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Corruption

Publicly Guaranteed Corruption
Corrupt Power Projects and the Responsibility of Export Credit Agencies in Indonesia

Introduction

On February 15th, 1999, the OECD Convention to Combat Corruption came into force. Several OECD member states have enacted laws executing this convention in the meantime. In Swit­zerland, e.g., a new criminal law on corruption entered into force on May 1st, 2000. Both the Convention and the respective national laws ban bribing foreign government officials. The fight against corruption is also a priority concern for the World Bank, and ranks highly among the for­eign policy objectives of Switzerland and many other countries. However, the impact of the new convention on official export credit agencies, including the Swiss Export Risk Guarantee, re­mains open. Will the guarantees granted by such government agencies lose their validity if bribes were paid to win the corresponding projects? A current dispute between Indonesia and several creditor governments illustrates just how delicate the issue is.

During the Suharto regime, Indonesia received large streams of foreign investment flowing into the country. Numerous companies used the corrupt nature of the regime to their advantage and won lucrative orders for large, unnecessary and over-priced projects, for example in the energy sector. Such projects were frequently insured by foreign export credits or guarantees. In recent times, however, the new democratic government of Indonesia has been trying to clean up the corrupt legacy of the Suharto dictatorship. Burdened by the economic crisis, it attempts to inves­tigate and renegotiate obviously corrupt contracts, or to challenge them in court.

Officially, Switzerland and other creditor countries support Good Governance and anti-corruption efforts in Indonesia. When it comes to the corrupt contracts, however, vested interests of foreign companies and of export credit agencies are at stake. In the case of Switzerland, Indonesia is one of the focus countries of ERG. With guarantees exceeding one billion Swiss Franks, the country ranked first among all the recipient countries of ERG when General Suharto resigned his presidency. Several large ERG projects feature the typical indications of corruption. What is Switzerland’s policy with regard to Indonesia now? Will Switzerland support anti-corruption ef­forts, even though vested interests of ERG are at stake? In view of the new criminal law on corruption, this question is particularly pertinent.

The present memorandum focuses on the corruption policy of the Swiss Export Risk Guarantee. The issues raised in this context are also of significance for other countries – in particular for countries such as Germany, Japan and the US. The export credit agencies of these countries have also financed corrupt power plant projects in Indonesia. Finally, the Indonesian experience is also of relevance for OECD’s Export Credit Group, which is supposed to coordinate the poli­cies of export credit agencies regarding corruption.

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