Good governance vital for development

Good governance vital for development

JAKARTA (JP): Good governance is important to hold down costs
of doing business, to sustain investor confidence, maintain
international competitiveness and improve equity, the World Bank
asserts.

Surveys of businessmen rank Indonesia low on bureaucratic
delays and contract enforceability," the World Bank says in its
latest report on Indonesia, titled Indonesia sustaining high
growth with equity.

The report, issued here on Wednesday, discusses good
governance as a vital component of what the World Bank calls soft
infrastructures which are essential to sustain rapid growth with
equity.

Following are more excerpts from the World Bank report on good
governance.

Public confidence in the efficiency and fairness of the legal
system is a critical part of good governance. The need to
improve the legal system to strengthen its credibility is evident
from survey results and workshops.

The importance of a well functioning legal system is
recognized by the inclusion of plans for legal reform in the
Sixth Five Year Development Plan (REPELITA VI).

In discussing these plans, the Assistant State
Minister/BAPPENAS for legal Development Social communication and
Institutional in Relations, Sutadi Djajakusuma, spoke of building
a state based on the rule of law, with a modern body of laws, a
responsible and qualified judiciary, and an efficient and
affordable judicial process to provide access to justice for the
society at large, in particular, the underprivileged.

He highlighted the need to: (a) reform judicial administration
to ensure the speedy resolution of conflicts and an effective
appeals system, and (b) improve the skills and performance of
legal and judicial personnel by strengthening ethical and
professional standards, transparency and accountability.

One step that has already been taken is the introduction of a
new company law in March 1996. the new law sets time limits on
the process of company approvals (though initial indications
suggest that these are not being observed), strengthens the
rights of minority shareholders, sets guidelines for liquidation,
and attempts to increase transparency.

The effort to reform the legal system is benefiting from
widespread consultations within the country and the government's
use of international experts. For example, preparatory work for
the 1995 Company law involved widespread discussion and
contributions from within the country and in this way provides a
model for on-going work to follow. External assistance has
included the AUSAid Specialized Legal Training Project, the EU-
IPR Program, and the USAid-funded ELIPS project.

Priorities for this legal reform effort include:

1. Strengthening national commitment to the rule of law and the
effective working of an independent judicial system. Government
needs to show on-going commitment to the transparent
establishment and enforcement of laws and regulations, as part of
maintaining a consensus on the role of law. Providers and users
of judicial services point to the lack of independence of the
judiciary as the paramount deficiency in the system.

2. Institutional reform of the judicial system. Public opinion
and modern business practices demand efficient means of dispute
resolution. At present, economic actors are bypassing the courts
and formal arbitration systems more often that can be readily
explained by the culturally recognized an widely respected
"musyawarah" concept of reaching consensus and avoiding conflict.

This creates uncertainty regarding the equity with which many
disputes are resolved. There is a need for improved screening
procedures to appoint judges, attorneys and court administrators,
accreditation boards for the legal profession, and a code of
ethical and professional standards.

Government and NGO sponsored legal aid centers may be one way
of providing legal advice to the poor and increasing the equality
of access to justice. Similarly the use of ADR mechanisms (i.e.
conciliation, mediation or arbitration) prior to proceeding with
civil litigation is in line with Indonesia's culture. However,
conciliation is not currently mandatory under Indonesian law, and
legislation in this area is required to clarify the extent and
nature of such ADR mechanisms.

3. Modernizing laws. Rapid changes in trade, business and
technology require new laws to regulate activities and maintain
confidence in public policy. Similarly there is a need to update
laws on arbitration, competition, bankruptcy intellectual
property rights and secured transactions. There is still a
monumental task of overhauling the civil, commercial, penal and
civil procedure codes and other fundamental laws dating from the
Dutch colonial era. Moreover, this process needs to have
widespread public participation, as was done in developing the
new Company law, to reflect the interests of affected parties,
and to ensure credibility and administrative feasibility.

4. Capacity building by strengthening human resource. Indonesia
already places a high degree of importance to human resource
development and there are already about 13,000 law graduates from
over 200 law schools in Indonesia every year. However, the
report by the consortium of seven leading law faculties suggests
that the curriculum needs to be made more relevant. Seconds,
ongoing education for law professionals is essential for their
skills to remain up-to-date with changes in the law and its
application.

Despite the perceptions of large hidden costs in Indonesia,
foreign investment and GDP growth have been high recently.
Nonetheless, Indonesia will need to keep pace with other
countries and improve investor perceptions regarding governance
in order to reduce risks and ensure that its impressive
development record continues into the 21st century.

The challenges to maintain rapid growth and improve equity and
perceptions of fairness, by maintaining clear policies and
administering them consistently over time. This challenge is
increasingly important because growing public and international
interest or expectations concerning corporate governance.

Reducing the hidden costs of doing business in Indonesia
involves changes by both the public and private sectors, and will
be a lengthy process. It entails a combination of policy and
institutional reform, and changes in the way business is
undertaken. World Bank cross-country experience indicates that a
successful strategy of policy and institutional reform to reduce
the hidden costs of doing business in Indonesia and improve
equity is likely to involve five aspect:
1. Strong sustained commitment to the program at all levels by
leadership and example.
2. Policy reform to reduce discretionary authority and increase
transparency and competition, as this reduces opportunities for
corruption
3. A new civil service pay structure and a system of recruitment
(inter- and intra-) departmental mobility, and promotion that is
merit based.
4. Increased civil service accountability by strengthened
monitoring of public employee performance, and penalties for poor
performance, abuse of power or malfeasance,
5. The continued development of a sound predictable legal
system, and an effective and independent judiciary. (das/vin)