WB loans graft needs to be curbed

By Kastorius Sinaga

JAKARTA (JP): An allegation by an American expert recently that approximately one third of World Bank loans to Indonesia had been siphoned off by bureaucrats reminds us of a 1995 survey that ranked the country as the most corrupt in private investment.

The allegation was made last month by Prof. Jeffrey Winters of Northwestern University, Illinois, and the survey was done by Transparency International.

Although the focus of the expert (investments in the public sector) differs from the focus of the survey (investments the private sector), if we combine the two diagnoses, the saying "nothing is well organized in this country except corruption" seems not far from the truth.

To both Winters and Transparency International, the bureaucracy is the source and venue of corruption. It would be therefore quite relevant if we tried to reconstruct corrupt practices and find breakthroughs to reduce the level of corruption in World Bank-funded projects.

Corruption is everywhere, with its variables such as graft, collusion and manipulation, and is a general phenomenon, the oldest disease of a public institution called bureaucracy. However, this disease becomes more chronic and institutionalized in soft states like Indonesia and other developing countries.

The institutionalization of corruption can be seen as a political symptom in a country where the bureaucracy plays a central role that manifests itself as a "political clique". In this condition personnel recruitment tends to be colored by nepotism yielding in effect an unprofessional government and weak supervisory instruments.

Although corruption is an economic issue, on a macroscale it is linked with politics, a factor which alienates the masses from the elite.

Why? Because those who corrupt public assets are those who have access and authority in the distribution of the assets. Or, in the case of bribes in project tenders in the public investment sector, such as World Bank-funded projects, those who pay and receive bribes are those who are close to the decisionmakers. They are in a position to appropriate project funds so that only a little is left for the poor communities which are the very targets of the projects.

It is very hard indeed to determine precisely the percentage of corruption in development projects managed by the government. Nevertheless, if we study the planning, the tendering and the implementation of projects, a number of sensitive points can be identified.

First, for the sectoral department in charge of the project's management, a project is an additional source of income so that the markup of a project's scale and cost is kept confidential. These practices have become common, with the low salaries of civil servants even encouraging corruption so that it in fact serves as a bonus, an incentive for them to work and get results.

Second, the process of transferring financial benefits from the public to the private sector through direct assignment of project management, privatization programs or concessions often do not take place in a transparent way.

On a macroscale this has become increasingly institutionalized in keeping with the practices of monopoly and oligopoly in our economic system.

Third, the process of awarding bids for projects in the provision of goods and services and in construction, both with the central and the provincial administrations, is predominantly determined by either family linkage or "good" relationships.

Failing either one of these conditions, one can still obtain favor through the provision of money. Therefore, in the tender process the phenomenon of entrenched corruption takes place and the winner of the bid is engineered between the project leader and the bidder based on material compensation.

Obviously a contract winner would have to manipulate prices, volumes and technical requirements to make up for the phony expenditures. In one research I found that in projects tendered at the regional (kabupaten) level, a 10 percent stake of a given project is put aside for the regent. An additional 2.5 percent is needed when a project is carried out during special events, like the general election for example.

Thus, a development project is no longer a provision of public facility for the welfare of the community. For the bureaucracy, it seems, a project is a means to reap an economic bonanza for private interests.

If the World Bank has given an impression of passive tolerance for corruption practices in Indonesia, it is apparently caused by various factors including the role of the state as a pillar for economic growth and a guardian of the sustainability of development in general.

However, this has changed in the past five years. Indonesia's private sector and foreign investment have increasingly taken over the role of the state in economic growth as well as in the production and marketing of goods and services.

Although the World Bank is testing projects to curb corruption through cutting the chain of bureaucracy with programs like the one for least developed villages, the village infrastructure project and the district development fund, this endeavor has yet to be qualified as an active policy of the World Bank in Indonesia.

It is time for the World Bank to make a breakthrough to reduce the level of corruption. First, an education program for Indonesian journalists to enable them to investigate corruption practices of project funds by the bureaucracy.

Second, the World Bank must involve NGOs in monitoring the impact of projects funded by them and the use of the loans by the bureaucracy.

The World Bank has successfully introduced these measures in poor countries in Africa and was successful in reducing the inappropriate use of loans. Why is the World Bank not interested in doing the same in Indonesia, which is one of its biggest clients?

The writer is a lecturer for post-graduate studies of social sciences, University of Indonesia, Jakarta.

Window: If the World Bank has given an impression of passive tolerance for corruption practices in Indonesia, it is apparently caused by various factors including the role of the state as a pillar for economic growth...