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ASIAWeek: The War Against Cronies
By Kapal Berita
29/10/2000 9:01 am Sun
NOVEMBER 3, 2000 VOL. 26 NO. 43 ASIAWEEK
The War Against Cronies
Malaysia's Jomo Kwame Sundaram is on the frontlines of the struggle
to change Asia's business culture. Here's why it is taking forever
By ALEJANDRO REYES
The fire in Jomo Kwame Sundaram's eyes probably began to burn on July
21, 1983. On that muggy Thursday the Malaysian economist's college
schoolmate Jalil Ibrahim was found dead in the underbrush of a banana tree
grove in Hong Kong's rural New Territories. Police reckoned that 36 hours
before, after lunch and coffee with somebody in his room at the Tsimshatsui
tourist district's luxury Regent Hotel, Jalil was strangled with a white bathrobe
belt. His body was stuffed into a large suitcase, which a porter was told to
cart through the Regent lobby and load into a taxi trunk.
Mak Foon Than, a Malaysian businessman, was later jailed for the murder. A
35-year-old executive of Malaysia's state-owned Bank Bumiputra, Jalil was
sent to Hong Kong to investigate losses at its subsidiary, Bumiputra Malaysia
Finance. BMF had lent to some shaky companies, including the giant Carrian
Group headed by Malaysian-born businessman George Tan, which
eventually crashed in October 1983. Among other things, Jalil had tried to
find out who owned a block of 25 million Carrian shares and whether loans
had gone to undeserving but well-connected borrowers.
"Jalil was a good and honest man, and his death was a turning point for me,"
recalls Jomo, 47, grimly. His friend's killing led the Universiti Malaya
professor to his life mission: the fight against cronyism, the cozy and often
corrupt connections between politicians and businesses. In a country where
such ties are commonplace (though not necessarily illegal or even improper),
Penang-born Jomo has stood against the tide - and faced down personal
attacks and lawsuits. He has also received death threats, including, he
recalls, a letter soaked in blood warning against his activism.
Named after two African nationalist leaders, Jomo fights at the frontlines of
Asia's war on cronyism, along with other prominent opponents of impropriety
in public office (see stories, page 50).
Firing up their struggle have been the spread of democracy in recent
decades, the Asian Economic Crisis of 1997-98 and the global push for
better governance, transparency and accountability. The ongoing political
storm rocking Philippine President Joseph Estrada (see story this issue),
accused of taking millions in illicit gambling money from a crony, is but the
latest public eruption over the endemic cronyism afflicting Asia.
Jomo fumes that in Malaysia "practically every big businessman has had to
ingratiate himself with politicians." That statement applies to much of the
region, from Indian industrialists pleading for licenses to Japanese contractors
bidding for infrastructure projects. And if Asia is to stay competitive and stave
off another meltdown, it must not let up on its crusade against crony politics.
"Cronyism does big damage to the economy," says Perfecto Yasay, former
head of Manila's Securities and Exchange Commission, who had alleged that
Estrada tried to pressure him into clearing a friend in a stock manipulation
Besides giving a privileged few obscenely huge gains at public expense,
cronyism discourages investment by the great majority of firms which don't
know people in high places. That translates into slower economic growth,
lower government revenues and fewer jobs. Scandals over shady deals can
destabilize governments and unseat national leaders. Reprising the 1986
People Power protests that brought down Philippine president Ferdinand
Marcos, Indonesian students railing against "KKN" - Bahasa initials for
cronyism, corruption and nepotism - forced Suharto to resign in May 1998.
Two Pakistan prime ministers, Benazir Bhutto and Nawaz Sharif, also fell amid
charges of rampant corruption - a fate Estrada is now battling to avoid in the
If cronyism is such bad news, why is it still stubbornly flourishing? One
immediate reason: the region's economic rebound, which has dulled the zeal
for painful change. "When you have growth rates of 6%, 7% or 8%, people
feel the pressure is off," says World Bank president James Wolfensohn. At last
month's IMF-World Bank annual meetings in Prague, he cited flagging reform
in the three nations worst hit by the Crisis: Indonesia, South Korea and
Thailand. Wolfensohn warns: "You can mask the problems by economic
growth, but you have within it the seeds of the next crisis."
In Seoul, for example, President Kim Dae Jung "was elected to deal with
corruption and cronyism, but has not yet been successful in doing so," the
World Bank chief laments. Kim has used state power to try to force leading
chaebol to restructure, and to reduce their influence in government. But
business groups like Daewoo and Hyundai have been able to rebuff many of
Seoul's restructuring demands, and in thousands of companies and agencies
across the country, contacts forged in school, at work or in business still
afford advantages to the well-connected.
The long, bruising fight, however, comes as no surprise to veterans of the war
on cronyism. Like President Kim, whose decades of struggling for peace,
human rights and democracy was finally recognized with this year's Nobel
Peace Prize, the investigators, journalists, academics and bureaucrats taking
aim at anomalies know that they must dig in for a protracted battle against
daunting odds and powerful forces. "This is a cultural thing that you cannot
end overnight," says Lee Seog Hyun, secretary general of the Citizens'
Coalition for Economic Justice, South Korea's largest NGO and a staunch
opponent of chaebol dominance and clout.
