Putting a price on ethics

Lim Shu Ling BBC, Asia Bureau Singapore

Ever since the Asian Crisis, Southeast Asians have been hearing ad nauseam about their lack of corporate governance, transparency, or to sum it up as they do in Indonesia: KKN -- corruption, collusion and nepotism -- the manifold sins of the former Asian Tigers.

The region seems destined to be unable to escape the stigma of those three letters. Now the largest U.S. pension fund has put a price on transparency, political stability and labor conditions.

The California Public Employees Retirement System or CalPers, is going to withdraw its investments from Southeast Asian emerging markets -- Malaysia, Indonesia, Philippines and Thailand. It's less clear if the pension fund is pulling back from the

Philippines and Thailand because of the so-called "country factors" referring to those three qualities listed above. But it certainly looks like Malaysia and Indonesia have failed to make the grade as far as transparency, political stability and labor conditions are concerned.

We may be seeing a new era where investment decisions are guided by ethical or ideological standards. It reminds me of those "Green" investment vehicles that used to invest only in companies which followed green ideals like sustainable development. Except that CalPers is far more mainstream than any alternative Green investment fund. Indeed, CalPers has a reputation as a watchdog of corporate governance and reform at home, and its new criteria for investing in emerging markets may be used as a new standard by other public pension funds in the U.S.

Bear in mind fund managers can behave just like a group of lemmings when they get a notion in their collective consciousness, something which we've already seen happen all too graphically during the Asian Crisis.

CalPers makes no bones about the matter -- it says it should be a signal to repressive regimes to clean up their acts. And according to them it also safeguards their 1.2 million members because the pension fund will only be putting its money in more stable countries.

Here's where we start to get into some tricky grey areas. Now you would think that with such strict criteria in mind, the list would be incredibly small and would include only the creme de la creme of emerging markets. And yet it actually has Argentina in it. Now correct me if I'm wrong, but haven't we just seen a major financial collapse play out in Argentina, and if political stability is to mean anything, doesn't it mean not changing Presidents every few weeks, and not having people rioting on the streets? And the Argentinean crisis was not even self-contained. The big investment banks got burned, and the tremors were felt as far as Hong Kong when institutions like Hongkong and Shanghai Banking Corp were affected.

While there is really nothing wrong about CalPers getting onto high moral ground, after all it has a right to put its money wherever it wants, if it really wants to change "repressive" regimes, then maybe it shouldn't include Israel as one of those eligible markets. Israel may not repress its own citizens, but let's face it, what it is doing to the Palestinians is ethnic cleansing in all but name. That we have not seen judgment fall on Israel as it has on the countries of former Yugoslavia is perhaps due more to the twisted bias that comes from the realpolitik games of the U.S. and Britain than anything else.

And furthermore we get into a real quagmire about words like transparency. Are the countries being punished because they still have not adopted the transparency standards of the developed markets like the U.S.? Coming after Enron, that seems a little rich. The ongoing drama of Enron's collapse -- the largest corporate bankruptcy in U.S. history -- stinks to high heaven of KKN. CalPers itself has been burned to the tune of at least $40 million following the collapse of Enron. I wonder if it has yet to lose such a sum in any or all of the four Southeast Asian markets due to a lack of "transparency".

CalPers also wants to invest only in countries that have ratified and manage to enforce ILO labor standards. Well and good. Who could argue against the rights of the worker? Yet once again, let us remember that some of the worst offenders in Southeast Asia, the ones that really oppress their workers in sweatshop conditions in Indonesia for example, are the multinationals, not the respective governments.

Arguably if the governments were to enforce labor laws better, they could prevent multinationals from setting up sweatshops on their shores. But it doesn't stop those multinationals from going to other countries where they can still get away with it. And in the meantime, the country which enforces stricter laws sees investment withdrawing as the multinationals seek out ever- cheaper labor in their efforts to maximize profits. Let's face it, if we're all to follow free market policies and laissez-faire capitalism where the guiding principle is greed, the ills which therefore arise shouldn't surprise us since there is something already inherently rotten with a system that values profits above human dignity.

This is not to say that CalPers may not be on to something by signaling it now wants to see progress on human rights before it invests. Especially if it manages to swing other pension funds along with it. In effect it would be like a set of economic sanctions.

And maybe the governments which get cited as human rights offenders will sit up, listen and change.

Maybe.

But it seems rather unfair to kick a country like Malaysia onto the scrap heap of the other ineligible emerging markets. That means discounting all the recent moves by Malaysia's strongman Mahathir Mohammad at corporate reform. He made efforts to trim down KKN by getting rid of former Finance Minister Daim Zainuddin for example last year, the man who is most closely associated with all the wheeling and dealing smacking of KKN.

And as for Indonesia, could one really say they currently have a repressive regime? Most people seem to think that the present government has not even got its act together, let alone start having to think about "cleaning up its act".

Apart from the sickening sanctimonious air that always surrounds such decisions, it's going to be difficult not to have the accusation of hypocrisy and double standards leveled at judgments of such things as to who is transparent and who guards civil liberties better.