Promoting good governance is essential

Purbaya Yudhi Sadewa

The Indonesian community at large has agreed that creating good governance is one of the main agendas of Reformasi. It seems, however, that the implementation of good governance is still far away. And in the open economy era, which creates stiffer competition among nations, Indonesia will experience huge losses if it fails to move toward creating good governance.

Good governance is sometimes defined as the process whereby elements in society wield power and authority, and influence and enact policies and decisions concerning public life, economic matters, and social development.

With good governance, all three supporting pillars (the state, civil society, and the market/business community) intertwine synergistically in political, economic and administration activities. In addition to the legislature, civil society and the business community provide checks and balances to monitor the work of the government, which push the government to carry out its tasks effectively. As such, it is hoped that the country's social and economic resources can be managed efficiently, which will ultimately lead to high and sustainable economic growth.

Indonesia has taken several measures in its efforts to create clean government and good governance. For example, regional autonomy, antimonopoly, bankruptcy and anticorruption laws have been passed. Decentralization is expected to make public administration more responsive to the people and their needs, since regional governments are closer to their citizens than the central government is. As such, decentralization should bring about greater efficiency and effectiveness in the delivery of public services.

Meanwhile, both the government and national legislature established an independent commission (KPKPN) to serve as a repository for the records of assets of government officials, to audit these assets, and, in general, to investigate allegations of corruption among government officials.

In addition, the media and NGOs have been granted more freedom to scrutinize and criticize policies, programs and the actions of both central and local governments. For example, Indonesian Corruption Watch acts as a watchdog in respect of government policies. All these steps are promising moves toward the improvement of governance and a reduction in corruption.

So far, however, these efforts have not resulted in significant improvements in governance. For example, it is widely believed that decentralization only involves the decentralization of corruption. And money politics (read: bribery) often taints the election of governors and mayors. Furthermore, regional governments have been concentrating too much on increasing their revenues without realizing that sometimes they have created regulations that are not friendly to business.

Also, illegal wood exports and illegal logging are still widespread. These activities are flourishing as the officials concerned are bribed to look the other way, or even provide protection for the illegal activities. These activities have not only reduced government revenues but also inflicted great damage on the environment.

Why are we failing so badly? One major reason is that Indonesia has failed to enforce the rule of law, which has crippled the checks and balances function of the press, the private sector and civil society. As such, wrongdoers can get away with their crimes.

For example, very few of the individuals who misused Bank Indonesia liquidity loans were convicted, let alone given jail terms. Meanwhile, Akbar Tandjung has not yet started serving his prison sentence even though he was sent to jail for 3.5 years. And neither has the Supreme Court ruled on his appeal, even though the Supreme Court rules provide for speedy decisions in cases of major public importance, which the Akbar case undoubtedly is. Both cases send the wrong message -- namely that corruptors and embezzlers can get away scot-free.

Meanwhile, the inability of the central government to spin off Semen Padang has sent a clear message to the international community that the Indonesian government is facing huge difficulties in regard to decentralization. The international business community and multilateral agencies are using this case as a litmus test to determine whether the Indonesian government is able to uphold the rule of law. And apparently Indonesia has failed the test.

The inability of Indonesia to uphold the rule of law raises questions regarding the seriousness of Indonesia in its stated desire to create good governance. And it suggests that the fight against corruption is merely well publicized rhetoric. Implementation and practice, by contrast, are both very weak.

And the international business community is well aware of these woeful conditions. According to Transparency International, Indonesia is one of the most corrupt countries in the world (ranked 122 out of 132). Compared to other ASEAN countries surveyed, Indonesia has the lowest ranking. Indonesia's Corruption Perception Index (CPI) is also significantly below the indices of Singapore, Malaysia, Thailand, the Philippines, and even Vietnam (table 1).

Table 1. 2003 Corruption Perception Index (CPI)

This negative perception of Indonesia has had an adverse impact on the Indonesian economy. First of all, on the back of difficulties in calculating the cost of conducting business due to corruption, multinational companies have become more reluctant to set up production facilities in Indonesia. Some have even relocated their existing production facilities overseas, which has hampered job creation and pushed up unemployment. It is worth noting here that Indonesia is currently the only country in the region that is still experiencing negative flows of direct investment; that is, more direct investment is flowing out of the country than flowing in.

In addition, because conducting business in Indonesia is considered to contain higher risks, international investors require a higher premium in extending loans to Indonesian companies. This has made it more expensive for Indonesian companies to access funds from the international financial markets.

Furthermore, in the AFTA era, most of the barriers to trade have been or will shortly be eliminated, and companies in each ASEAN country can export most types of merchandise to other ASEAN countries with significantly lower import tariffs than before. As a result, multinational companies can choose one country as a production base for the ASEAN market. And it is more likely that multinational companies will set up their production facilities in a country that has better governance and a better investment climate. This means that without improvements in governance, AFTA will lead to the exploitation of Indonesia's market by multilateral companies operating from neighboring countries.

Unfortunately, in the free trade era, protecting industry is not as easy as before. Government support for a specific industry under the WTO system is not allowed or is subject to countervailing duties imposed by other countries. The government can only implement industrial policy as far as it aims to promote industrial competitiveness. And, currently, bad governance is one of the main obstacles that is hampering the competitiveness of Indonesian products on world markets.

Against this backdrop, if the problem of poor governance is not rectified, then Indonesia will end up as a loser in the open global economy.

The rule of law must be enforced more seriously if Indonesia wants to have better governance. The formation of the KPK (Anticorruption Commission) brings new hope to the fight against corruption. Besides being vested with the functions of its forerunner, the KPKPN, this commission has the authority to investigate and to prosecute officials suspected of corruption. With this additional authority, it is hoped that the KPK will produce better results in enforcing the law against corruption.

Meanwhile, to alleviate the problems arising from decentralization, Indonesia has to establish a rating system for local governments. This rating system needs to be based on fair market mechanisms that will create incentives for local governments to pursue good governance practices and to create conducive investment climates. The rating system would be very useful for would-be investors to understand the characteristics of the localities and their development potential. The ratings should be updated regularly so as to allow regions with low ratings to improve their governance and catch up with the highly rated regions based on transparently assessed criteria.

Promoting good governance is a must if Indonesia wants to emerge as a winner in the open global economy and experience a faster rate of economic growth.