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A Looming Crisis: Corruption in Asia's Development Banks

The Asian Infrastructure Bank must act on corruption or face long term issues with implementation.

Over the course of the 17th and 18th of January, the Asian Infrastructure Investment Bank (AIIB) has opened for its first Board of Directors meeting. The AIIB now represents the third multilateral economic organisation to enter the world of development financing and takes its place alongside the World Bank (WB) and Asian Development Bank (ADB) as a source of vital global capital. However unlike its existing counterparts, the AIIB’s ‘developmental focus’ is going to be limited purely to the ‘infrastructure’ aspect of development. This presents the AIIB with challenges and opportunities.

Continual regional economic growth has been a welcome development to the Asian-region. However, the inability throughout Asia to increase infrastructure in-line with industrialisation has thrown up potential barriers to continuing and sustainable growth. A recent ADB study highlighted that Asian infrastructure investment is lagging so far behind overall economic growth that to achieve ‘European-level’ living standards throughout Asia by 2050 will require in the region of USD$8 trillion. Yet it is the current lacklustre approach towards corruption taken by the AIIB and its parent state China, which threatens to derail these objectives.

Chinese officials have vowed to construct the AIIB around a ‘Zero-tolerance for corruption’ philosophy. However the now infamous trial of Bo Xilai, a party secretary and elite of the Politburo, and deep levels of Chinese corruption between the bureaucracy and its new business elites is a worrying development for China’s ‘Zero-tolerance’ approach. Anti-corruption discussions within the AIIB have in reality led to nothing more than well intention media soundbites and empty rhetoric. There are no substantial policies in place to focus on crucial anti-corruption measures and calls from the WB and ADB member-states to implement similar anti-corruption measures present within their organisations will not improve the situation. What these multilateral economic organisations fail to truly understand is that on the ‘state-level’, infrastructure projects have developed a penchant for unique and wide ranging corruption and waste.

A prime example of the issue faced by the AIIB can be found within the ADB. In the 2014 the ADB ‘Office of Anticorruption and Integrity: Annual Report’, the ADB investigated 84 corruption complaints, of which 18 regional business and 22 individuals were sanctioned by the ADB. Since the creation of the Office of Anti-corruption and Integrity, the office has been able to ban roughly 500 companies and 474 individuals for offences ranging from corruption and collusion to fraud. There is little doubt that a significant boost to Asian infrastructure spending will only increase these corruption practices. However, where the existing multilateral economic organisations fail is that they are trying to cure the problem without examining its initial and internal causes.

Throughout numerous Asia-Pacific states, anti-corruption watchdogs are severely hampered by internal governmental power disputes. A prime example of this would be Indonesia, where anti-corruption officials investigating corruption are routinely arrested, held captive and targeted with fabricated evidence to tarnish their work and authority. Furthermore, Asia-Pacific states rarely have the opportunity to implement proper anti-corruption reform because of implementation issues. Once again, if one looks towards Indonesia, the desperate need to implement an auditing system within the country to help investigate the infrastructure sector for corruption has been crippled by basic issues such as low levels of professional staff, inability to access proper information technology systems and confused governmental agency responsibilities. One must then ask if there is a possible solution to this. The answer is a resounding yes.

Corruption will continue to thrive within the Asia-Pacific because the current system which is in place, which the AIIB might fall back to in an attempt to please member-states and prospective members, is set up to create a one-size fits all blanket approach to try and counter corrupt practices. The way forward for the AIIB is to look towards examples like Hong Kong for inspiration. Hong Kong’s anti-corruption reform is a shining model of success. The Hong Kong model targets all sections of society to create a three-pillar approach. This approach aims to reduce the opportunity and benefits of corruption, increase costs of corrupt activities and change public perceptions not only around corruption but also the societal role in managing and engaging corruption. What is crucial about the way Hong Kong tackled corruption is that they targeted the unique and specific areas where corruption occurs within their society. The blanket approach used by the WB and ADB essentially suggests that corruption is exactly the same in every member-state and occurs in exactly the same manner every time. This is inaccurate and the AIIB must seek to break this incumbent system down.

Moving forward the AIIB must seek to work with states individually, to tailor anti-corruption reform that is specific for each state. Whether this means helping Indonesia boost the legitimacy of its anti-corruption body, or providing education-financial resources to other member-states to fix their professional human resource shortages. This will require enormous analytical and research resources on behalf of the AIIB and its member-states. If Asia truly wants to make this century the ‘Asian Infrastructure Century’ then a new approach to anti-corruption will be vital.

Charles Bryant is a recent Master of International Affairs graduate from the Sir Walter Murdoch School of Public Policy and International Affairs at Murdoch University.

This article can be republished with attribution under a Creative Commons Licence. Please email with any questions or for more information.

Image credit: Asian Development Bank (cropped) (Flickr: Creative Commons)


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