Decentralization of powers or corruption?

Decentralization of powers or corruption?

By Santi W.E. Soekanto

JAKARTA (JP): At the bottom of greater demands for regional
autonomy is the wish for power to be dispersed in order to
overcome the central government's incapability of ensuring smooth
delivery of goods and services.

Some people believe that decentralization of power often leads
to "decentralization of corruption."

The 1999 Law No. 22 and 25 on regional autonomy and fiscal
balance, respectively, were introduced amid mounting pressure in
the resource-rich provinces of Aceh, Irian Jaya and Riau to break
away from Jakarta rule over what was perceived as decades of
plundering of their vast natural resources with little given in
return.

Under the new rulings, the provinces now control affairs of
education, health, land rights and transport policies, as well as
investment approvals.

The local government will also now have control over general
mining activities (including gold and copper) but not over oil,
gas and radioactive substances. The rulings also exclude affairs
in foreign policy, defense, religion, law, fiscal and monetary
affairs.

While the move has been welcomed across Indonesia's political
spectrum, it has raised concerns among foreign investors that
local authorities might be ill prepared to handle their new
responsibilities. Investors also worry that decentralization will
open up avenues for corruption among local authorities vested
with the responsibility to handle greater amounts of funds.

Is this always the case?

For Indonesia, which has been repeatedly described as "the
most corrupt country in Asia", it may not always be the case.

Indonesians will by now have accepted the institutional needs
for devolution of power and the establishment of public
enterprises in order to deliver services and goods efficiently.

What is to be discussed further, however, is why such
structure encourages corruption in the country where corruption
dogs a person from birth until his death.

Although the stated agenda for both devolution of power and
public enterprises is the same -- namely to provide people with
efficient delivery of goods and services, the two are actually
operating on different principles. The first is dispersal of
power, while the second is relatively marked with state
intervention.

However, countries often are unable to choose between a) the
inefficiency of central governments or b) corruption, but in fact
have to face the double problems simultaneously.

There are exceptions to this observation. South Korea may be a
case in point. Under President Park Chung Hee (1963-70), the
country's economy developed enormously and corruption was thought
to be productive as favors were not granted solely on the basis
of political patronage but on economic performance. The cost,
however, were civil liberties and political freedom.

In Indonesia, corruption features heavily at various stages of
power administration. Corruption was present when power was
heavily centralized in Soeharto's hands and public enterprises
were turned into monopolies that benefited only a few
Indonesians. It was also present when Soeharto made gestures to
devolve economic powers onto private enterprises.

A broad definition of corruption would be misuse of public
posts for private gain (Fiona Robertson-Snape, 1999). This covers
practices of collusion and nepotism rampant in Indonesia.

Here, a large number of people are resigned to the fact that
it is frequently necessary to pay a bribe when registering the
birth of a baby, or applying for a driving license, or a marriage
certificate or when obtaining a compulsory identity card. The so-
called "petty corruption" is a daily reality that is invariably
explained away by the low wages of Indonesia's civil servants.

Many scholars believe corruption is symptomatic of other
causes, and that opportunities for corruption on a large scale
arise in particular political, economic and cultural conditions.

Among the political factors identified are a lack of
accountability, transparency, and weak democratic institutions.

Among the cultural factors are centuries-old dominant Javanese
culture -- the offering of gifts by subjects to their rulers, for
example, is said to explain why bribery is rife.

According to such an explanation, gift-exchange is a business
norm in Indonesia and should not be considered corrupt. Nepotism
and collusion can similarly be explained. In a traditional
culture where family loyalties are stronger than state loyalties,
a public official's duty to his office is secondary to that
towards his family or community.

Any opportunities to further the economic or employment
opportunities of that family will therefore be considered
legitimate in terms of the official's priorities.

