REMARKS FOR PANEL DISCUSSION ON GOOD GOVERNANCE AT INTAN CONFERENCE JULY 12, 2002

I want to thank the organizers for inviting me today and for including me on this panel on “Good Governance.” This is a topic of vital importance in today’s globalized world. 

When I originally accepted this invitation several months ago, I planned to devote most of my remarks to the important issue of good governance in the public sector, leaving the issue of corporate governance to other presenters.  Events since then in the United States have forced me to rethink that decision.  As you all know, we have suffered a series of scandals revolving around corporate ethics and criminal business practices.  I believe it’s important to discuss these issues today and discuss what my Government is doing to address them.  I cannot imagine a more appropriate topic for this conference. 

In a major speech July 9, President George W. Bush condemned the actions of some business leaders who obstructed justice, misled clients, and falsified records, deceiving their shareholders, investors and the American public.  He said it is time to reaffirm the basic principles and rules that make capitalism work: truthful books and honest people, and well-enforced laws against fraud and corruption.  And he called for a new ethic of personal responsibility in the business community, an ethic that will increase investor confidence, make employees proud of their companies and regain the trust of the American people. 

In order to address the recently uncovered abuses by some American corporations, the President promised to use the full weight of the law to expose and root our corruption.  He announced the creation of a new Corporate Fraud Task Force headed by the Deputy Attorney General that will target major accounting fraud and other criminal activity in corporate finance.  In addition, he proposed tough new criminal penalties for corporate fraud, including doubling the maximum prison terms for those convicted of financial fraud from five to ten years.   

The President proposed a 10-point Accountability Plan for American Business, designed to provide better information to shareholders, set clear responsibility for corporate officers, and develop a stronger, more independent auditing system.  He had very strong language for corporate officers who benefit from false accounting statements: they should forfeit all the compensation they earned from fraudulent activities, and they should be banned from ever serving again as officers of a publicly held corporation.  He demanded that CEOs personally vouch for their companies’ annual financial statements, something our Securities and Exchange Commission has recently ordered as well.   

With strong leadership from our President, Attorney General and SEC, my government hopes to end the scandalous corporate crimes that have dominated the headlines in recent months and punish the offenders.  We will emerge from this crisis with tougher laws and heavier penalties for corporate officers who let greed overwhelm their responsibilities to their investors and employees.  But it will take a long time for full confidence in our capitalist system to return.  The damage these individuals have caused is severe.  Their misdeeds illustrate clearly the enormous importance of maintaining honesty and transparency in the private sector. 

These principles apply equally forcefully to the conduct of government business, so let me turn now to the topic of good governance.  The challenge is how to ensure that those serving the public interest do not put their private interests ahead of those of the nation and its citizens. It is a challenge that every society faces, and no nation can honestly say that it has truly solved this problem. 

There is clearly no greater obligation for those who hold an office in the public trust than to earn that trust every day, through their words and their deeds.  This is the framework upon which the democratic system of government rests. 

In America in the late 18^th century, our nation’s Founders debated this issue extensively.  How do you regulate the people in charge of writing the regulations?  They devised a system of checks and balances that has lasted for over two centuries.  That does not mean we have not had our share of scandals. But on many occasions in our history, violators of the public trust have been removed from their positions and brought to justice, while our core system of checks and balance, transparency and accountability has remained intact.  

A land where the law applies equally to everyone – from the leaders at the top to the newest military or police recruits at the bottom – is a land where citizens can feel that they are the government and the government is them.  This makes the country’s interests more powerful than the interests of any individual.  It makes the nation better able to survive social or economic challenges that would destroy governments not as responsive to the public interest.   

Corruption is stealing from your own people.   It rewards a few with the right connections, but it punishes everyone else.  It also acts as a drag on economic achievement. 

While the causes and contributing factors of the Asian Economic Crisis are many, most economists agree that the countries that suffered most acutely from the crisis were those where corruption and patronage were most endemic.  Those that have rebounded the most significantly since 1997 are the economies that used the crisis as an opportunity to make lasting reforms and promote good governance. 

If corruption is so endemic and hard to defeat, how can any government fight this insidious cancer?   

Transparency International, an NGO devoted to promoting good governance and fighting corruption, has studied this issue extensively.  They have identified 10 of the most important measures a nation can take to ensure good governance: 

1)     Putting into place a secure system of “checks and balances” between branches of the government; 

2)     Reviewing the national constitution and its legal framework to ensure that it meets international standards and, at the same time, satisfies the aspirations of a just and caring society; 

3)     Guaranteeing free speech and freedom of information through an act of Parliament; 

4)     Increasing transparency and accountability for all public institutions.  I would include NGOs in this category.  Both they and government departments need to make all official policies and decisions a matter of the public record; 

5)     Allowing an independent commission to review and make public the financial assets held by all senior politicians and public servants, and their immediate family members; 

6)     Ensuring that free and fair elections are held regularly and that the elections commission is fully independent; 

7)     Strengthening the independence of the judiciary and reforming judicial processes to ensure accountability; 

8)     Maintaining an independent trade arbitration commission; 

9)     Establishing an independent anti-corruption agency to deal with the issues of national integrity and corruption; and 

10) Creating clear rules on privatization, trade, investment and public procurement and ensuring  that all transactions follow these rules. 

