Jakarta, 6 July 2011

Curbing Corruption While Promoting Business & Economic Growth

By: Wijayanto wijayanto@paramadina.ac.id

Among the Most Corrupt Country?

Source: Corruption Perception Index, Transparency International, 2010

Corruption, 38.6%

Economic Crises, 15.1%

Unemployment, 10.3%

Terrorism, 9.7%

Sectarian Conflict, 9.3%

Bad Bureaucracy,

5.6%

Others, 11.4%

Rank Country Score Rank Country Score

1 Denmark 9.3 56 Malaysia 4.41 New Zealand 9.3 69 Brazil 3.71 Singapore 9.3 78 Greece 3.54 Finland 9.2 87 India 3.34 Sweden 9.2 98 Egypt 3.17 Netherlands 8.8 98 Mexico 3.18 Australia 8.7 110 Indonesia 2.88 Switzerland 8.7 116 Vietnam 2.7

10 Norway 8.6 127 Timor-Leste 2.513 Hong Kong 8.4 134 Bangladesh 2.415 Germany 7.9 134 Nigeria 2.417 Japan 7.8 134 Philippines 2.419 Qatar 7.7 143 Pakistan 2.320 The UK 7.6 154 Cambodia 2.122 The US 7.1 154 Laos 2.125 France 6.8 154 Russia 2.139 South Korea 5.4 176 Myanmar 1.450 Saudi Arabia 4.7 178 Somalia 1.1

What is Indonesia’s Main Challenge as a Nation? (Kompas, 2010)

Encouraging Development.....

Source: Corruption Perception Index, Transparency International, 2010 3Source: Corruption Perception Index, Transparency International

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

2003 2004 2005 2006 2007 2008 2009 2010

Singapore

Malaysia

China

Thailand

India

Indonesia

Vietnam

Philippines

CPI Change (2003 – 2010)

Indonesia

Malaysia

Over the last eight years, Indonesia’s CPI has shown the most encouraging development, while Malaysia has decreased continuously;

Press Freedom Bias?

Source: TI, Freedom House, and “Korupsi Mengorupsi Indonesia”, Wijayanto & Ridwan Zachrie

Corruption Perception Index ,Indonesia (1995 – 2009)

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Press Freedom Bias??

Establishmentof KPK

Why Curbing Corruption is so Tough?

Source: Transparency International

Rank Institutions Score

1 Police 4.22 Legislative 4.13 Judiciary 4.14 Political Party 4.05 Licensing Authority 3.86 Tax Office 3.6

Rank Institution 2005 2006 2007

1 Kepolisiian 4.0 4.2 4.2 2 Legislatif 4.0 4.2 4.1 3 Lembaga Peradilan 3.8 4.2 4.1 4 Partai Politik 4.2 4.1 4.0

Indonesia: Most Corrupt Institutions Global: Most Corrupt Institutions (2010)

• The four most importance institution on curbing corruption are among the most corrupt;• This phenomenon is not unique. Globally, Police, Legislative and Political Party are

among the most corrupt institution; • However, in many countries, the judiciary system is relatively less corrupt;

From Whom We Should Learn?

Source: Transparency International Indonesia, 2010

No City Score No City Score No City Score

1 Denpasar 6.71 18 Sibolga 5.15 35 Tjg Pinang 4.55 2 Tegal 6.26 19 Palu 5.10 36 Pontianak 4.52 3 Surakarta 6.00 20 Padang 5.07 37 Mamuju 4.45 4 Yogyakarta 5.81 21 Purwokerto 5.06 38 Jakarta 4.43 5 Manokwari 5.81 22 Bandung 5.04 39 Ternate 4.42 6 Gorontalo 5.69 23 Palangkaraya 5.03 40 Bengkulu 4.41 7 Tasikmalaya 5.68 24 Pematang Siantar 5.02 41 Jayapura 4.33 8 Balikpapan 5.58 25 Semarang 5.00 42 Sorong 4.26 9 Kediri 5.56 26 Bandar Lampung 4.93 43 Pangkal Pinang 4.19

