Old Game or New?Corruption in Today’s IndonesiaNONO ANWAR MAKARIM • ROBERT N. HORNICK • WILLIAM S. COLE

ASIA PROGRAM

NO. 100 DECEMBER 2001

A S I A P R O G R A M S P E C I A L R E P O R T

As the three-year-old democracy of Indonesiastruggles with problems as diverse as break-awayprovinces and sliding export demand, what pri-ority should be given to the anti-corruptioncampaign? And how much energy should theinternational community spend in pressuringIndonesia to curb abuses? These and relatedquestions were addressed at a September 17workshop sponsored by the Asia Program. Allthe panelists agreed that corruption is a majorproblem, a source of economic inefficiency anda hindrance to democracy and the rule of law.In a world of limited resources, however, theydisagreed on both the urgency of the problemand the practicality of tackling it.

For any country, eradicating systemic corrup-tion is an enormous task, like trying to collec-tively reverse out of a traffic jam. Paradoxesabound. For many individuals, to break the lawis more efficient than to obey it, but corruption isdisablingly inefficient for the society as a whole.Just about everyone denounces the corrupt sys-

tem and yet participates in it daily. From leaders’point of view, do you work within the currentframework, or do you try to tear it down, riskinganarchy for eventual order? The public is tired ofwaiting—but quick solutions will shortcut thevery democratic process that can ensure long-term meaningful change. Unlearning the oldways can be harder than learning the new.

The stakes, meanwhile, are potentially enor-mous. According to Laksamana Sukardi, minis-ter for state-owned enterprises, “unlessIndonesia can get a grip on the problem of cor-ruption, the future of the country is in peril.”1

Nono Anwar Makarim, chair of the execu-tive board of the Aksara Foundation in Jakarta,argues that the role of outsiders is a critical one.Makarim maintains that the World Bank, theAsian Development Bank and donor govern-ments should go as far as to withhold aid, if nec-essary, to curb abuses. But “outsiders have so farconsistently refused to go beyond the submissionof polite memoranda addressed to Indonesianheads of state,” he complains. He particularlycriticizes the Japanese overseas developmentassistance (ODA) establishment, which (he

INSIDE

A Path through theRainforest: Anti-Corruption in Indonesia

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A Foreign Lawyer’sPerspective onCorruption in Indonesia

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Roots of Corruption inthe Indonesian Systemof Governance

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Amy McCreedy is program associate at the Woodrow Wilson Center’s Asia Program.

ABSTRACT: Corruption pervades Indonesia. But among a host of concerns, should the elim-ination or even the reduction of corruption be top priority for the Indonesian government andinternational donors? The three essays in this Special Report address this question, as well asoutline the sources of Indonesian corruption and some strategies for combatting it. NonoMakarim argues that donors should exert more pressure on the Indonesian government and nothesitate to wield their ultimate weapon of withholding aid. Robert Hornick maintains that in aworld of limited resources, other goals, such as economic growth and stability, should come first.William Cole discusses the legacy of Suharto’s “New Order,” and asserts that strong political willis needed to uproot this entrenched system. All the essayists express the hope that middle-classsupport for the anti-corruption effort will emerge, as has occurred in other Asian countries.

IntroductionAmy McCreedy

writes) engages in a “hands-off ” policy that goesunchallenged by a passive Japanese electorate.

According to Makarim, Indonesia is locked in avicious cycle of corruption and is unlikely to breakfree on its own. The ineffectiveness of non-govern-mental organizations (NGOs) is a case in point.While recognizing the important work of NGOs,Makarim admits that too many are co-opted by theruling system: “fascinated by temporary entry intothe corridors of power,” they cease to fulfill theirfunction as watchdogs. Not that Makarim is whollypessimistic about anti-corruption campaigns. He hasplenty of advice for advancing public education andcreating a “united front” of NGOs, business execu-tives and sympathetic government officials. Withregard to legislation, he suggests reversing the bur-den of proof in corruption cases, so that guilty indi-viduals cannot wriggle off the hook so easily. But inspite of these ideas, Makarim sees outside help ascrucial in cleaning up the system significantly.Without pressure from outside Indonesia’s borders,progress will be dismally slow.

Robert N. Hornick, a partner in the law firmof Morgan Lewis and a consultant on Indonesianlaw, takes a different view. He asserts that the eradi-cation of corruption should not be a focus of U.S.foreign policy or a condition of aid. Instead,Hornick puts forth three other near-term goals thathe considers more urgent: Indonesian security, eco-nomic recovery, and the smooth implementation ofregional autonomy initiatives.To meet these objec-tives, he maintains, a long and costly battle againstcorruption is unnecessary. Development and cor-ruption can coincide, Hornick asserts—distasteful asit may seem, Suharto achieved stunning growth inthe midst of widespread nepotism and graft. Theimportant thing is to keep Indonesia from splinter-ing or falling into widespread chaos and poverty.

Hornick also presents a useful categorization ofdifferent types of Indonesian corruption and sum-marizes relevant legislation. He points out thatIndonesian corruption law is far from paltry.Indeed, it is far-reaching and comprehensive(although vaguely worded). It would certainly bepossible to investigate, prosecute and punish corrup-tion severely under the current framework, Hornickwrites.The problem is not lack of legislation, butinsufficient implementation.

William Cole, director of governance, law andcivil society programs at the Asia Foundation,emphasizes the role of insiders rather than outsidersin fighting corruption. Thus his essay differs fromthat of Makarim: “If we have learned one thingworldwide, it is the indispensability of strong andcommitted political leadership. The process cannotbe driven from the outside by the internationaldonor community.” The difference in emphasisbetween the two essays is somewhat ironic, sinceMakarim is an Indonesian and Cole works for aninternational organization. In fact, however, the twowriters do not disagree as much as they seem to atfirst glance. Both feel that pressure for change fromwithin and without is ideal, and both underscore theimportance of alliances among various actors such asNGOs, businesses and international organizations.

Cole describes at length Suharto’s “New Order,”and maintains that this corrupt system is still moreor less in place today. With the advent of democra-cy and a new political leadership, many observersassumed that the problem of corruption would cor-rect itself. But this has not happened, and theadding of new oversight institutions, such as anindependent Counter Corruption Commission, willnot suffice either. In fact, for all its advantages,democracy brings new challenges. For example, cor-ruption is now fragmented so that resource-hungrypolitical parties and other entities compete to estab-lish their own separate patronage networks. By con-trast, the old system was at least predictable andsomewhat controlled. Meanwhile, Cole asserts,Megawati’s cabinet choices appear to favor stabilityand the status quo.

Both Makarim and Cole caution that we mustnot overestimate the speed at which progress cantake place, because ultimately we must await thedevelopment of a middle class that has a real stake indismantling the patron-client system. That is what is

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THE ASIA PROGRAM

The Wilson Center’s Asia Program is dedicated to the proposi-tion that only those with a sound scholarly grounding can beginto understand contemporary events. One of the Center’s oldestregional programs, the Asia Program seeks to bring historicaland cultural sensitivity to the discussion of Asia in the nation’scapital. In seminars, workshops, briefings, and conferences,prominent scholars of Asia interact with one another and withpolicy practitioners to further understanding of the peoples, tra-ditions, and behaviors of the world’s most populous continent.

happening in Thailand, the Philippines and SouthKorea. Although Hornick does not state this explic-itly, he seems to agree that a country must be “ripe”for major reform—that it must grow its way out ofcorruption. In the meantime, will even the mostwell conceived anti-corruption campaign be onlymarginally effective? Of the three essayists, Makarimseems to feel most strongly that the internationalcommunity can meaningfully help along the processthrough concrete measures. He therefore offersmore specific suggestions for fighting corruption inthe short term than do the other two analysts repre-sented in this report.

