| |
Indonesia: The losing fight against
graft
By Bill Guerin
JAKARTA
- As Indonesia prepares for an April general election
and its first-ever direct presidential election in July,
the government is busy trying to establish policy
credibility in the eyes of the market.
Political
rivalry has heated up ahead of April 25, when more than
145 million eligible voters will go to the polls to cast
their votes for a new government and a new variation on
the theme of reform.
Though campaign platforms
have not emerged, it is unlikely that any of the
would-be presidential candidates will stand up for the
fight against corruption.
Macroeconomic
indicators show that the economic team, coordinating
Minister for the Economy Dorodjatun Kuntjoro-Jakti,
Minister of State Enterprises Laksamana Sukardi,
Minister for National Development Kwik Kwan Gie and
Finance Minister Boedionio has, by hook or by crook,
achieved a modicum of success.
Interest rates
continued to fall last year and inflation was contained
in a band peaking at an annualized rate of less than 6
percent. The rupiah gained strongly against the US
dollar, and in spite of the diminishing current account,
surplus foreign-exchange reserves continued to increase
and pushed stock prices well up.
But increasing
macroeconomic stability has had little impact on growth.
Growth has been mainly driven by consumption and, as
exports have weakened, a slowdown in manufacturing
growth continues to drag down overall growth.
Revenues need to rise and spending needs to be
cut to push growth higher. Investment is needed to
generate jobs. Official figures put the number of
unemployed at 42.7 million, a level that social experts
have described as a "time bomb". An estimated 2.5
million young people need jobs every year, but current
growth levels of about 4 percent will sustain, at best,
only 1.2 million jobs, leaving 1.3 million to join the
ranks of the unemployed.
Furthermore, with
foreign direct investment just 20 percent of gross
domestic product (GDP), the economy remains too weak to
provide capital to embark on strong growth.
The
massive unemployment levels threaten political stability
and raise the specter of even more social unrest. The
World Bank warned last week that unemployment had
reached an "alarming level", with country director
Andrew Steer pushing the government to recognize the
need to focus economic policy on creating urgently
needed jobs and to move fast before the problem
increases.
Sofjan Wanandi, head of the
Indonesian Employers Association, put it more starkly.
"Without first addressing unemployment, we will not be
able to address any issue, including national security
and political instability," warned Wanandi.
Pressure from nationalists forced a withdrawal
from the International Monetary Fund's structural
adjustment program at the end of last month. Though the
30 bilateral and multilateral donors grouped in the
Consultative Group on Indonesia, came to the rescue by
pledging US$3.4 billion in new loans and grants for this
year, the disbursement of at least $1 billion of the
amount pledged will depend on progress on the policy
agenda.
Much of the borrowing will go toward
beefing up the state budget, heavily burdened with
payment of existing debts. Foreign debt stands at $77.1
billion. Domestic borrowers owe almost as much, Rp619.7
trillion ($70 billion). Rp131.2 trillion - about
one-third of the estimated revenue - has been earmarked
to repay domestic and foreign debts.
The
government is banking on the sale of some 14 state-owned
enterprises to meet its Rp5 trillion ($580 million)
privatization target and help cover the budget deficit,
which for this year has been set at Rp24.4 trillion, or
1.2 percent of GDP.
The privatization program is
supposed to develop transparency, efficiency and
professionalism in state-owned enterprises, most of
which have been criticized for their inefficiency and
corrupt culture. Vested interests and political
bickering have dogged privatization from the outset and
stalled progress in a number of cases.
The early
excesses of regional autonomy, when in the public sector
and the bureaucracy power moved sharply from central to
local government, showed that decentralization had given
birth to a demon.
The mood of reformasi
was everywhere in local communities and they assumed a
mandate to demonstrate and pressure local legislatures,
where state enterprises are mainly based, though this
was often based on little more than an idea of their
right to protest.
President Megawati
Sukarnoputri put this all down to growing pains. The
problems, she said, were related to the country's
"statehood and nationhood".
The most noteworthy
casualty of the political complications in the regions
has been the world's third-largest cement maker, Cemex
SA. There are strong rumors that the Mexican giant may
wind up business operations in Indonesia unless it gets
"a convincing proposal" from Jakarta that would allow
the company to have a majority stake in state-owned PT
Semen Gresik, Indonesia's largest cement maker.
Cemex SA has already taken the government to
arbitration proceedings at the International Center for
Settlement of Investment Disputes and asked that Jakarta
pay for the vast expenses it incurred during continual
political complications of its investment plans.
But corruption has taken the heaviest toll on
the economy.
Speaking in 1949, the late vice
president Muhammed Hatta lamented that corruption had
become an "Indonesian way of life". For those not overly
familiar with the country, it may be difficult to grasp
just how corruption pervades every stratum of society.
The giving of presents, and reciprocal personal
favors through protection, special treatment, and the
favors of women are integral to the Javanese code of
normal conduct and social behavior. This, after all, is
former president Suharto's legacy, an accepted natural
order of things where his family, his ministers or, for
that matter, the holder of any powerful office enriched
himself in the course of executing his duties.
High government officials demand "special
payments". Other such illegal payments are generally
expected throughout lower levels of government in the
form of bribes connected with import and export
licenses, exchange controls, tax assessments, police
protection, or loan applications.
A survey last
month by the Regional Autonomy Watch showed just how
widespread the practice is. The survey covered 5,140
companies, both regional and national, and included
foreign companies. Of the illegal fees, 13.1 percent
were paid to court officials, 11.5 percent to security
officers, 8.5 percent to community groups and 6.1
percent to thugs.
