Sirilaksana Khoman Chair Economic Sector Corruption Prevention National AntiCorruption Commission NACC Presented at the course MORS D68 Ethics and Executive Leadership Sasin Graduate Institute of Business Administration ID: 361960
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Corruption and Agricultural Market Intervention
Sirilaksana KhomanChair, Economic Sector Corruption PreventionNational Anti-Corruption Commission (NACC)
Presented at the
course: MORS D68 Ethics and Executive Leadership,
Sasin
Graduate Institute of Business Administration,
Chulalongkorn
University, Wednesday 30 October 2013Slide2
Types of governance issuesStraight-forward, petty corruption
Complex and sophisticated networks, plundering the nation’s resourcesExample: Rice pledging schemeSlide3
Paddy Pledging Scheme: Policy evolution
Original Paddy pledging scheme at warehouse – provided credit to farms of 80-90% of market price to delay sale by farmers (like pawning)
1993-4 started use of pledging ‘receipt’
2000-2001 Thaksin increased pledging price above market price – increased budget – transforming scheme into price support scheme
2001-2002 increased coverage to off-season rice crop
2006-2007 Surayudh government decreased price to close to market price
2008 Samak government increased price to highest level at
14,000
Baht for off-season rice
In spite of rapid fall in price, Somchai and Abhisit governments maintain pledging price above market price: main crop 2008-09 at
12,000
Baht and off-season crop 2009 at
11,800
BahtSlide4
Comparison of pledging price and market price of jasmine rice
Pledging price higher than market price for the first time 01/02
Study period 2005/6Slide5
Loss for
2005/06 crop;
5.2
million tons paddy
พันล้านบาทSlide6
Agencies involved and quantities of paddy in the process
90 per cent of pledges not redeemed.Slide7
7
‘Rent-seeking activities’ and corruption
inflation of registered production
increase acreage for rice/reduction of other crops
substitution of rights of other farmers
increased number of crops to
7-8
crops
/2
years
put pressure on governments to continue program
P differential
Rent Seeking
Farmers
higher cost
greater pollution
competition for water resources
Capacity expansion
/
Silo
to
90
million tons paddy
Increased investment from 0.8 million Baht to 1.6 m per mill during 1987-2005 Lobbying to be included/pledging across district siphoning of rice for illicit sale substution of farmers’ rights/ using rice from Cambodia, Myanmar and Laos
Milling profits
Free rice to siphon
Rice mill
Rice mills in the program no longer know how to compete
ConsequenceSlide8
8
‘Rent-seeking activities and corruption
lobbying/kick-backs
collusion
Bid price lower
than export price
exporters
unfair advantage of large exporters
huge investments in warehouse construction/ return in
2
years
illicit sale of rice
exchanging low quality for high
Siphoning of rice
Inflated rent
Warehouse
excess warehouse capacity
consequence
“Surveyors”
Govt officialSlide9
Corruption and benefit-sharing
(1) Collusion in bidding among exporters
(2)
Contracts favouring those in the scheme:
5-6
months after bidding to pay
(
3
)
Contract amendments between Govt Warehouse and President Agri Trading, winner of the export contract on
6
May
2004; standard clause:
5% deposit changed to 1%
(
4) At time of export, govt paid another $20 per ton to ‘prepare rice for export’Slide10
(
5) Amendment of contract
No.
คชก.ขข.02/47 ลว. 18
May
2004
removing export requirement
(
6) Policy change that favoured one export company that became the largest exporterSlide11
Innovation in corruption policy
In early 2004 President Agri Trading, a newcomer, won the bid to buy
1.68
million tons of rice from the govt
at prices above market price,
thereby possessing the largest amount of rice of all the exporters:
2.2 million tons
A few months later, the govt announced the pledging price for the new season paddy at 10,000 Baht
(higher than market price) Consequently market price shot up – other exporters could not compete with PAT. Many had to buy rice from PAT Slide12
Evidence of probable insider informationSlide13
13
2005-2006 loss of
19
billion Baht:
Distribution of economic rent:
13
Farmers
37.3
%
Rice mills
(
323
mills)
18.1
%
Warehouse
+
surveyor
4.2
%
17
exporters
23.4
%
Government budget
13.7
%
Deadweight loss
2.7
%
Recipients
Consumers’ and taxpayers’ loss of
19.13
Billion Baht
Source: Nipon (2010)Slide14
14
14
Beneficiaries are mostly well-to-do farmers in irrigated areas in the Central and lower Northern regions
Richest
10
% of farmers received
20
% of the benefits
Poorest
10
% received
1.7 %Farmers with pledges above 200,000 Baht received 59.7
%
in 2008-9 season
Farmers with pledges below 40,000 Baht received
2.7
% in 2008-9 seasonSlide15
15
Top 2 largest exporters received economic rent of
2
.