James Castle, president of the U.S. Chamber ofCommerce in Indonesia and a commentator at theSeptember 17 event, pointed out one area of con-cern that is largely neglected by the essayists—thatof tax collection. Speaking from the point of viewof a foreign investor, Castle complained that “thecost of ‘playing by the rules’ probably raises [a com-pany’s] effective tax rate from 30% to 45-50%.”Castle asserted that,“If all that money really got intogovernment coffers, there would be no budgetdeficit problem.” He also addressed the issue ofpolitical decentralization, and expressed hope thathighly publicized legal battles between the centralgovernment and local regions will exert healthypressure on the judicial system to improve itself.

Peter Lewis, professor at American Universityand also a commentator at the workshop, main-tained the importance of distinguishing between

different categories of corruption. “Organized” cor-ruption, as existed under Suharto, is better for soci-ety’s welfare than “anarchic” corruption, which per-vades countries such as Nigeria and, increasingly,democratic Indonesia. Under Suharto, illicit gainsremained within Indonesian borders, and the regimeestablished ground rules that prevented completechaos and allowed the achievement of broad devel-opment goals. Lewis pointed to his own work, aswell as that of Andrew MacIntyre, Andrei Shleiferand Robert Vishny, in advancing such a nuancedunderstanding of corruption—crucial to forming acorrect strategy, Lewis suggested.

All of the essays in this Special Report make forsober reading; they do not underestimate Indonesia’sproblems or inflate expectations. But each offershope for meaningful long-term progress. Corrup-tion requires steady rehabilitation—no quick reme-dy exists. The Asia Program hopes that by realistical-ly assessing the challenges, as well as presenting avariety of alternatives and approaches, these essayswill contribute to a deeper knowledge of corrup-tion and to its abatement in Indonesia and else-where.

ENDNOTES1. Laksamana Sukardi, at “Indonesia Today:

Current Trends, Future Possibilities,” conference atthe United States-Indonesia Society, Washington,DC, March 13, 2001.

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OLD GAME OR NEW? CORRUPTION IN TODAY’S INDONESIA

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In January of this year, the Aksara Foundation1

invited Dr. S. B. Judono, the head of theIndonesian State Audit Board, to present his

views on corruption before a “closed” audience ofabout 30-40 invitees. He said, among other things,that just by examining whether government expen-ditures had complied with established procedures,no less than Rp. 182,335 trillion2 were found to beunaccounted for.

One month later, Aksara had two adversariesface each other on one panel: Teten Masduki, chair-man of the Indonesian Corruption Watch, and themuch sought-after defense counsel of allegedly cor-rupt high officials, Otto Cornelis Kaligis. Masdukiconfessed to being “out of breath” (which inIndonesian connotes “being at the end of one’swits”) from his relentless anti-corruption campaign.Indonesia, Masduki wryly observed, is the only cor-rupt country in the world without corrupt individ-uals. There are many corruption reports, but fewprosecutions, and almost no convictions. Kaligisattributed his own numerous court victories to badcase preparation by inept government prosecutors—though whether the ineptitude is due to lack ofskills, or simply made to order, was not clear.Surprisingly, Masduki and Kaligis agreed on onething that would result in more convictions: revers-ing the burden of proof in corruption cases—that is,obligating the accused to prove his innocence.

WHAT PROOF?

The question of what constitutes “evidence” hasdriven a deep wedge between NGOs and the judi-ciary. The cynical joke making the rounds in Jakartaon this issue involves a man caught with a smokinggun in his hand, a corpse at his feet, and a missingbullet from the gun inside the corpse.This is inade-quate proof of murder according to Indonesiancourts, even if 15 people have witnessed the shoot-ing. What is additionally required is the willing,

written testimony of all 15 witnesses, under oath,that they saw the man pull the trigger and shoot atclose range in broad daylight. Even then, the allegedmurderer must produce a signed, notarized state-ment to the effect that, “. . . on that day, date andtime, I did indeed shoot the victim with a handgunof such-and-such make and serial number, therebycausing his death.”

So what’s the joke? The judge dismissed the casebecause the gun was never registered and is, there-fore, non-existent before the law.

The approach to “evidence,” already formalisticin the Continental European legal system to whichIndonesia adheres, has been further refined by judi-cial bureaucrats.The joke, in fact, is not very origi-nal; it was first inspired by a case in the 1970s inwhich a judge denied a debt’s existence, notwith-standing notarized loan documents. Why? Theagreement was not registered with the CentralBank, as required for statistical purposes.

THE BURDEN OF CHANGE

On February 11, 2001, the Aksara FoundationJournal came out with a 15-page edition on corrup-tion in Tempo magazine. The edition, which cov-ered a wide range of issues, created a stir andshocked the public by advocating a departure fromtraditional anti-corruption campaigns.3

To Catch a Thief?Aksara made the startling observation that pursu-ing corrupt government officials, even in countrieswhere legal systems have a tradition of workingmore or less effectively, had not produced desiredresults. The examples of India, Pakistan andBangladesh were cited. In the 1980s and 1990s, awave of prosecutions and convictions of corruptofficials swept over the bureaucracies of thesecountries. Three to four months later, however,their replacements were behaving just like their

A Path through the Rainforest: Anti-Corruption in Indonesia

NONO ANWAR MAKARIM

Nono Anwar Makarim chairs the executive board of the Aksara Foundation, Jakarta.

predecessors. Running after corrupt officials in athoroughly corrupt legal system like Indonesia’swould only result in widespread social frustrationand cynicism.

Anti-corruption movements on the Asian sub-continent during the past two decades succeeded inreplacing the allegedly corrupt officials, but failed toprevent the pattern of corruption from reoccur-ring—mainly because the social structures remainedunchanged.4

Care must also be taken that governments do notuse anti-corruption campaigns as opportunities toarrest members of the opposition, in order to deflectshort-term political pressure and to depose trouble-some rivals.

Too Many Anti-Corruption Commissions?“This morning the Government has installed ananti-corruption team to look into the performanceof the task entrusted to the anti-corruption com-mission of supervising the work of the anti-corrup-tion task force previously appointed to investigatethe activities of an ad hoc Government Commissionformed earlier this year to look into the issue ofhigh-level corruption among corrupt GovernmentOfficials.”

No, that wasn’t the president of the Republic ofIndonesia. It was the Kenyan attorney general tryingto evade having to take action against corrupt offi-cials in October 1997. Four anti-corruption com-missions were installed within a span of one year.5

President Suharto made an early pledge in 1970—on the occasion of installing the second in a series oftoothless anti-corruption commissions—that hewould lead the fight against corruption himself!6

When political pressure is high, governmentsdeflate tension by feigning to deal seriously withcorruption. Most of the time, they busy themselvessetting up anti-corruption commissions, govern-ment watchdogs, ombuds offices, and wealth-inspection task forces. Governments are genuinelyserious about anti-corruption measures only whenthey put in place five mechanisms simultaneously:institutional reform of the bureaucracy, prosecu-tion of corrupt officials, economic reform thatreduces the public sector, privatization of state-owned enterprises, and general consciousness-rais-ing campaigns.7

What Civil Society?In many societies of the developing world, the capi-talist system has only recently been introduced andis not yet widely accepted. The political stabilityrequired for it to flourish has not jelled, and statesare not strong enough to enforce law and order. Inthese circumstances, the nation remains wedded tothe familiar networks of patron-client relations as ameans to distribute wealth.The anti-corruption lit-erature calls this “political corruption”—the pur-chase of political stability by distributing the spoilsof corruption.8

