From papers by diverse organizations such as the International Monetary Fund (IMF), the International Journal of Emerging Markets and the Nordic Journal of Political Economy, all agree that whether a country is categorized as ‘Developing’ or ‘Developed,’ corruption has a detrimental impact on a country’s social, political, and economic growth. And despite the fact that corruption is generally regarded as evil, scandals can emerge in any country.
Take the example of Indonesia when it was hit by the Asian Financial Crisis. The country’s currency, the Rupiah, nose-dived causing a sharp economic shift that affected almost everyone. The international media spotlight was briefly focused on the fabulously wealthy President Suharto and his family. The IMF welcomed Bank Indonesia’s decision to float the Rupiah even though it must have known it would further harm the economy. There are still many questions about the IMF advice to Indonesia but if it was really attempting to close down the crony capitalism and corruption in many of the Republic’s financial institutions, then trying to prohibit the administration from pegging the Rupiah to the Dollar would appear to be an efficient, if cold-hearted way of achieving that goal.
The Rupiah floatation resulted in a large number of private Indonesian companies receiving unhedged, short-term loans from offshore lenders in US dollars, and this massive private sector debt proved to be a ticking time bomb. The situation was compounded by the ongoing Rupiah depreciation. There were anti-government riots that bled into brutal violence against the nation’s Chinese-Indonesian minority.
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Geopolitical intrigue, violent riots, murder, mystery, and corruption are all intricately woven into The Noah Principle, as it also examines ethnic discord in South-East Asia within a real-time account of the disastrous Asian Financial Crisis and the eruption of the anti-Chinese violence. The book is available on Amazon for purchase: https://amz.run/6uew
Indonesia’s record on corruption is pretty unsettling, but since President Suharto resigned his office in May 1998 the situation has improved somewhat. In the 2020 Corruption Perceptions Index, Indonesia came in at number 102 among 180 countries, receiving a score of 37 out of 100. Extrapolating from a 2006 International Political Science Review article, any improvement might be tagged to the emergence of greater democracy in Indonesia. Using data from 100 countries between 1982 and 1997 the article’s authors argued, “One of democracy’s indirect benefits is its ability to mitigate the detrimental effect of corruption on economic growth. Although corruption certainly occurs in democracies, the electoral mechanism inhibits politicians from engaging in corrupt acts that damage overall economic performance and thereby jeopardize their political survival.”
Moreover, according to research conducted by the World Bank, the average income in high-corruption countries is roughly one-third that of low-corruption countries. These nations also have a 25% lower literacy rate and a three times higher infant mortality rate. While studies show that the level of corruption is directly related to the downturn of a nation, no country has ever been able to eliminate corruption entirely.
Here are the various ways in which corruption can influence a country’s economic prospects:
Impact on investment: Investors are less likely to make investments in nations with a high level of corruption. This is due to the fact that corruption makes it challenging to conduct business because of the possibility that investors will have to pay bribes or take part in other illegal activities to obtain contracts or access to resources. This may result in a shortage of foreign investment, which could negatively affect the expansion of a nation’s economy.
Poverty and inequality: When corruption is rampant, money meant to pay for things like healthcare, education, reducing poverty, elections, and the operating costs of political parties can end up being used as a way for party officials, bureaucrats, and contractors to enrich themselves.
Impunity and selective justice: When corruption infiltrates the legal system, it becomes impossible for prosecutors and judges to carry out their duties. The wealthy might avoid justice. Moreover, citizens, particularly those who lack resources or strong allies, may be falsely accused of crimes, denied access to a fair trial, and imprisoned without cause.
Government revenue decrease: Corruption also has an impact on economic growth by decreasing government revenue. Officials who engage in corrupt behavior steal money from the public sector and put it in their own pockets. As a result, less money is available for public services like infrastructure, healthcare, and education. This may result in a drop in the quality of these services, which could harm the economic expansion and revenue growth of the government.
In conclusion, there are a variety of ways that corruption hinders economic development. Countries must fight corruption and encourage openness and accountability in their government institutions if they want to experience sustained economic growth and more fully realize their economic potential.
