Integrity pact for defense procurement system

Andi Widjajanto Jakarta

The international arms market is the main source for Indonesia's acquisition of defense systems. This arms transfer is mostly funded by export credit facilities. The existence of export credit allocations for the procurement of armaments systems requires a political regulation, especially to guarantee that export credit allocations are regarded as a transitional funding mechanism.

In 2005, the minister of defense introduced Decree No. SKEP/01/M/I/2005 on guidelines for the procurement of military goods/services using export credit facilities for the Ministry of Defense and Indonesian Military (TNI). This decree described in detail the purchase process, beginning with the procurement planning process and ending in the delivery of the armaments system, for equipment purchased through export credit schemes.

The decree annulled Ministry of Finance Regulation No. 571/KMK.06/2004 on technical guidelines on completing 2005 budget implementation form, which explicitly prohibited the use of export credits for the procurement of military equipment systems and agricultural commodities.

The contradiction of these two regulations should be abolished by stating that export credits are a transitional financial mechanism, and by creating a financial mechanism for procurement of armament systems that gradually reduce the proportion of export credits used for such procurements.

The Ministry of Defense decree also regulated an integrity pact, defined as a "letter of statement signed by the user of goods/services, procurement committee and interdepartmental team and provider of goods/services declaring resolution to prevent and not to commit collusion, corruption and nepotism in the procurement of military goods/services".

The integrity pact is the rationalization of the anticorruption movement in Indonesia. Its objectives are, among others, to prevent officials, commission members and secretariat employees from receiving bribes, to assist in increasing public trust in the procurement of services and goods, and to ensure the quality implementation of programs with appropriate logistical support in aspects of quality, timing and cost.

At least three parties must sign an integrity pact for the utilization of defense export credit facilities.

The first is the user of the goods/services, in this case the Ministry of Defense.

The second is the supplier of the goods/services, who may have be the manufacturer of the military goods/services, the foreign distributor, the regional vendor officially appointed by the manufacturer or those capable of providing military goods/services.

The third is the procurement committee and the inter- ministerial team, which is directly chaired by the minister of defense. It is responsible for all processes in the acquisition of armaments using export credit facilities. This shows the minister of defense has succeeded in creating a mechanism integrating procurement processes in the Ministry of Defense and TNI Headquarters.

It also shows that the principle of civilian supremacy is being implemented by putting officials from the Ministry of Defense in control of various armament acquisition processes using export credit facilities.

However, a major problem arising from armament procurements using export credits is that the process is handled with an ad hoc project organization.

A solution to be considered is the creation of a Defense Procurement Agency under the Ministry of Defense, directly responsible to the minister of defense. The agency should be given full authority to implement all processes of armaments acquisition.

The agency would also be expected to underline the central role of the ministry in the procurement of armaments systems and strengthen the application of transparency and accountability principles in the procurement of armaments systems.

It would be more effective if the ministry adopted the Organization of Economic Cooperation and Development's antibribery mechanism adopted on Feb. 15, 1999, by OECD members and Argentina, Brazil, Chile, Bulgaria, Estonia and Slovenia.

This instrument evolved from four antibribery guidelines set by the OECD, including the Action Statement on Bribery and Officially Supported Export Credits (2003), and the Revised Survey on Measures Taken to Combat Bribery in Officially Supported Export Credits (2004).

The OECD's antibribery mechanisms related to export credit facilities could be used by the Ministry of Defense to create operational instruments for use by officials in the military goods/services procurement organization to prevent bribery attempts. The operational instruments could also be made into an integral part of a system containing integrity pacts and antibribery instruments.

The antibribery instruments could also be strengthened by requiring the government to provide transparency of procurement of armaments systems. This transparency could be achieved in two ways.

First, the Ministry of Defense could create an e-procurement system allowing providers of goods/services to easily find out how procurement programs are planned by the ministry based on Defense Strategic Plans.

Second, the ministry should be required to publish reports of international arms transfers from and to Indonesia. An international arms transfer report -- an important part of the international regime -- is an important step in improving supervision of defense procurement system.

The writer is a lecturer at the School of Social and Political Science, the University of Indonesia. He can be reached at andi_widjajanto@yahoo.com.