Jomo certainly knows how relentless the struggle is and how strong the forces
ranged against reformers. Over the decades, he has written or co-written 81
books on political economy, especially the links between business and
politics. One of them, The Political Economy of Malaysia, co-authored with
his colleague Terrence Gomez in 1997, spurred calls for change from the
opposition and even members of the dominant United Malays National
Organization. Harvard- and Yale-educated Jomo has emerged as one of the
harshest critics of Prime Minister Mahathir Mohamad's government (the PM
no longer shakes his hand when they meet), though Jomo has not joined any
One difficulty about fighting cronyism is that doing so seems to go against
Asian ways. Rooted in centuries of feudal and peasant life, personal
relationships and patronage have long been a part of politics and business in
the region. Moreover, decades of government involvement in national
economies, whether socialist like China or capitalist like Japan, have
promoted close ties between officials and business people. Such cooperation
has even been praised for driving East Asia's so-called economic miracle; its
one-time admirers included the World Bank, now a leading critic of cronyism.
In authoritarian regimes, strongmen like Suharto and Marcos skillfully used
business links and grants and favors for friends as convenient and necessary
means of maintaining support and enriching their families. But even when
democracy came to the Philippines, South Korea, Pakistan and other
countries, irregularities didn't disappear. Instead, the need for mammoth funds
to mount election campaigns allowed big business to keep buying influence.
The list of Estrada's alleged cronies, for instance, mirrors the bankrollers of
his successful presidential candidacy in 1998.
Notably, too, most Asian nations are at a stage of development where
America was in the early part of the 20th century. Cronyism was rampant in
the U.S. then - indeed, it was in America at the time that the word was first
used with its current meaning - and it took the Crash of 1929 and the Great
Depression to push the U.S. to develop institutions, laws and social attitudes
that diminished the practice. That is what Asian nations need to do now: enact
laws, create structures and, most important, change social behavior and
thinking to ensure that cronyism doesn't pay.
For now, some have even argued that using connections can be an effective
way - even the only way - for businessmen to cut through red tape and for
governments to get priority projects off the ground. In India, says constitutional
lawyer Rajeev Dhawan, businessmen have no choice but to play the crony
game. "If you want any government contract, you will have to be routed
through someone," he argues. "What people call cronies are really a highly
centralized gangster army of middlemen." Hilton Root, a Los Angeles-based
economist with many years experience in Asia, adds that cronyism
arrangements and ownership structures like the chaebol are ways in which
businesses cope with the uncertainties of a society lacking in reliable
In fact, the law may not even punish cronyism. "For a long time, criticism of
cronyism was not taken seriously, because there was no violation of the law
as such," Jomo explains. "Corruption was different because it was illegal,
while cronyism was considered to be legal." The law may even punish those
who expose crony deals; whistleblowing officials could be charged with
divulging state secrets, a common occurrence in China and worrisome
enough in some other authoritarian nations. Says Jomo: "Almost everything
has become confidential. As far as the government is concerned, when in
doubt, chop it as secret." (For all his exposes, though, Jomo has not run afoul
of Malaysia's Official Secrets Act.)
Efficiency can become an excuse for special arrangements. Last year, the
Hong Kong government denied allegations that it had awarded the Cyberport
office and residential development to Richard Li Tzar-kai's Pacific Century
Group without the usual tender because of Li's tycoon father Li Ka-shing's
close connections to Chief Executive Tung Chee-hwa and to China. Officials
insisted that Pacific Century was the one company with the required expertise
and that a speedy selection was imperative for the project to be launched as
quickly as possible. But the appearance of conflict of interest did Hong
Kong's reputation damage.
Estrada has suggested that if a crony delivers, then favoritism, if there had
been any, may be justified. "He's a good crony," he once said to counter
allegations that pal Eduardo "Danding" Cojuangco, chairman of food and
beverage conglomerate San Miguel, is profiting from their friendship.
"Danding does not owe money to the government," said the president. "He
has made San Miguel profitable again." For his part, Mahathir has called
every Malaysian his crony, while businessmen reputed to be close to him
have simply shrugged off criticism of their apparent relationship.
Sadly, many Asians have the same uncaring attitude. Across the region, the
public has often been all too willing to accept that ends-justify-the-means
line of defense and tolerate sleaze - to a point. Says Beijing taxi driver
Zhang: "We actually don't mind if government officials are corrupt. As long as
they accomplish things for society at large, that's okay. What we don't like are
those officials who take public money and don't perform."
Common, too, is the argument that cronyism will die out naturally - that as
Asian economies develop and societies become wealthier, corruption will
diminish. Not true, says lawyer Dhawan. Feudal social orders certainly foster
cronyism, but it is very much a modern scourge that can plague even
developed economies and must be fought with new thinking and innovative
solutions. "While earlier cronies were old, wizened people, there is a new
breed around - younger and more experienced," Dhawan explains. "They
work in concentric circles around the center of power."
