thailand's poor, was convicted in absentia on corruption-related charges and lives abroad to avoid jail.
He is a figurehead of the red-shirted anti-government protest movement whose supporters clashed with authorities in April and May during nine weeks of protests in which at least 91 people were killed and more than 1,800 wounded.
But Prem doubted the prince would come to Thaksin's support in the future.
"He does not enjoy that sort of relationship," he was quoted as saying in the leaked January 2010 cable.
Suggestions of ties between Thaksin and the prince are contentious. Thaksin's supporters have repeatedly clashed with the royalist military, now led by a general known to have the backing of Queen Sirikit. Thaksin and his allies have been accused of republicanism, which they deny.
The queen and the coup
A separate US cable released this week quoted late former Prime Minister Samak Sundaravej as saying the Queen had encouraged the 2006 coup that toppled Thaksin and plunged Thailand into its current political crisis.
As a constitutional monarchy, the palace is officially above politics, but Samak said the Queen was supporting street protests against his government, dominated by a pro-Thaksin party.
Samak, premier for seven months in 2008, "showed disdain for Queen Sirikit, claiming that she had been responsible for the 2006 coup d'etat...", the US ambassador said.
"Samak viewed himself as loyal to the King, but implied that the Queen's political agenda differened (sic) from her husband's," he added in the cable.
In another cable, a palace insider told the US ambassador the "yellow shirt" protests against Samak's government and the occupation of his offices had "irritated" the king, who explicitly told the army chief not to launch a coup.
The November 2008 cable described the Queen's attendance at the October 13, 2008, funeral of a yellow-shirt protester killed during a demonstration as a "significant blunder" that jeopardised the public's perception of palace neutrality.
Such candour on the monarchy is a rarity in Thailand.
Siddhi noted "that something as simple as excessive motorcade-related traffic jams caused by minor royals was an unnecessary but enduring irritant," the US ambassador wrote.
The king was admitted to hospital on September 19, 2009, and has been undergoing physical rehabilitation. Some palace insiders say he may be released soon, possibly on Sunday. — Reuters
|You are subscribed to email updates from The Malaysian Insider :: World |
To stop receiving these emails, you may unsubscribe now.
|Email delivery powered by Google|
|Google Inc., 20 West Kinzie, Chicago IL USA 60610|