Transparency has important external ramifications.  International investments, new job opportunities and tourism dollars flow today to places that not only promise good prospects, but also provide good governance.  Business and pleasure travelers around the world prefer to deal with governments that demonstrate integrity and fairness in their decisions.  

Just as nobody feels safe in a neighborhood where all the police are crooked, and just as the quality of overall education suffers in schools where the top grades are only given to students with the right connections, so too do taxpayers and investors feel they are being cheated if their money is squandered in a political system where their interests are sold out to the highest (or most recent) bidder. 

History shows that societies with strong traditions of rule of law and free economies prosper more regularly and for longer periods.  They are also better equipped to respond rapidly to the many challenges posed by the new global economy.  Countries that are bogged down by endemic corruption, authoritarianism or crony capitalism are still struggling to respond to the rapid pace of change of our new millennium. 

Sadly, the most common victims of corruption are a country’s children, for it is the needed investment in their future that is usually stolen away by corrupt officials for the sake of present-day profit.  You only have to visit a school or medical clinics in the countries where corruption is deep-rooted to see how terrible its long-term effects can be. 

The Ministerial statement that came out of the Doha summit last November, which helped launch a new international trade round under the World Trade Organization, included an agreement to launch global discussion on ensuring greater transparency in government procurement worldwide.  At the same time, the WTO itself pledged greater transparency in its internal matters, and agreed to make records of its proceedings available to all. 

At the March 2002 U.N. Conference on Financing for Development, held in Monterrey, Mexico, U.S. President Bush outlined a new proposal to raise the level of U.S. development aid from $11 billion to $15 billion over three years, beginning in 2004. The new aid proposal is tied to new standards of justice, equity, democracy, citizen participation, transparency, and accountability.   The President’s approach calls for a new way to measure development aid – by results achieved, rather than by the amount of resources spent. 

President Bush’s new “Compact for Development” offers an enormous increase in U.S. international development funding -- 40% above current levels -- but emphasizes that U.S. aid will increasingly take into account how justly a country is governed, how well it invests in its own people through education and health care, and how much it fosters free enterprise in its economic policymaking.  Some of the benchmarks to be considered would be: how well a government extends education, at least at the primary school level, to all of its citizens; and how quickly the number of people living below the poverty line is reduced.   

This decision reflects a recognition -- supported by the research of aid organizations around the world -- that nations with strong legal and governmental institutions that prioritize investment in their own citizens and promote open markets are the ones that develop most consistently and bring the greatest prosperity to their citizens.   

These examples show that good governance has become more important than ever.  It is not just a matter of domestic efficiency; it is fast becoming the standard by which all nations and economies are judged.   

Malaysia’s record of development is an example that many other nations hope to emulate.  Your government has traditionally put education and health at the top of its priority list, and has supported many of the principles of open markets and the free flow of international trade.  The results of such far-sighted approaches are obvious every time you look at the statistics showing how far Malaysia has developed in the 45 years since your independence.   

The Government of Malaysia has a commendable commitment to implement new financial reforms to bring greater transparency and accountability to its banks and financial institutions, and a good plan to reform corporate and securities laws to improve corporate governance and assure transparency in its capital markets.   

The Anti-Money Laundering Act recently passed by the Malaysian Parliament is another welcome development.  Tools like this Act -- and the OECD Anti-Bribery Treaty and the U.S. Foreign Corrupt Practices Act -- make it much more difficult for criminals and corruptors to hide their illegal transactions by crossing international borders. 

A long-term strategy that combines economic development with the principles of good governance will offer Malaysia a key advantage in attracting FDI.  Other countries, like China and Indonesia, can offer large potential markets, but if they cannot offer the sort of legal certainty and infrastructure to potential investors that Malaysia can, your country will enjoy a significant competitive advantage. 

I believe that Malaysia can serve as a beacon for the developing world in the area of good governance.  With the help of you in this room, Malaysia can show the rest of the developing world what can truly be achieved by advancing transparency of its government actions and by setting high ethical standards for civil servants everywhere to follow.   

I want to commend INTAN for putting together this timely and important conference.  I understand that later this month, INTAN and Transparency International will be co-hosting another conference on the related issues of public ethics and the rule of law.  That conference will certainly help us build on today’s very useful dialogue.   

The U.S. looks forward to working closely with Malaysia on these and other issues related to good governance, both in international fora like APEC and the WTO and in our bilateral relationship.  And I am looking forward personally to continuing this discussion on good governance with you in the question-and-answer period to follow.   

Thank you very much.