Mushtaq Khan, in a presentation at the 1997Paris conference on corruption in developing coun-tries, made some interesting observations about themushrooming of NGOs engaged in anti-corruptioncampaigns.The generally received hypothesis is thatthis is a sort of delayed reaction, part of a civil socie-ty movement to improve economic governance.“Wrong!” said he.9 The base of these activist groupsdoes not support civil society as the concept isunderstood in Western liberal thought.“Civil socie-ty,” in the original meaning of the term, will onlyemerge in developing countries when economicgrowth is sufficiently high to usher in a new class ofprofessionals engaged in the service sector. It is thisnew class that is expected to rise up against thepatron-client system.That, according to Khan, hap-pened in South Korea and Thailand. It has not hap-pened in India, Pakistan, or Bangladesh. Such a pro-fessional class has not appeared in Indonesia either.Preliminary results from a diagnostic study on cor-ruption in Indonesia indicate that both householdsand business—while wholeheartedly condemningcorruption and prescribing the severest punishmentsto those proven guilty of it—nevertheless fully par-ticipate in the favor-trading game.10 The results ofthis study point toward two mutually reinforcingconclusions: a feeling of powerlessness and the fearof reprisals.

As with most Indonesian cabinet ministers, someleaders of NGOs have no track record of institu-tional success in their private endeavors. Few amongthem are able to show independently achieved mile-stones either in politics, business or social activities.Coming from the peripheries of the domestic poli-ty, therefore, NGO leaders tend to be fascinated bytemporary entry into the corridors of power, andgratified when those at the center lend ears to what

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they have to say or invite their opinions. This“periphery mentality” inclines towards the formal,rather than the substantive, view of what constitutessuccess in NGO activities. In such a setting, there isa high risk that NGO leaders see their organizationsas mere stepping stones to greener pastures withinthe polity. NGOs then become the new perpetua-tors of the system, demanding to be coopted andexacting a price for submitting to authority.

In this regard, it is understandable, though stillregrettable, that donors have shown little interest instrengthening the institutional bases of these NGOs.The donors disburse their support of good gover-nance efforts overwhelmingly from an auditor’s per-spective.That is what operating in a totally corruptenvironment has done to donor organizations.

Curing Victim DyslexiaIn developing countries, the general public has tradi-tionally viewed corruption as something removedfrom itself.When criminal activities get exposed inthe media, the unfortunate victim is always “the otherguy.” When corruption is discovered, it is alwayssomebody else’s money being stolen. It is the govern-ment that is being robbed; it is high-level officialswho are being bribed by foreign or domestic compa-nies. The crime, the criminal and the victim are seenas parts of a drama unfolding somewhere behind theTV screen, distant and apart from the viewer.

Anti-corruption campaigns have got to shift theiremphasis from the “crime” approach to the “victim”approach.When government money gets stolen, it ismoney that could have been used to bring safety tothe streets where people drive, walk, and breathe. Orit could have been used to study dengue fever andprevent further loss of life by families already vic-timized by the disease.When contractors bribe gov-ernment project managers, they then have to raisefees and prices for services and products, in order torecoup the payment. Eventually, it is the consumerwho must pay.When tax rates are raised, the publicis financing corrupt officials.When services becomecostlier, the customer is reimbursing companies forbribes to government employees. If flooding occursin city streets, if stoplights are dead for weeks, ifgarbage piles up for days, if electricity and telephonefailures go unrepaired, then the public must makeprivate payments to get the help it requires, therebyshouldering its share of the burden of corruption.

Working with the “Enemy”Perhaps the most difficult challenge for anti-corrup-tion activists to accept is the need to cooperate withbusiness and government.Their initial response isone of indignation at the prospect of victims work-ing with “criminals.” However, a united front withbusiness and government will help NGOs succeedin their anti-corruption activities. Clearly, there aregovernment officials who have been making a sin-cere effort to introduce sound managerial practicesand financial controls in state-owned businesses.11

Moreover, preliminary results of a national surveyconducted by the Partnership for GovernanceReform in Indonesia show that businesses are pre-pared to pay significantly higher taxes to rid them-selves of the obligation of paying bribes.12

Businesses clearly dislike having to compete witheach other not only in such factors as entrepreneur-ial skill, but also in the size of their bribes. Certainly,some form of cooperation between these groupscould broaden the anti-corruption front against theformidable forces lined up against good governanceand change.

THE FATHER PROVIDES AND PROTECTS

Indonesia will remain unstable for quite sometime.13 This alarming prediction follows from anexamination of the two-prong strategy employed bySuharto to maintain stability in the country duringthe three decades he was in power. One of Suharto’smeasures was to install a national patronage networkthat covered the entire country like a comfortableblanket. This network was financed from extra-budgetary sources maintained through an intricateand far-flung system of corruption. State enterpriseschanneled huge, unaccounted for sums to Golkar,the government party.14 The party, in turn, distrib-uted the bounty even to the lowest and smallestunits of the government bureaucracy, including vil-lage headmen.

Indonesia’s defense budget was the smallest inSoutheast Asia.The official budget, however, was justa tiny part of the overall budget.The rest came fromSuharto himself, through the State Secretariat. FromSuharto came money to purchase F-16 fighterplanes, Scorpion tanks, and Rapier missiles.Thus,the nation’s leader competed with the state for citi-zens’ loyalty, just as a company owner does for

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employees’ loyalty. Such is the tradition in theseparts of the world.The abstract “state” is less familiarthan the “father” figure who provides for and pro-tects his flock.

Money used by Suharto for his “personal”largesse came from the many private foundationsthat he maintained. These were funded throughinformal taxes and contributions from the manygrateful beneficiaries of monopolies and easy creditsobtained through his favour. In the later years of hisregime, Suharto raised the income tax rate and hadthe additional revenue transferred to his founda-tions’ accounts.

If systemizing patronage was the first prong inSuharto’s strategy to maintain stability, the secondprong was protection of that system. For example,when the long-reigning head of the national oilcompany could not account for a large amount ofthe country’s hard-earned foreign currency, he wasmerely relieved of his job.When efforts to reformstate enterprises were successful, and pain was felt by“clients” of the system—military and civilian func-tionaries with positions in state-owned businesses—Suharto’s cabinet simply rescinded the measures.15

He did set up five anti-corruption commissions, butthese were to palliate the erratic protests of students;no significant prosecutions resulted from any ofthem. Nobody squealed, because everybody was inon it. It is this corruption-based stability that is nowbeing challenged by the emerging reformist move-ment in Indonesia, both in regard to secretive non-budgetary expenses and to the rule and enforcementof law. Any disturbance to the structural balance ofthe corrupt system is bound to cause disruption—hence a prediction of long-term instability. Such isthe nature of change.

WHAT IS TO BE DONE?

There is the bureaucracy, and there is the military.Together they placed the leader, not the state, at thecenter.To complete the semblance of a representa-tive democracy, there is the government party.These three elements—the bureaucracy, the militaryand the government party—constituted Suharto’spolity. Any dissonance inside or outside that politywas dealt with initially by cooptation. If that failed,the center threatened force, but always throughhints, never through clearly expressed instructions.

Indonesia has remained the imperfect model ofWeber’s patrimonial state. Such states, by definition,never change from the inside. Change is more likelyif the “inside job” is complemented by pushes andpressures from the outside. And that is where thebiggest anti-corruption problem lies. Outsiders haveso far consistently refused to go beyond the submis-sion of polite memoranda addressed to Indonesianheads of state. The situation is unlikely to changemuch within the foreseeable future.