10 Lhokseumawe 5.55 27 Kupang 4.89 44 Medan 4.17 11 Sampit 5.55 28 Serang 4.87 45 Malang 4.15 12 Tenggarong 5.41 29 Samarinda 4.85 46 Jambi 4.13 13 Mataram 5.39 30 Batam 4.73 47 Makasar 3.97 14 Manado 5.35 31 Jember 4.71 48 Surabaya 3.94 15 Ambon 5.29 32 Palembang 4.70 49 Cirebon 3.61 16 Banjarmasin 5.20 33 Banda Aceh 4.61 50 Pekanbaru 3.61 17 Kendari 5.20 34 Pdg Sidempuan 4.58

Learning from Yogya & Solo.......

Source: Transparency International Indonesia Website (Jokowi and Herry Zudianto) and Various Sources

1. The city majors drive Toyota Kijang, instead of high-end sedans;

2. Establish pro-people budget, a large portion of budget is allocated to improve public facilities instead of for personnel expenses;

3. Simplify business licensing and building permit process:

• Create clear standard operating and procedure;

• Publish cost and time line;

• Established task force to managed this process;

4. Firing or removing public officials who are not inline with government’s agenda to improve public service quality;

Simple initiatives with huge

impact

Corruption and Doing Business....

Source: Transparency International 2009; World Bank 2010

• Strong Correlation between Ease of Doing Business and Corruption Perception Index (C=0.69);

• Improving business climate & governance is inline with reducing corruption;

• Klitgaard Theorem:

• Clear rule of the game in business will reduce discretion, monopoly and improve accountability

Corruption Perception Index ,vs. Ease of Doing Business

CPI S

core

Ease ofDoing Business

BestWorst

Best

C D M A

CorruptionDiscretionMonopolyAccountability

Ease of Doing Business: The RankingSource: World Bank, Ease of Doing Business 2010

119 21

78

121148

Sing Thai Mal Viet Ind Phil

2 12

60 62

108

156

Sing Thai Ind Viet Mal Phil

2 4 1244

132

173

Sing Mal Thai Ind Phil Viet

1

12

37

47

61 63

Sing Thai Mal Ind Phil Viet

Ease of Doing Business(Total Ranking)

Building Permit

Cross Border Trading

Protecting Investor

Ease of Doing Business: The Ranking

Starting Business

Registering Property

Getting Credit

1 6 15

72

116128

Mal Sing Viet Thai Ind Phil

15 19

4360

98 102

Sing Thai Viet Mal Ind Phil

4

95 100113

155 156

Sing Thai Viet Mal Ind Phil

In Indonesia, Starting Business, Getting Credit and Registering Property are rather difficult and complicated. In the 6 main ASEAN economies, we are only better than the Philippines

Source: World Bank, Ease of Doing Business 2010

Ease of Doing Business: The Ranking

Closing Business

Enforcing Contract

Paying Taxes

Indonesia is behinds ASEAN’s peers in term ease of paying taxes and enforcing contract. Serious improvement should be done if we would like to keep our economy competitive;

1325 31

59

118

154

Sing Thai Viet Mal Phil Ind

Source: World Bank, Ease of Doing Business 2010

423

91

124 124 130

Sing Mal Thai Viet Phil Ind

2

46 55

124142 153

Sing Thai Mal Viet Ind Phil

High Tax Rate, But Low Tax Revenue...

Source: Heritage Foundation & Forbes: Tax Misery Index

93 89

85 84 84 79

Vietnam Indonesia Malaysia Philippines Thailand Singapore

13.8%

11.0%

15.5%14.4%

17.0%

13.0%

Vietnam Indonesia Malaysia Philippines Thailand Singapore

Tax Misery Index

(2009)

Tax Revenue / GDP(2009)

• Despite Indonesia’s high tax rate (second highest in ASEAN)....

• ....tax revenue only account for 11% of GDP (the lowest in the six main ASEAN economies);

• In part, it is because the lack of inefficient and complicated tax collection procedure, a possible source of corruption;

Thank You