New or old, however, cronies often share some underhanded methods. Last
year, Jomo came under intense pressure from a well-connected business
group whose contracts with the government he had written about. Some
visitors to his office threatened lawsuits, while offering to help him out with
easy credit. "These people thought we knew more about some wheeling and
dealing than we actually did," Jomo recalls. "You have a family, so think of
them, they said. We will take you all the way [to court]. We will bankrupt you.
You won't get a job anywhere." He continued his exposEs; he has stood up
to pressure before. In 1986 he was the first professor in Malaysia ever to be
demoted. He got a promotion again only in 1991.
Even when a social upheaval brings down a corruption-ridden regime along
with its hangers-on, new cronies could arise, along with some old ones.
Much has been made of the return of Cojuangco and Lucio Tan, who made
fortunes under Marcos and have regained clout after supporting Estrada. In
South Korea, campaigns against chaebol dominance needs to take account
of how cutting them down to size may hurt the economy and employment.
In Indonesia, new cronyism is not much of a problem - yet. "The economy is
so flat that there are no big deals to pervert," says Jim Castle, founder of
Jakarta consulting firm Castle Group. But there are concerns about deals
covering the huge debts and banking interests taken over by the Indonesian
Bank Restructuring Agency. IBRA is taking a second look at assets turned
over to the state by owners of banks that went bust and had to be rescued.
Meanwhile, the World Bank and the IMF have questioned a $2.7-billion debt
restructuring deal with the Texmaco Group.
In the fight against cronyism, as with any disease, prevention is far better than
cure. Perhaps the best way to cut out sleaze is freeing up business sectors
and removing the incentive to cultivate connections for commercial
advantage. That includes lowering import tariffs and quotas. Another important
preventive is limiting election spending, which Thailand's new constitution
has tried to do. In the Philippines, former House speaker and presidential
candidate Jose de Venecia proposes that the state fund presidential
campaigns. Otherwise, "candidates will continue to be beholden to big
business for support. This system breeds cronyism." Yasay suggests limits on
how much an individual contributor can give a candidate: "If somebody gives
2 billion pesos, then the candidate, if he wins, has to repay that."
For South Korean political scientist Lee Ki Taek, political maturity is the only
way to curb cronyism. The Yonsei University professor wants to see election
campaigns focus on issues rather than personalities. That would limit the
incentive to support and gain influence with particular politicians. But Lee has
an even better idea: the introduction of transparency in all aspects of politics
and business, particularly when it comes to the interaction of vested interests
and officials. "Cronyism will gradually disappear if we have a legal and
transparent lobbying system," he says. In short, require all dealings affecting
the public interest to be made public. For instance, all contracts worth, say,
$100,000 or more should be detailed on the Internet, with the names of
winning bidders and their beneficial owners published. If certain parties keep
getting the deals, the public can ask questions and check things out.
Transparency will help promote accountability - another necessary remedy to
cronyism, says Eddie Leung, chief editor of activist newspaper Hong Kong
Voice of Democracy. Accountability, he carps, "is just a joke here." He
recalls a recent scandal involving defective apartment blocks built by the
Housing Authority, for which no one was penalized (though the authority's
chief resigned). He adds that Hong Kong Chief Executive Tung Chee-hwa "is
not elected by the people so there is no way that he is accountable to the
people. The only one Tung needs to be accountable to is Beijing."
Certainly, if the public has no way of removing an errant official, the corrupt
will more easily thrive. In China's ongoing crackdown on corruption, the
Communist Party leadership still decides who gets the ax, and one Politburo
member allied with President Jiang Zemin has allegedly been spared, despite
his wife's involvement in a $10-billion smuggling scandal.
Lawyer Arittha Wickramanayake, chairman of the Sri Lanka chapter of
anti-corruption coalition Transparency International (TI), looks to a
generational change to eventually put merit above connections. That will
happen in his country if, as he predicts, a new class of state-educated
professionals without family connections or friends in high places emerges.
"Their expectations are high," Wickramanayake explains. Thailand's former
prime minister Anand Panyarachun, TI's chairman in Bangkok, agrees. He
says even family businesses that have long worked political links for profit
"realize that the writing is on the wall" (see interview, page 53). Lucio Tan Jr.,
a son of the Estrada-linked tycoon, said in a recent interview that he aims to
cleanse the family reputation partly by being more transparent in business.
Building public awareness through protests and exposes, as Jomo has done,
is crucial to shifting social attitudes away from the feudal subservience that
lies at the core of cronyism and the public's acceptance of it. "What we have
been writing and talking about for 10 to 15 years has been in public
discussion over the past two-and-a-half years," says the academic. "People
are aware of [cronyism] and condemning it. This is a major achievement."
Hopefully, the new spirit will spread fast enough to avoid another regional
convulsion - courtesy of its cronies.
With reporting by Arjuna Ranawana/Kuala Lumpur, Warren Caragata/Jakarta,
Antonio Lopez/Manila, Laxmi Nakarmi/Seoul, Anthony Sabine/Hong Kong
and Ritu Sarin/Delhi