Indonesia’s economy is driven to a significantdegree by loans from three major donors: Japaneseofficial development assistance (ODA), the WorldBank, and the Asia Development Bank (ADB).16 Ofthese, the Japanese are easily the largest contributor.Knowledge of heavy corruption associated withprojects seems to be evenly spread among the three,but the Japanese ODA establishment seems to careleast about it. One explanation is that in countrieswith a relatively passive electorate, such as Japan, thedisbursement of aid excites little interest. Indeed,Japanese citizens do not generally seek into whereand how tax money is spent. Consequently, ODAofficers are happy with a “hands-off ” policy, onceloan documents are signed, aid has been disbursed,and any ties with Japanese suppliers, engineers, andconsultants have been established. This attitude ismore or less emulated by the other donor agencydominated by Japan, the ADB. For instance, asreported in the local media, the conditions of arecent annual loan allocation agreement did notcontain an anti-corruption or good governanceclause. The agreement instead emphasized thatinvestment laws should be clarified, and that thenumber of sectors hitherto closed to foreign invest-ments should be reduced sharply. In regard to theWorld Bank, it has for some time made the requisitenoises about corruption in the projects it finances,but has so far stopped short of using the ultimateweapon of withholding aid.

There may be multiple reasons why donor agen-cies are reluctant to resort to their ultimate weapon.They are certainly afraid that borrowers may retali-ate by not repaying debts.The larger the outstandingdebt, the more serious the concern. It is also saidthat donor agencies have been burnt badly in Africa,are little familiar with lending practices in LatinAmerica, and have not been able to go to India dueto the blockade (now lifted). These factors have

made Indonesia the lenders’ favorite. After all, onedoes not want to irritate borrowers of choice withpep talks about corruption. Finally, the very reasonfor donor agencies’ existence would be called intoquestion if matters came to a head with such impor-tant borrowers as Indonesia. In short, developingcountries with successful anti-corruption campaignsto raise public awareness will face a difficult future.No matter how effective the new, multifacetedapproach to reducing corruption may seem, no mat-ter how good the “inside job” may look from theoutside, the missing element of outside pressure mayend up stunting the movement’s growth. Outsidepressure will certainly create hardship for large seg-ments of the population and make life difficult forthe elites. However, research has shown that it is intimes of trouble that the system is most receptive toreform.17 Therefore, outsiders should carefully bal-ance between sticks and carrots. Otherwise, the nar-row path cut by the domestic reform movementthrough the corrupt system might be reclaimed byits former master, like a footpath left unattended inthe rainforest.

ENDNOTES1.The author chairs the executive board of the

Aksara Foundation, a non-governmental organiza-tion dedicated to informing and alerting theIndonesian public on pressing problems in a rapidlychanging society. The Foundation conductsresearch and disseminates information and publica-tions to the public and to policy makers.

2.The equivalent would be US$20.3 billion, at anexchange rate of Rp.9,000/US$1.

3. The issues were dealt with at length at theOECD-UNDP Conference on Corruption andIntegrity Improvement Initiatives in DevelopingCountries, October 24-25, 1997.

4. Mushtaq H. Khan,“The Role of Civil Societyand Patron-Client Networks in the Analysis ofCorruption,” paper presented at the Paris OECD-UNDP conference, October 24-25, 1997.

5.Alan Doig and Stephen Riley,“Corruption andAnti-Corruption Strategies: Issues and Case Studiesfrom Developing Countries,” Paris OECD-UNDPconference, October 24-25, 1997.

6. Theodore M. Smith, “Corruption, Traditionand Change,” unpublished paper, 1970.

7. In the Suharto era, no less than five anti-cor-ruption committees were installed: one in 1957, twoin 1970, one in 1977, and one in 1982. DailyKompas, March 15, 2001.

8. Khan,“Role of Civil Society.”9. Ibid.10. National Survey, the diagnostic study initiated

by the Partnership for Governance Reform,October 2000–May 2001.

11. Ahmad D. Habir, “Corruption and StateEnterprises in Indonesia,” to be published this yearin a forthcoming book on corruption in Indonesiaby the Partnership for Governance Reform.

12. National Survey.13.Takashi Shiraishi, presentation at the Aksara

Foundation, July 30, 2001.14. Habir,“Corruption and State Enterprises.”15. Ibid.16. The following is from Paul McCarthy,

“Corruption in Indonesia's Foreign Aid Programs:Naivete, Complacency and Complicity withinDonor Agencies,” to be published this year in a bookon corruption in Indonesia by the Partnership forGovernance Reform.

17. Habir,“Corruption and State Enterprises.”

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OLD GAME OR NEW? CORRUPTION IN TODAY’S INDONESIA

This paper is divided into three parts. First, asummary of anecdotal evidence indicatingthat corruption in Indonesia is indeed pro-

found and widespread. Second, an overview ofIndonesia’s quite considerable anti-corruption legis-lation.Third, my assessment of the implications ofthe foregoing for U.S. policy. I will suggest that, asrepulsive and relentless as corruption in Indonesiaundoubtedly is, and though we can hope that theIndonesian people will resolve to rid themselves ofthis scourge, the United States should not makeeradication of corruption a cornerstone of our poli-cy or a condition of our aid.

THE UBIQUITY OF CORRUPTION

There is much anecdotal evidence indicating thatcorruption during the Suharto era was, and in thepost–Suharto era continues to be, ubiquitous inIndonesia—despite a formidable array of legislation(summarized below) prohibiting it, and notwith-standing several successful prosecutions of corruptofficials both during and after Suharto. Corruptionmanifests itself in many ways, including the following.

Grease payments: small bribes, gratuities and otherbenefits provided to low- and middle-level bureau-crats to procure basic government services and pro-tections, such as obtaining official documents, sub-scribing for telephone and electric services, register-ing land titles and mortgages, getting visas and exitpermits, clearing customs, and collecting one’s gov-ernment salary.

The following account of a car theft victim try-ing to report the theft is typical of this kind of pettycorruption:“I needed a form from the police verify-ing that the car was, in fact, stolen. Negotiationsdragged on.A police captain wouldn’t part with theform for less than US$300, somewhat above the costof the insurance premium. Not being particularlyattached to the car, I balked at the price. Manymonths later, the captain tired of the wait. Suddenly

my car,minus a stereo and the air-conditioning unit,was ‘found’ in the police department’s parking lot. Iwas free to take it.”1

Subverted legal system: the routine bribing ofjudges, prosecutors and court officials.

In 1995, a retired Supreme Court justice allegedthat half of all judges in Indonesia took “hefty pay-offs” to fix trials.2 In 1999, a senior litigator inJakarta said that up to 90% of court cases weredecided by bribes to judges, prosecutors and othercourt officials.3 Last July, a trial judge who report-edly refused a Rp. 20 billion (US$2 million) bribe tofix a criminal case was gunned down on a Jakartastreet after convicting the offeror.The offeror is asuspect in the murder.4

High-level executive branch payoffs: to procurelicenses, contracts and the like.

