Experts doubt RI's good corporate governance drive

A'an Suryana, The Jakarta Post, Jakarta

The drive to implement good corporate governance in this country could stumble due to the lack of government political will and a malfunctioning legal system, according to an expert.

"There is no punishment for those practicing bad corporate governance here," said Centre for Strategic and International Studies (CSIS) economist Tubagus Feridhanusetyawan during a workshop on good corporate governance.

He said that the government had a tendency to bail out failed companies and banks that had been poorly managed and corrupted by their managers or owners, but declined to punish those responsible. He said this was creating a bad precedent.

He said this was very different from the situation in the U.S. where the government moved swiftly to investigate and punish corporate cheaters as exemplified by the high profile Enron accounting fraud.

"Unlike in the United States, the necessary adjustments have not taken place in Indonesia, even after the 1997 crisis," Tubagus said.

Implementing good corporate governance was an essential part of the effort to improve investor confidence, a crucial ingredient for helping the country to fully recover from the devastating impact of the 1997 economic crisis.

"Good corporate governance can send good signals and shore up confidence for investors in the financial markets," said another CSIS economist, Mari Pangestu.

She said that was important to implement good corporate governance particularly in the weak banking sector, which has been seen as one of the main causes of the late 1990s crisis.

The move by the government to free from prosecution the former bank owners who had violated banking regulations in the past and misused state funds has been seen by many as a bad example for the creation of a healthy banking system in the future.

The courts have also been criticized for freeing former bank owners who have accused of misusing state funds.

Meanwhile, analyst Sofyan Djalil said that a malfunctioning legal system could even provide incentives for bad companies to continue their corrupt practices.

"If the legal system is not effective, there's no punishment system which could deter bad companies from committing wrongdoing in the operation of the company," he said.

He added that such a situation could even force good companies to violate good business ethics.

He pointed out as an example that one good manufacturing firm was forced to bribe customs officials in order to be able to pick up imported raw materials or equipment from the port as scheduled.