This may be all par for the
course in Indonesia but, of course, it greatly hinders
economic development and results in not only reduced
levels of investment but also overblown government
expenditure. It also distorts the ratios of government
expenditure, so that education, health, and
infrastructure maintenance lose out to less efficient
but more easily manipulated public projects.
For
most of Suharto's New Order era, industrialization of
the country saw grand-scale conversion of rice fields to
factories, golf courses and swanky real-estate
complexes. Infrastructure development has not kept pace.
Only about 34 percent of the urban population (or 14
percent of the total population) is served directly by
water utilities. Less than 3 percent of the population
has access to a basic telephone service in their homes.
Only 1.3 percent of the total population has access to
network sewerage, while 73 percent of urban households
are estimated to have only septic tanks.
Little,
if any, money is going into roads and highways. In many
parts of outlying provinces, such as Papua and Sumatra,
farmers cannot take the rice they grow to the nearest
port, because there are no of roads and transport. Many
outer island regions also suffer regular power outages.
Only about half the population is connected to the
national grid.
A World Bank draft infrastructure
report entitled "Averting an Infrastructure Crisis: A
Framework for Policy and Action" warns that
infrastructure is critical for Indonesia's growth and
poverty reduction and should now be made a national
priority. It says private investors are not ready to
invest because of inconsistent policy and regulatory
environment. Corruption, the bank says, affects
infrastructure particularly severely.
Corruption
has also cost the government revenue from the huge
amount of tax arrears by compromising its ability to
collect taxes and tariffs. Concern over this has spurred
a revision of the tax laws. Under the proposed new law,
due to be debated in the House next month, the tax
office will have greater powers to detain major tax
evaders without trial and to apprehend those suspected
of committing tax crimes.
Giving the taxman
authority to confiscate assets and bank accounts owned
by "uncooperative taxpayers", without the consent or
involvement of the police, may seem a tough measure, but
taking the police out of the equation is likely to
encourage corruption further in the form of extortion
and collusion between unscrupulous tax officials and
taxpayers.
Understanding how widely Suharto's
patriarchal style was accepted as normal behavior helps
to highlight the difficulties for any president of
Indonesia to generate an approach to "clean governance".
Institutional reforms currently being
implemented are aimed at improving the lack of
government and corporate transparency. Four key
institutions at the forefront of accountability
monitoring, Bank Indonesia, the Election Commission, the
Supreme Audit Agency and the Supreme Court need to be
greatly strengthened, warns the World Bank.
Other political factors giving rise to concern
vis-a-vis the economy are centered on the ability of
legislators to claim some sort of sovereign right to
interfere in the technical processes consequent on
decisions made by the Indonesian Bank Restructuring
Agency and the ministers with economic portfolios. The
Chandra Asri deal and the sale of Bank Central Asia and
the Salim plantations were striking examples of such
untoward political interference during this
administration and showed that the legislature could now
overrule decisions by the executive.
Such
political considerations that put politics before the
interests of the country have hindered the momentum for
reform and continue to create a high degree of
uncertainty, the worst enemy of business.
A
World Bank report in late October warned Indonesia was
at a critical juncture in the fight against corruption.
Though convicted corruption felon Akbar Tanjung
continues to lead the House of Representatives, the
report stopped short of directly criticizing Megawati
for tolerating corruption, though it pointed out that
corrupt officials from the Suharto regime remain
entrenched in the civil service, judiciary and
law-enforcement agencies.
The report, titled
"Combating Corruption in Indonesia: Enhancing
Accountability for Development", argues that the nature
of Indonesia's current transition makes it very
difficult to develop and implement a comprehensive
strategy to fight corruption.
Vested interests
remain powerful, law-enforcement institutions are weak,
and the ability of the state to implement an integrated
program of anti-corruption measures is limited.
Conflicts of interest among the political elite make it
difficult for the government to make good on its
frequent promises to accelerate reforms.
The
parliamentary-geared political system and uncertainty
over the outcome of the election and the likely make-up
of the next government and parliament may severely
restrain progress.
The level of political
corruption such as vote-buying and legal or illegal
campaign contributions by the wealthy and other
special-interest groups to influence laws and
regulations is likely to increase rather than subside in
the run-up to the elections. The World Bank report says
the high cost and weak regulation of campaign finance
will continue to drive corruption.
A concerted
war on such corruption is one of the long-overdue reform
measures, but Megawati has said simply that with the
recent establishment of the Corruption Eradication
Commission, the nation should hope for an end to graft.
She seeks re-election through the Indonesian
Democratic Party of Struggle, challenging other
presidential candidates such as People's Consultative
Assembly Speaker Amien Rais, former president
Abdurrahman "Gus Dur" Wahid, ex-military chief General
(retired) Wiranto and others. But Megawati has drawn
flak from her own supporters and many others who are
unimpressed with her performance and leadership in
running the country. It is this lack of leadership that
raises concerns that reform measures may be sidelined by
the need to advance populist measures to gain voter
support at the expense of the long-term health of the
economy.
The World Bank report concludes that
the war on corruption is "too important to be left
solely to government to fight" and will require strong
leadership. The choices facing Indonesia's leaders are
stark, it says, warning that failure to act now could
have severe consequences for long-term stability.
Every question and every possible answer touches
on the need to build an economy that will deliver
sustainable growth to a country where 40 percent of the
workforce is unemployed and whose population is expected
to reach 250 million by 2020.
Hard-won gains in
macroeconomic stability could disappear if the election
fails to bring to power a coalition strongly determined
to launch a full frontal attack on corruption and build
up good governance. This is a battle from which
Indonesia cannot afford to run.
(Copyright 2004
Asia Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication policies.)
|
| |
|
|
 |
|