In 1992 a trial court in Singapore found that,between 1972 and 1976, the (then) second-in-com-mand person at the Indonesian State oil company waspaid bribes by a German contractor in the amount ofDM54 million (approximately US$21 million at thenapplicable rates of exchange) to procure a contract forthe construction of a steel mill.5 In 1997, a U.S. oilcompany agreed to pay $300,000 to settle a case filedagainst it by the U.S. Securities and ExchangeCommission (SEC), in which it was alleged that anagent of the company’s Indonesian subsidiary had

A Foreign Lawyer’s Perspective onCorruption in Indonesia

ROBERT N. HORNICK

Robert N. Hornick is a partner in the law firm of Morgan Lewis, and a consultant on Indonesian law and lawreform.

engaged in systematic bribery from 1989-92, rangingfrom “monthly $1,000 disbursements spread amongclerks at the Indonesian State oil company . . . to a$120,000 payoff to a government auditor in exchangefor a favorable tax ruling.”6

Indispensability of good political connections: toimprove one’s chances of “securing the plum deals,obtaining preferential regulatory treatment, andescaping inconvenient contractual obligations whiledeflecting the ‘predatory’ trading practices of thosewho are well connected.”7

It was said to be “virtually impossible [during theSuharto era] to conduct business in Indonesia withoutdealing with Suharto, his family and their businesscronies,” comprised mainly of a small group of per-sonal friends of Suharto who got their start in businessthrough preferential treatment from friends in govern-ment.8 At the height of their power, the Suharto fam-ily reportedly had significant equity interests in over500 Indonesian companies operating in virtuallyevery major sector of the economy, including oil andgas, forestry and plantation, petrochemicals, mining,banking and financial services, property, TV, radio,publishing, telecommunications, hotels, toll roads, air-lines, automobiles and power generation. Moreover,they owned or controlled 3.6 million hectares of realestate—an area larger than Belgium.9

ANTI-CORRUPTION LEGISLATION

Indonesia had during the Suharto era,and continues tohave, a substantial body of legislation proscribing cor-ruption and corrupt acts. Such legislation falls, broadly,into two categories: (a) prohibitions on the making ofillegal payments and (b) prohibitions on the receipt ofillegal payments.The burden of the former falls mainlyon the private sector; the burden of the latter on thepublic sector.There are also laws in the post-Suhartoera making it a crime to engage in collusion or nepo-tism as well as corruption, and new mechanisms havedeveloped for investigating and exposing corruption.

The Suharto EraThere were three principal sources of law prohibit-ing corruption during the Suharto era:• the Indonesian Criminal Code;• Law No. 3/1971 regarding the suppression of

criminal corruption; and• Law No. 11/1980 regarding bribery.

In substance, this legislation made it a crime,punishable by fine and/or imprisonment, for anyperson to do, or (with a few exceptions) attempt orconspire to do, any of the following:• wrongfully to enrich oneself or others in a man-

ner harmful to the State’s finances or economy;• make a promise or gift to a civil servant because

of such person’s office or position;• make a promise or gift to a civil servant for the

purpose of inducing him to act or not act in amanner contrary to his authority or rewardinghim for having so acted or not acted;

• make a promise or gift to any person not other-wise proscribed by law to induce such other per-son to do or not do something in the performanceof his duties which would abuse his authority orcontravene public policy;

• receive any proscribed promise or gift, knowingor having reason to know of its illegality; or oth-erwise misuse any authority, opportunity or facil-ity which one had by reason of one’s office orposition, in order to enrich oneself or another.

The legislation also authorized confiscation ofmovable and immovable property of a corrupt per-son to the extent corruptly obtained or used in thecommission of a corrupt act, and provided for pay-ment of compensation to the State in an amountequal to the value of any property corruptlyobtained.

Post-Suharto EraIn the post-Suharto era, Law No. 3/1971 wasreplaced by Law No. 31/1999 regarding the sup-pression of criminal corruption. In addition, a newlaw, Law No. 28/1999, prohibiting so-called collu-sion and nepotism, was enacted.The new legislationis similar in substance to prior law, but expands priorlaw inter alia in the following respects:• explicitly extends criminality to acts of compa-

nies as well as individuals, and authorizes punish-ment of managers and directors for a company’scorrupt acts;

• provides for longer prison terms and larger fines,and authorizes the death penalty for certain cor-rupt acts committed during times of nationalemergency (including fiscal and economiccrises);

• in the case of corrupt companies, authorizes rev-ocation of the company’s licenses/permits and

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other facilities as well as suspension of some or allof its business for up to one year; and

• broadens the prosecutor’s investigative powers.

The new legislation also prohibits State employ-ees from engaging in collusion or nepotism, andmakes the commission of such acts punishable byfine and/or imprisonment. Collusion is defined as aState employee wrongfully conspiring or cooperat-ing with another State employee or private personto harm an individual, society or the State.Nepotism is defined as a State employee wrongfullyplacing the interests of his family or cronies abovethe interests of society, the people or the State.

It should be clear from the foregoing that evenduring the Suharto era, Indonesia had comprehen-sive and far-reaching anti-corruption legislation onthe basis of which corruption at all levels could havebeen investigated, prosecuted and severely punished.Indeed, if there is a criticism to be made of the for-mal law, it is that its definition of corruption is, attimes, so broad as to be unconscionably vague. Forexample, the crime of wrongfully enriching oneselfin a manner harmful to the State,which is now pun-ishable in some circumstances even by death, is dis-turbingly imprecise, and could be a potent weaponin the hands of unscrupulous prosecutors withwhich to hound the innocent or harass politicalenemies.

This disposition towards broad, vaguely wordedcrimes has been taken even further in the post-Suharto era.The crimes of collusion and nepotism,for example, are breathtaking in their vagueness andreach.

Other DevelopmentsTwo other developments in the post-Suharto erathat can potentially deter corruption should benoted. First, there has been a substantial increase infreedom of the press.The press has used this freedomto investigate, expose and publicize a number ofcorruption cases, thereby highlighting the problemand putting additional pressure on the authorities toprosecute. Second, pursuant to Presidential Decree44/2000, Indonesia has established a NationalOmbudsman Commission. The Commission hasreceived many hundreds of complaints of allegedcorruption, including a substantial percentage (morethan one-third) involving the judiciary. This, inturn, has led to a number of prosecutions.

Foreign LegislationFinally, it should be noted that Indonesia’s compre-hensive framework of anti-corruption legislation is,to some degree, supplemented by the anti-corrup-tion legislation of various foreign countries. TheForeign Corrupt Practices Act of the United States,for example, prohibits U.S. nationals and companies,as well as foreign agents of U.S. companies, fromoffering, paying or promising to pay anything ofvalue to any foreign official, political party or candi-date for the purpose of influencing an official act ofthat official, inducing the official to act or not act inviolation of his official duty, or inducing the officialto use his influence to obtain or retain business forthe payor. (There is an exception for “grease” pay-ments made to expedite “routine governmentaction” such as procuring visas, providing policeprotection and loading and unloading cargo.)10

POLICY IMPLICATIONS

Despite its comprehensive anti-corruption legisla-tion, a newly vigilant press and the establishment ofan Ombudsman Commission, Indonesia remains avery corrupt place.What are—should be—the poli-cy implications for the United States?

As I see it, the United States should have threeoverarching, near-term goals for Indonesia.• First, a secure Indonesia, without which a just

and prosperous society is not possible;• Second, restoration of the Indonesian economy,

and regeneration of sustained economic growth;and

• Third, smooth implementation of Indonesia’snewly adopted regional autonomy initiatives.

I am not convinced that the eradication of cor-ruption is essential to achieve any of these goals.Regarding regeneration of economic growth, forexample, it is a fact that, for twenty-five years pre-ceding the economic crisis of 1997-98, Indonesiahad one of the world’s highest growth rates, despitedeep-rooted and widespread corruption. How thiscould be so is not clear, although it is now the sub-ject of study, and some provocative theories arestarting to emerge. See, for example, the work ofAndrew MacIntyre and Peter Lewis. But, for thetime being, the evidence is that economic develop-ment and corruption can co-exist in Indonesia.Accordingly, my principal policy point is that eradi-

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OLD GAME OR NEW? CORRUPTION IN TODAY’S INDONESIA

cating corruption should not be the cornerstone ofU.S. policy or a condition of U.S. aid.

