TCS Daily

Indonesia's New Corruption Watch

By Alan Oxley - October 28, 2004 12:00 AM

Indonesia has always surprised outsiders. It interweaves a cultural base rooted in ancient India with the largest Muslim population in the world. In other societies, this causes schisms. In Indonesia ideas and values which others would consider incompatible are pursued in parallel. Its new President, Susilo Bambang Yudhojono, the first ever directly elected, has appointed a cabinet which similarly confuses with a mixture old guard and reformers.

Yudhoyono has appointed a Cabinet which includes Aburizal Bakrie, the head of one of Indonesia's biggest business conglomerates which is indebted and unreconstructed like the Indonesian economy as the economic supremo. At the same time, he made Marie Pangestu, one of Asia's leading free traders, Trade Minister. This seeming paradox is explained by recent history.

Indonesia is in the throes of a broad political change. The Asian currency crisis in 1998 precipitated the downfall of strongman President Soeharto who had ruled Indonesia following a military takeover in 1965. He instituted election processes, but his political power depended on control of the Army. Public pressure forced him to resign and a new democratic constitution was adopted. Yudhojono election consolidates the democratic foundation of the new system. He was also elected on an anti-corruption platform.

Soeharto's Government was a classic Indonesian paradox. Corruption was entrenched and institutionalized through the Army and businesses controlled by his family and a handful of business associates. At the same time, Soeharto gave fairly free reign to a group of US educated economists with close links the World Bank. They implemented open market policies producing steady growth in Indonesia (in sharp contrast the period before he took over) and in the early nineties, Indonesia started shared some of the prosperity its Asian Tiger allies. There was talk it could be another Tiger.

Growth was never as high as Thailand and Malaysia. It should have been. Indonesia is rich in resources and had vast pools of low cost labor. Corruption was costing it dearly. Army businesses controlled a large part of the economy, corrupt state monopolies controlled trade in rice and oil and business conglomerates enjoyed monopoly control over production of cement, floor and processed timber.

While enriching his own family, President Soeharto, his US-trained economists at his side, brokered the Bogor Declaration in 1994 at the Summit of Leaders of the group for Asian Pacific Economic Cooperation (APEC) which set the target for the group as removal of all barriers to trade and investment by APEC economies by 2020. This remains the key political commitment which binds all East Asian economies to a free market future. Soeharto's involvement was never dismissed as cynical, because it was not. Inconsistent, yes, but that is part of the warp and weave of philosophy in Indonesia.

There was no doubt about his corruption or the cost to Indonesia, however. On the eve of the Asian currency crisis, the World Bank produced a report which attempted to quantify the losses to economic growth of corruption. These analyses are normally economic guesswork. The concentration of economic and business power in such a few hands gave real numbers to work from. The loss to annual GDP was at least 2 percent. Indonesia rarely achieved more than 6 percent annual growth. The average among its neighbors in the previous decade was 8 percent.

Yudhoyono ran for the Presidency as an outsider with no significant political base. He was general, Minister for Security in the previous government and is a scholar. He completed a PhD in agricultural economies on the eve of his election. He ran on an anti-corruption platform.

Yudhoyono depends on a Parliament he does not control to pass laws. He had to temper his reformist bent to select a Cabinet with members supported by key parties in the Parliament. Four Ministers served the previous Government. Jusuf Anwar, the Finance Minister, held the same job under Soeharto.

His most radical appointment is Abdul Rahman Saleh, one of the few clean members of Indonesia's Supreme Court as Justice Minister. Indonesia's legal system is notoriously corrupt. Yudhoyono knows that an effective legal system is a primary weapon in fighting corruption. He has declared he will personally lead the fight. Transparency International recently marked Indonesia as tenth worst in the world in its corruption ratings. He has a clear mandate from the people tackle corruption. But he has Parliament dominated by sectional interests. He will be the most watched man in Southeast Asia

Alan Oxley is host of the Asia Pacific page of TCS and a former Ambassador of Australia to the GATT, the predecessor of the WTO


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