641
billion Baht
(for one crop)
Collusion becomes easy
Remaining
13
%
20
%
# 3 and # 4
59
%
Largest two exportersSlide16
Rice production, export and estimated domestic consumption in
2009
Possible profit of 25 billion Baht (conservative estimate)Slide17
Flows of Network Relationships in Thailand
B
B1
B2
B1.1
B1.2
B1.3
P1.1
P1.2
C3
C or P
C4
C1
C2
P3
N1.2.1
N1.2.2
P2.1
P2.2
P2.3
N2.2.1
N2.2.2
Bureaucracy
Politicians
Notes: B = bureaucracy, C = capitalists, P = politicians, N = non-politiciansSlide18
Rivalry between Clans/ ‘Puak’ or Sub-Clans, Choosing Clan Affiliation
Fighting each other to control the resources or to be promoted higher in the clan
Providing resources to the client in his own sub-clan
Clan A
A1
A2
Clan B
B1
B2
Providing services and political support to the patron in the sub-clan
The poor and the under-privileged who are not accepted into any clan are left without resources and protection
People choose clans according to the perceived benefits which could depend on member size and resources of the clan
choose
choose
People with independent source of powerSlide19
In a nutshell: the 6 C’s
Constitution Concentration of political power
C
risis of 1997
de
C
entralisation
C
ivil Service reform
CorruptionSlide20
What can be done?
Membership of the WTO’s GPA?Ratification of the UNCAC; membership in OECD Anti-Bribery Convention?Integrity pacts with private sector, encouraging integrity pacts among professional and business associations, eg. medical suppliers, construction, supply chain, involving civil society.Pro-active, pre-emptive anti-corruption action – intercepting questionable projectsSlide21
Targeting corruption-friendly policies, measures, practices
Intervention schemes in agricultural marketsTargeting creation of artificial monopoliesLicensing requirements, registration practices, permits, encouraging use of technology to reduce contact, promoting competitionEvidence-based transparency indexSlide22
Vigilance on conflicts of interests
Data baseDisclosure requirementsMore positions includedUse of technologyStreamlining formsBusiness associatesRecommendations regarding appointments of officials and prosecutors to state enterprise boards
Strengthening legislation?Slide23
Amendment of anti-corruption law
Clarification and penaltiesProvincial officesWhistle-blower protectionAnti-money-laundering powersPlea bargaining
Statute of limitations
Public procurement requirements/procurement legislationSlide24
NACC ACT 2011:Article 103(7),(8): procurement
Publication of reference prices and method of calculationDisclosure of accounting statements for contracts designated by the NACCMonitoring by the NACCSlide25
Design of anti-corruption measures taking into account the structure of patron-client networks/creation of monopoly rentStrengthening of conflict of interest laws?Incentives to make whistle-blowing worthwhile?
Direction
25Slide26
NACC Preventive investigation at the policy formulation stage
Mega projects‘NGV’ buses 3G telecommunication 350 billion Baht flood prevention project
Suvarnabhumi
airport, second phase
Transport infrastructure 2 trillion Baht
Agricultural intervention policy
Rice,
longan
, cassava, natural rubber, sugar cane and sugar, milk Slide27
More aggressive measures“unusually rich”
Asset disclosureMPs removed from officeSlide28
Greater reliance on technology
Asset disclosure – database linkageEncouraging use of technology in government agencies – business registration, licensing and permits, etc. (greater convenience for business and reduces opportunities for corruption)Monitoring of monopoly elements
Role of regulator and operator
Initiatives regarding procurementSlide29
Civil Society:
Freedom of information
Public hearings of draft laws
Monitoring by media/NGO’s
School Curriculum
Good and Clean
Government
Competition & Economic
Freedom:
Competitive restructuring
of monopolies
Regulatory simplification
Public Administration and Public Finance:
Meritocratic civil service, codes of conduct
Transparent, monetized, adequate remuneration
Accountability in expenditures (Budget, Audit, Procurement)
Perception index of good service by agency/service
Measures for Good Government and Transparency
Accountability of Political Leadership:
Disclosure of parliamentary votes
Transparency in party financing
Asset Declaration, Conflict of Interest Rules
Checks and Balances:
Independent and effective judiciary
Independent and effective specialized
anti-corruption agency/unit
Decentralization with accountability?
Private Sector Partnership:
.
CSR, codes of conduct
. Anti-corruption pact
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