This is not to say that corruption is unimportantor harmless.There are significant social, political andeconomic costs to it. I am only saying that, from aU.S. policy perspective, there are priorities evenmore urgent.

Of course, we must always insist that our aid notbe diverted for corrupt purposes; and we shouldcontinue to prohibit our own nationals from actingcorruptly, as the Foreign Corrupt Practice Act nowdoes. (Our stature and credibility in the worldrequire that we hold ourselves to this higher stan-dard.) But beyond that, at the policy level, I wouldotherwise “lay low” on the subject of corruption,and concentrate American resources for Indonesiaon other areas where, in any event, we are morelikely to be able to make a difference.

ENDNOTES1.A. Schwarz, A Nation in Waiting: Indonesia in the

1990s (Boulder:Westview Press, 1994), 135.2. Jakarta Post, February 10, 1995.

3. Reuters, October 1, 1999.4. Jakarta Post,August 1, 2001.5. Pertamina v. Kartika Ratna Tahir, 1 SLR 735

(1993).6. Dallas Morning News, February 28, 1987.7. A. MacIntyre, “Investment, Property Rights

and Corruption in Indonesia,” forthcoming.8. Jared Levinson, 18 Ariz. J. Int'l & Comp. L. 103,

112 (2001).9. MacIntyre,“Investment.”10. An interesting and difficult issue posed for

U.S. companies by Indonesia's anti-corruption legis-lation is whether such legislation is so broad thateven grease payments otherwise allowed by U.S. laware prohibited by Indonesian law.Arguably, the gen-eral prohibition on promises or gifts made to a civilservant because of his office or position would bebroad enough to proscribe even grease payments,although some Indonesian commentators and prac-titioners take a more restrictive view and contendthat mere grease payments are not unlawful for thepayor to make.

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OLD GAME OR NEW? CORRUPTION IN TODAY’S INDONESIA

Roots of Corruption in the IndonesianSystem of Governance

WILLIAM S. COLE

William Cole is director of governance, law, and civil society programs at the Asia Foundation.

Despite the tremendous rise in publicexpectation regarding counter-corrup-tion reform, corruption continues to be

as deep and persistent a problem today as it wasbefore President Suharto’s fall in the spring of 1998.This is because systemic corruption is a byproductof governing institutions that were reconstructedand staffed from top to bottom to serve as an inte-gral part of the patronage system of Suharto’s “NewOrder.” Most aspects of that system are still in placeand are now increasingly being put to the service ofnew political masters. Corruption is now so deeplyentrenched and exacerbated by today’s multipartycompetition that it probably cannot be controlledor even significantly reduced by a change in toppolitical leadership, or through any combination ofpiecemeal changes in laws or specific practices. Norwill the grafting of new oversight institutions—such as the planned Counter Corruption Com-mission—onto the present arrangement make morethan a marginal difference. Each of these steps, andothers, may be important elements in a comprehen-sive counter-corruption strategy, but none alone issufficient.

There is often inadequate international appreci-ation of the depth of the institutional, and ultimate-ly political, obstacles that must be overcome if cor-ruption is to be significantly reduced in Indonesia.A realistic assessment of the prospects for reformrequires a look back to the nature of the NewOrder governmental system constructed in the1970s and early 1980s, and to how it evolved insubsequent years as Suharto’s family effectivelyestablished rents on nearly every major commercialopportunity in the country. Such an assessment alsorequires understanding of how corruption channelshave been fragmented, and the difficulties of financ-ing intense multiparty competition in the new eraof reformasi.

A POOR INHERITANCE: THE ADMINISTRA-TIVE INSTITUTIONS OF THE NEW ORDER

Systemic corruption involves more than a lack ofintegrity on the part of individual officials. It indi-cates fundamental flaws and weaknesses in a coun-try’s governing institutions. Robert Klitgaard, in hisnow classic book, Controlling Corruption (1986),showed how corruption thrives where decisionmaking authority is concentrated in the hands of afew unaccountable officials; an overstaffed bureau-cracy is underpaid and has too much discretion;administrative and legal sanctions are nonexistent orineffective; and credible external “watchdog” organ-izations, including the press, do not have access toinformation. All these elements characterize theadministrative bureaucracy that makes up the coreof the Indonesian state.

Indonesian bureaucratic institutions today stillretain elements from the Dutch colonial administra-tion, which ended over a half century ago. Duringthe early parliamentary years of the Republic, theprofessionalism and integrity of administrative offi-

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cials remained more or less intact. In 1958, however,Sukarno established “Guided Democracy” and rein-stated the original 1945 Constitution, which provid-ed justification for a strong, centralized presidentialcommand structure. Paralleling this development,senior military officers were placed in key positionsin both the administrative bureaucracy and in thenewly nationalized industries. While the earlyRepublic was no stranger to high-level corruption,these changes fundamentally altered both the charac-ter of Indonesian governance and the pattern of cor-ruption abuses by creating a more corporatist config-uration in the service of top political leadership.

In the aftermath of the 1965 coup attempt,Suharto established the so-called New Order basedon the highly centralized presidential system inher-ited from his predecessor. Suharto still faced impor-tant constraints. For example, in the chaotic after-math of the late Sukarno period, popular legitimacyof the New Order rested on the promises of securityand development. Security meant, in part, an end tochallenges to the authority of often corrupt tradi-tional local elites, who had faced years of intensepressure—especially on land reform—from the rad-ical nationalist and communist left. Security alsomeant more military officers in key managementpositions throughout the administrative bureaucra-cy. Development initially meant economic stabiliza-tion, which was achieved in the first years of theNew Order through massive assistance from theIMF, World Bank, USAID and renewed foreigninvestment.

Corrupt practices began early in the New Order.The earliest large-scale abuses involved monopoliesin the import of cloves and the import and millingof wheat flour. By early 1973, public outrage overboth official corruption and Japanese foreign invest-ment nearly ousted Suharto. Out of that experienceemerged a new vision of how Indonesia woulddevelop—as a highly nationalist, inwardly focusedregime in which the economy, polity, and nationalculture would be even more controlled under thecentrally managed corporatist state, itself dominatedby a tight circle of patronage and loyalty under thedirection of the president. Under this vision, thestate would assume management of nearly every-thing from enforced acceptance of new GreenRevolution rice-growing technologies to fertilitycontrol in rural Javanese villages. The OPEC oil

price rise of 1973 provided the country with a mas-sive new source of revenue that suddenly and dra-matically made implementation of this authoritariancorporatist vision possible.

The extension of central authority under thisnew vision of a “development state” required a mas-sive expansion of the state bureaucracy. Between themid-1970s and the mid-1980s, the core bureaucracygrew from fewer than 500,000 to at least three mil-lion. Many of the best and brightest among youngIndonesians in that period joined the bureaucracy.The legal foundations and budgetary procedures, aswell as the bureaucratic culture that emerged duringthe next few years, virtually guaranteed that bureau-cratic corruption, both petty and grand, would per-vade. But corruption would also be organized andcontained within limits that would not seriouslythreaten broader security and development goals.