For years, corruption in Indonesia was perpetuated by
Soeharto's need to secure his position by enabling key figures in
the bureaucracy and the military to benefit economically from
their loyalty. Adam Schwartz once wrote: "To Soeharto, this is
not corruption, rather it is the spoils of office. Big
corruption ... has its roots in ancient cultural traditions, and
from Soeharto's perspective the dispensing of government largesse
is one of the personal prerogatives of the Javanese ruler."

Among the economic factors identified and blamed for the
rampant corruption is extensive government intervention in the
economy because of the rents that this intervention creates.

This factor also was present under the previous president,
Sukarno. Then, the government was omnipresent in the economy,
which was dominated by state enterprises and tied up in
bureaucratic red tape, providing ample opportunities for
corruption.

When Soeharto came to power in the late 1960s, inflation was
running over 600 percent. Indonesia had a negative growth rate, a
huge foreign debt and almost fully depleted foreign reserves.

Soeharto then embarked on a highly pragmatic economic policy
-- opening up the economy in order to attract foreign aid and
investment, reducing the size of government and the level of
government subsidies.

The period of liberalization, however, did not last long. Over
the course of his rule, Soeharto's economic policies vacillated
between liberal and outward looking economic policies promoted by
Harvard-trained technocrats and inward, interventionist policies
advocated by economic nationalists.

According to Robertson-Snape, during the 1970s and early 1980s
the economic pendulum swung away from liberalism and there was a
resurgence of nationalist and interventionist ideas. During this
period of protectionism, economic policies turned inwards while
restrictions were placed on foreign investments and a state-led
drive for import substitution industrialization was initiated.

By the mid-1980s the state owned over 200 enterprises,
ranging from tea plantations to steel manufacturers. Indigenous
industries were protected from external competition and imports
were controlled through a sole-importer policy.

Soeharto managed the situation into one that benefited his
closest allies. The monopoly on the import of plastics, for
example, was given to a company controlled by Soeharto's cousin
Sudwikatmono and two of his sons: Sigit Haryoyudanto and Bambang
Trihatmodjo.

Following the end to the oil boom in the 1980s, Indonesia
again shifted its economic policy-making as oil revenues could no
longer subsidize inefficient domestic industries and inward
looking, interventionist policies became untenable.

Indonesia needed to encourage private enterprise, to cut
production costs across industries and create an industrial base
that could compete on world markets. Deregulation and economic
liberalization -- often emphasized as important anti-corruption
policies -- were given urgent attention.

Banking reforms, taxation reforms and customs reforms were
introduced successively in 1983, 1984 and 1985. Each reform
removed certain opportunities for collusion. Banking reforms, for
example, put a stop to the practice of command loans whereby
banks were instructed by political leaders to lend money to
favored individuals and companies, without undertaking the usual
commercial evaluation process.

The approach was meant to shift power from the government to
the private sector, to break key monopolies and ease the growing
public outcry against corruption.

The regulatory responsibilities of the state remained strong,
as did Soeharto's power of patronage. His family and favored
supporters again benefited from the liberalization -- political
connections made it easier for them to secure licenses and other
contracts and to expand their business interests into most of the
vital sectors of the economy including roads, car manufacturing
and telecommunications.

When what was thought to be the world's largest deposit of
gold was discovered in Indonesia, the battle for exploitation
rights "worth billions of dollars" inevitably involved members of
the Soeharto family.

A small Canadian company called Bre-X discovered the deposits,
but was later bogged down in bureaucracy while waiting for
official approval to exploit the find.

The company also had to contend with a rival bid from
international mining giant Barrick Gold Corporation. In order to
secure the rights, Barrick formed a partnership with Soeharto' s
eldest daughter, Siti Hardijanti Rukmana.

In response, Bre-X signed on the eldest son, Sigit
Haryoyudanto. His fee was 40 million rupiah up front, and a 10%
stake in the mine -- a deal potentially worth $1 billion. Both
sides essentially bought a member of the president's family in
order to secure the deal.

In conclusion, countries are not always in the position to
choose between inefficiency of a decentralized power or
corruption. In the case of Indonesia, the two go together.