Embezzling foreign loans

Embezzling foreign loans

There is nothing surprising about the statement last week by
Koensatwanto Inpasiharjo, secretary of the National Development
Planning Board, that 20 percent of foreign loans to the
government have been corrupted.

Nor did the statement in any way reflect a stronger resolve on
the part of the government to crack down on graft. As Inpasihajro
talked only a day after the end of the two-day meeting of
Indonesia's creditor consortium (Consultative Group on Indonesia)
in Bali, one could simply relate his statement to the speech his
boss, National Development Planning Minister Kwik Kian Gie, made
at the CGI meeting.

Kwik, seemingly frustrated with the government's lack of
determination to fight corruption, said Indonesia would not have
had to get down on its knees for new loans had the government
been able to stop corruption and collusion which he said had
robbed the state of the equivalent of US$28.5 billion a year.

International corruption watchdogs have indeed always ranked
Indonesia, together with Angola and Nigeria, among the most-
corrupt countries in the world. The guru of Indonesian
economists, the late Sumitro Djojohadikusumo, had even put state
losses from corruption as high as 30 percent of the annual state
budget.

Two fact-finding missions from the World Bank, including
international specialists on anticorruption efforts, who visited
the country in September, 1998, concluded that corruption in
Indonesia was endemic, systemic and deeply institutionalized.
Practically all institutions were involved: judiciary, civil
service, security forces, even internal and external audit firms.

The Supreme Audit Agency and the Government Finance
Comptroller also have discovered in their annual audits thousands
of instances of irregularities or strong evidence of corruption
involving the equivalent of billions of dollars within state
companies and the state budget implementation.

What is painfully surprising though is the tiny number of
people already jailed after being found guilty of corruption. Yet
more insulting to the public's sense of justice is that even the
most high-profile suspects or defendants, such as former
president Soeharto, his family members and his cronies, who were
largely responsible for the economic crisis, have either escaped
on technicalities, received light sentences or are about to be
pardoned thanks to their willingness to return what they had
allegedly embezzled.

This has created a moral hazard as most big white-collar
crimes turn out to always pay. No wonder, the situation has been
made seemingly hopeless because corruption, instead of being
controlled by the reform movement that had ushered in a more
democratic and decentralized government, is now perceived to be
much more pervasive than ever.

The root causes of corruption have been identified. The
Supreme Audit Agency and the government internal audit body have
made many recommendations on how to contain corruption.
For example, graft within the state budget implementation and
state companies has been blamed mainly on the utterly poor
financial management and flawed procurement system, which has
been prone to systemic abuse and systematic irregularities.

Yet the government has been very slow in reforming its
procurement system, and the bills on state finance, treasury and
audit have been stuck at the House of Representatives for more
than two years.

Set against this situation, Kwik's remarks at the
international creditors' meeting appear to be an effort by a
frustrated senior official, who feels he has lost the fight from
within the government to control corruption, to increase public
pressure on the government.

Or could Kwik, despite his disillusionment with the
performance of foreign creditors, notably the International
Monetary Fund, have meant his statement as a plea to garner
international support to apply pressure on the government?

Unfortunately, though, Kwik's criticism could further embolden
the staunch critics of foreign loans to step up their campaign
against international creditors, demanding that Indonesia simply
stop paying its foreign debts because the creditors had largely
tolerated the crime.

Whatever the case might be, one thing is clear. The urgency of
coping with corruption is now greater than ever. Without
significant, steady progress in combating graft, the government
will never have credibility and popular legitimacy, which are the
key to its ability to implement tough reforms in order to achieve
sustainable economic recovery.

Without an assurance that foreign-funded projects can be
insulated from corruption, Indonesia may lose support even from
its most loyal creditor members of CGI.