Bureaucratic corruption under the New Orderbecame systemic and routine, and was built into thevery fabric of governmental institutions.A few briefexamples illustrate how this worked:

Lack of transparency in official wage compensation:The system obscures income streams for govern-ment employees.While the basic structure of rankand pay scales is relatively straightforward, theorganization of special allowances for public servantsat all levels is more complex. More important, thestate budget is divided into “routine” and “develop-ment” expenditures—with as much of the budget aspossible moved onto the development side touphold the public perception that the government’smain commitment is “development.” Developmentexpenditures are budgeted and expended throughofficial “projects.” In fact, a large portion of the actu-al income (perhaps one half, based on anecdotal evi-dence) of all officials comes through such projects,either legally in the form of “incentives,” such as perdiems, cars, and pay for meeting attendance, or ille-gally through theft of project resources or kickbacksfrom government contractors. In fact, officials at alllevels are adept at designing annual budgets withprojects as milch cows, used to expropriate resourcesin one way or another.

Extraction of patronage resources: Like most otheradministrative systems worldwide, the Indonesiansystem is based on “rules and compliance” ratherthan on “incentives and performance.” Thus, thecapacity for innovation and efficiency is sacrificed.

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But, in theory at least, a “rules and compliance”based system—especially where educational levelsare low—restrains self-serving behavior by ensuringthat local officials merely implement plans that weredesigned by experts at the center. In fact, as the NewOrder’s top managers became increasinglyentrenched, the system became a well-oiled mecha-nism for extracting patronage resources. Some ofthese resources went to supplement income, andtherefore to consolidate the loyalty of the adminis-trative bureaucracy.However, a significant portion ofthese funds were used by the presidential palace tosustain support and buy off potential opponents.Corruption by individual senior officials made fordramatic scandals when exposed, but such feath-erbedding was secondary to a deeply entrenched,largely hidden system of “off-budget” politicalfinancing that was directed toward advancing thegoals of the Suharto regime. Explicitly, the systemwas designed to provide stability and to steadilyimprove the lives of ordinary people. Implicitly, itensured the lion’s share of power and wealth forSuharto and other elites.

Routine bribery for collective bureaucratic ends: Thereare few sanctions against routine corruption inIndonesia. The confusing thicket of regulations,restrictions, and levies built up under the New Or-der is still largely in place today. The impossibility offull compliance opens tremendous opportunities forcorruption. In a remarkably efficient system of rou-tine bribery, citizens must deal with semi-officialmiddlemen and fixers, who keep civil servants atarm’s length during money transactions and ensurepublic confusion over what is an official charge,what is the fixer’s fee, and what is the bribe. Thoughillegal, this system is far from being negatively sanc-tioned. It simply spreads compensation collectivelywithin any given agency, and, as widely noted byIndonesian observers, is relatively orderly and effi-cient.

The New Order’s integrated system of administra-tive and political control helped to obscure theboundary between the two. It is hard to tell wherethe interests and actions of Suharto’s top lieutenantsended and those of the professional administrativebureaucracy began. Under the New Order, manda-tory membership in the civil servant association(KORPRI) and, until 1998, in the Suharto regime’sde facto political party, Golkar, ensured that the

administrative bureaucracy would not develop pro-fessional independence from political leadership.The New Order state was a well-ordered patronagenetwork that existed external to and independent ofthe state institutions that it created and controlled.That network, which controlled life’s opportunitiesfor all participants in the governing system, requireda tremendous flow of resources to keep runningeffectively.A complex system of off-budget transfersand asset pools involving military businesses (mostlyphased out by the mid 1980s), large scale infrastruc-ture construction kickbacks, access to nationalresource concessions, and the president’s closelymanaged “foundations” kept this system working.

While enormously corrupt, the New Order sys-tem of governance, propped up by oil revenues, didyield steady improvements in the quality of rural lifethrough the 1970s to the mid-1980s. In 1986, how-ever, the dramatic fall in oil prices left the countryfacing a major budgetary shortfall. Over the nextcouple of years, the Suharto government made anabrupt and impressive about-face, embracing priva-tization and deregulatory reforms that rapidlymoved the manufacturing sector from an importsubstitution industrialization (ISI) model to anexport oriented industrialization (EOI) model,while at the same time freeing up agricultural pricesand reducing subsidies. These changes withdrewmonopoly licenses that Suharto had passed out aspatronage primarily since the late 1970s. By theearly 1990s, the only heavily protected industrieswere those directly linked to the president’s imme-diate relatives and closest cronies. New export-relat-ed opportunities opened up in plantation agricul-ture (such as palm oil) and export manufacturing (insuch areas as furniture, plywood, and garments).Banking was also deregulated, and nearly all thelarge well-connected Indonesian conglomeratesopened their own banking ventures. Foreign invest-ment poured in, but lack of effective regulatoryenforcement mechanisms and of a sound commer-cial law system drove corruption to new heights.Uncertain foreign investors tended to seek the secu-rity of partnering with the president’s family orclosest associates. By the mid-1990s, the presence ofSuharto’s children was felt in nearly every majorsector, where they seized most new economicopportunities—often in tight competition with oneanother.

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At the highest levels, senior administrative offi-cials were expected to provide protection andopportunity to the Suharto family and to cronyenterprises. In my experience, there was at theworking levels within the administrative bureaucra-cy a great deal of dismay and grumbling at the rapa-cious character of the large conglomerates (thoughthe sharpest criticism tended to focus on Chinese-owned firms). All the same, corrupt practices—entrenched, systematic and built into the administra-tive systems—were viewed as the normal state ofaffairs.

By the end of the 1990s then, two closely inter-related systems of rent-seeking and patronage gener-ation had come to exist side by side. The firstinvolved routine bribery and official manipulationof budgets and government projects in a highlystate-dominated economy. The second centered onthe president’s own family and closest cronies, andfed off the still incompletely liberalized and poorlyregulated market economy.

REFORMASI: NEW PLAYERS WORKING THE

OLD CORRUPTION CHANNELS?

Suharto’s quick and chaotic departure signaled anend to the relatively tightly managed system ofpatronage generation.The Habibie government wasin many ways a last-gasp continuation of the NewOrder, though the economic crisis and popular out-rage put a temporary crimp in corrupt practices.Still, serious accusations of corruption against bothGolkar and Habibie’s family continued to surfacethrough that brief period.

Abdul Rahman Wahid’s administration was thefirst partial attempt to cut loose from the old ways ofgoverning, although efforts to bring to justice keyperpetrators was minimal. Under President Wahid,the old system was largely separated from its “prop-er” mooring under top political (presidential) man-agement. Even so, Wahid and his associates in theNational Awakening Party (PKB) were accused ofvarious abuses—nothing on the scale of the Suhartoyears, but still devastating when exploited by oppo-nents amid inflated popular hopes for reform.

Megawati may be able to at least partially recon-struct the administrative bureaucracy side ofSuharto’s patronage system, having appointed NewOrder stalwarts who understand how the old system

worked and were adept at working it. But she willhave to control appointees outside her own party.How she will deal with the crony capitalist side ofthe patronage system is still not clear. In an impor-tant speech, Megawati announced that her familymembers were not to be involved in any corruptpractices, and that if anyone was approached in theirname it would be under false pretenses. Yet,Megawati, like her competitors, will face costly elec-toral contests at the national and local levels in acouple of years, and those costs will need to be cov-ered somehow.

