Indonesia gets tough on corruption

High-profile cases raise President YudhoyonoÆs anti-corruption credentials, but doubts persist as decentralisation provides new opportunities for bung-takers.
In an episode of almost comic irony, Lucky Djani Urip Tri Gunawan was arrested by investigators from IndonesiaÆs Corruption Eradication Commission (KPK) in March outside the home of Sjamsul Nursalim, the former owner of Bank Dagang Nasional Indonesia (BDNI). He had $660,000 stuffed in a box in the back of his car.

Gunawan had been leading a team of 35 prosecutors investigating the Bank Indonesia Liquidity Assistance (a bank-rescue fund set up after the 1998 economic crisis) corruption case. Just two days earlier, the attorney generalÆs office had declared an official end to the long-standing investigation, praising the prosecutors for acting with ôintegrity and courageö and for successfully completing their task. Gunawan, nicknamed the ôsix billion rupiah prosecutorö, has since been jailed for 20 years.

On the face of it, the KPK, set up in 2002, has been making an effective assault on IndonesiaÆs notorious and endemic corruption. The country improved its rankings in Transparency InternationalÆs Corruption Perceptions Index, published in September, to 126th out of 180 countries, compared with 143rd out of 179 surveyed last year. But despite other high-profile cases, such as the arrest in September of a director of the antimonopoly agency for allegedly accepting a bribe from a businessman, critics argue that corruption is spreading rather than receding.

The problem stems from the decentralisation that has occurred since the demise of former president Suharto, as more power has devolved to district and provincial authorities. According to Ari Kuncoro, a lecturer in economics at the University of Indonesia, in SuhartoÆs Indonesia corruption was centralised and predictable, controlled by the first family and the top military leadership, in partnership with conglomerates. Investors could at least predict its costs and factor it into the price of doing business. Many of them brought SuhartoÆs children into their private businesses in an effort to reduce the uncertainties that might be created through harassment by lower-level bureaucrats û a pattern repeated in the provinces.

But this state of affairs changed when Indonesia launched its regional decentralisation programme in 2001, leading to what some call a more ôfragmented bribe collection systemö. Today, many players, from ministry officials and legislators at the national and local levels to low-ranking officials to soldiers and police officers, are demanding bribes. The number of bribe-takers, Kuncoro concludes, ôhas increased to such an extent that it is now more detrimental to economic efficiency than in the Suharto eraö. And he finds support from the Indonesian Chamber of Commerce, which has complained that decentralisation has produced new local regulations in the form of taxes, levies and permits, which in turn has driven up corruption at the local government level.

Marleen Dieleman, a fellow at the National University of Singapore Business School, and author of a corporate biography of IndonesiaÆs Salim Group, agrees that corruption is still ubiquitous, although it is more decentralized and it involves more people. Political ôinvestmentsö now lead only to short-term gains, as the political leaders change more often in the new democratic Indonesia. And as the corruption game spreads, more institutions join in. Unscrupulous business people and politicians can bend most of the rules, while courts and members of parliament can be bought.

Prominent successes

President Susilo Bambang Yudhoyono's anticorruption strategy of ôzero toleranceö, formalised in 2005 by a presidential decree, seems to have had prominent successes, which should act as a deterrent. In 2006, a bribery scandal was exposed involving the chief justice of the Supreme Court and a half-brother of Suharto. In April 2008, officials at the Central Bank of Indonesia were accused of paying bribes to members of parliament who were debating a new finance bill. In June, Burhanuddin Abdullah, the bankÆs former head, was charged following a stand-off with the KPK.

A legislator has admitted that he and 40 others each took Rp500 million ($52,000) for approving the appointment of a central bank director in 2004. Said Agil Husein al-Munawar, a minister of religion, was jailed for seven years in 2006 for embezzling Mecca pilgrimage money, and an ex-minister of maritime affairs and fisheries, Rokhmin Dahuri, was also imprisoned for seven years in 2007 for running an off-budget slush fund. Several former or current directors of state enterprises are now also in court or jail, among them a former Bank Mandiri president. Al Amin Nasution, a lawmaker, was arrested in April for receiving a bribe from Riau Islands provincial officials in return for persuading the Ministry of Forestry to change the status of some land sites in Bintan Island.

Allegations have recently been made against the ministers for planning, fisheries and forests, and a relative by marriage of Yudhoyono.

Indonesian Corruption Watch estimates that about 150 corruption cases were investigated between 2004 and 2007 at a cost of nearly Rp25 trillion. Such a massive outlay would be a good investment if it were really effective. But Luky Djani, a researcher at Indonesia Corruption Watch, argues that most of those convicted have mainly been rank-and-file bureaucrats, local politicians, low-grade employees at state-owned companies and a few mid-level businessmen. Of those high-profile figures, he says, by the time their cases came to be processed, many of them no longer held ministerial positions and consequently didnÆt have the strong political backing apparently needed to avoid accountability.

Djani believes that politicians and political parties have used corruption scandals as a ôpolitical commodity in a bid to increase popularityö. The uncovering of corruption scandals has been tainted with political infighting, and not in the context of appropriate ôcheck and balancesö among the political parties. There have been many allegations of tebang pilih, or selective felling, in the identification and pursuit of alleged corruptors. Those pursued through legal processes have been either the weakest link in a corruption network or a political rival to the government, fuelling public scepticism.

Institution building

Yudhoyono has placed an emphasis on building institutions that he says will change the culture of corruption. But raids earlier this year by the KPK on the custom and excise office in Tanjung Priok show that institution-building on its own is probably insufficient.

The office had been a pilot project of the Ministry of Finance and was staffed entirely by newly recruited and trained officials, ostensibly with a reputation for honesty, who had been selected from other customs offices. To avoid temptation, their salaries were tripled and rigid monitoring and evaluation mechanisms were put in place. Despite this, the KPK found evidence of bribes from businessmen and the existence of an extralegal ôparallel systemö whereby decisions were negotiated through a complex network of intermediaries, known as calo.

But in recent provincial governor elections in West Java and North Sumatra, evidently corrupt incumbents were defeated despite enjoying the support of powerful interests. ôParties and candidates for executive office are learning that they will gain votes from uncommitted, apolitical voters only if they can prove they are serious about being clean,ö according to Kuncoro at the University of Indonesia.

Decentralisation also places a greater part of the development burden on the shoulders of local government officials. So, local governments know that if they want to attract investors to their region, they need to create a clean, predictable bureaucratic environment. Competition between regions for investment may, in the end, make local corrupt behaviour less sustainable.

This story was first published in the October issue of FinanceAsia magazine.
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