This points to a new challenge that has arisenwith democratization. According to Teten Masdukiof the Indonesia Corruption Watch and others, thepattern of high-level corruption has changed. It isnot just that renegade individuals or cliques areexploiting what remains of the old system for theirown benefit, or that Golkar has inherited certainelements of the old patronage system. If Masduki iscorrect, the highly competitive political parties havehad to establish their own patronage networks. Inthe new multi-party structure, parties have to com-pete for funding, massive injections of which arenecessary in a large, complex country such asIndonesia. For the most part, such funding comesnot from members but from still-powerful commer-cial interests built up under the New Order system(such as businesses and cronies), from politicalbureaucrats, and through the pillaging of cash flowsfrom state-owned enterprises. In the past, Suhartoshaped the institution of the presidency so as to beable to direct major decisions—his power being notonly institutional but also based on personal, indi-vidual relationships.Today, many of the key politicalactors are outside the circle of presidential control.Therefore, opportunities and channels for corrup-tion have fragmented, at the same time the numberof political parties needing financing has multiplied.Once they have succeeded in winning parliamen-tary seats, parties must negotiate a share of cabinetand other positions in order to continue to tap intofunding. A party that fails to do this effectively willfind itself relegated to mere opposition status, withlimited prospects for competing successfully infuture elections.This scenario of the new pattern ofcorruption is supported by the research of GeorgeAditjandro, who has been tracking the remarkablesaga of alleged abuses by key figures around each of

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the new Presidential administrations as well as bythe main parties.

Whatever the moral predilections of top politicalfigures—and this is no doubt a mixed bag inIndonesia as elsewhere—hard financial realities arenow shaping the new democratic game of politics,patronage, and corruption.Wahid’s administrationwas no exception. Despite initial commitments tofundamentally transform the politics of the NewOrder, corruption remained both a critical preroga-tive and (apparently) a necessity of power, if not inscale then at least in substance. Megawati’s cabinetchoices appear to reflect a political calculation favor-ing stability, in which she is unlikely to punishoffenders from the past. More important, whateverher administration’s commitments to reducing cor-ruption, she still faces the challenge of financing herparty’s next electoral campaigns at both local andnational levels. Her domestic challenges—politicaland electoral—will likely intensify, given her gener-ally pro-U.S. stance following the events ofSeptember 11.

Given intense press scrutiny in the post-Suhartoera, as well as heavy competition by parties toexpose one another, high level corruption that istied directly to the president’s inner circle and togovernment positions held by opposition partiesmay actually decline. However, the economic dam-age will be just as bad or worse than before, sincethe corruption is less organized and controlledacross the governance system as a whole. Businessescan live with a certain level of corruption if resultsare guaranteed, but the environment becomes lesspredictable if there are multiple and competing cen-ters of independent political actors seeking rents.

CONCLUSION

For many Indonesians, deep corruption was closelyassociated with the ruling style and character ofSuharto and other senior New Order leaders. It wasassumed by many that the problem would correctitself with democracy and new political leadership.This explains, at least in part, the nearly obsessivefocus by anti-corruption activists on legal retribu-tion against Suharto and his cronies, and on recoveryof the alleged billions that they have stolen. Yet if, asI have argued here, Indonesia’s governance systemwas built from top to bottom to function not just as

a command and control apparatus, but as a patron-age generating machine, then piecemeal legal orinstitutional reform may not be enough. Nor willgrafting new oversight layers onto the existing sys-tem accomplish more than cosmetic improvement.What is needed is fundamental reform of the NewOrder administrative system, combined with politi-cal finance reform to keep the new political partiesin check.

Can Indonesia achieve this scale of counter-cor-ruption reform? If we have learned one thingworldwide, it is the indispensability of strong andcommitted political leadership.The process cannotbe driven from the outside by the internationaldonor community. Nor can a handful of even high-ly committed activist NGOs and journalists domuch by themselves, even if they succeed at drawingpublic attention to the cause. Unfortunately, howev-er, top leaders are not likely to attend seriously tothe fundamental problems built into the administra-tive system. In an environment of intense multipartycompetition where every party desperately needsfinancing and where none is likely to emerge domi-nant, any major attempt reform by political leaderswill be self-defeating. In the final analysis, I believethat significant progress toward reduction of corrup-tion in Indonesia, as elsewhere in Asia, will requirepowerful new alliances that unite domestic civilsociety, the independent business community, andinternational actors. Such an alliance must focus ondefining a concrete anti-corruption agenda—including both fundamental administrative reformsand party/campaign finance reforms—and thenhold political leaders accountable for progress onthat agenda. Unfortunately, Indonesia is still a longway from fulfillment of these conditions.

It is not yet clear whether time is on the side ofreformers. Still unparalleled in modern Asia is theextraordinarily broad coalition of interests thatemerged in the Philippines to end the looting by theMarcos regime.That coalition encompassed inde-pendent business, the powerful landowning class, theChurch, organized labor and the agrarian poor.Yet,that movement was politically unsustainable. Morethan a decade would pass before serious politicalcommitment for counter-corruption reform,backed by the middle class, emerged and crystallizedaround the anti-Estrada movement (EDSA II). Evennow, much of the battle for institutional reconstruc-

tion lies ahead. But overall, the Philippines seems tobe moving in the right direction. In Thailand, too, apeaceful, middle class led revolution is quietly takingplace, though the nearly decade-old movement is farfrom complete. The 1997 constitution—which is,in effect, a vast counter-corruption agenda—was awatershed in terms of reform. There are growingquestions about how far reformers can go in imple-menting the constitution, and the old guard is put-ting up a credible fight against change. Nonetheless,significant progress has already been made in recentyears toward breaking up the old mechanisms ofbureaucratic power and corruption, and toward dis-placing the new corrupt business-based politicianswho sought to take over these mechanisms in the1990s. Despite the short-term difficulties, the expe-rience of these ASEAN neighbors may auger wellfor the long-term prospects for counter-corruptionreform in Indonesia.

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OLD GAME OR NEW? CORRUPTION IN TODAY’S INDONESIA

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ASIA PROGRAM SPECIAL REPORT

THE WOODROW WILSON INTERNATIONAL CENTER FOR SCHOLARSLee H. Hamilton, Director

BOARD OF TRUSTEESJoseph A. Cari, Jr., Chair; Steven Alan Bennett, Vice Chair. Public Members: James H. Billington, Librarian of Congress; John W.Carlin, Archivist of the United States; William R. Ferris, Chair, National Endowment for the Humanities; Roderick R. Paige, Secretary,U.S. Department of Education; Colin L. Powell, Secretary, U.S. Department of State; Lawrence M. Small, Secretary, SmithsonianInstitution; Tommy G. Thompson, Secretary, U.S. Department of Health and Human Services. Private Citizen Members: CarolCartwright, John H. Foster, Jean L. Hennessey, Daniel L. Lamaute, Doris O. Matsui, Thomas R. Reedy, Nancy M. Zirkin.

WILSON COUNCILCharles S. Ackerman, B.B. Andersen, Cyrus A. Ansary, Charles F. Barber, Lawrence E. Bathgate II, Joseph C. Bell, Richard E.Berkowitz, A. Oakley Brooks, Thomas J. Buckholtz, Conrad Cafritz, Nicola L. Caiola, Raoul L. Carroll, Scott Carter, Albert V. Casey,Peter B. Clark, William T. Coleman, Jr., Michael D. DiGiacomo, Donald G. Drapkin, F. Samuel Eberts III, J. David Eller, Sim Farar,Susan Farber, Barbara Hackman Franklin, Morton Funger, Chris G. Gardiner, Eric Garfinkel, Bruce S. Gelb, Steven J. Gilbert, AlmaGildenhorn, Joseph B. Gildenhorn, David F. Girard-diCarlo, Michael B. Goldberg, William E. Grayson, Raymond A. Guenter, VernaR. Harrah, Carla A. Hills, Eric Hotung, Frances Humphrey Howard, John L. Howard, Darrell E. Issa, Jerry Jasinowski, BrendaLaGrange Johnson, Dennis D. Jorgensen, Shelly Kamins, Anastasia D. Kelly, Christopher J. Kennan, Michael V. Kostiw, StevenKotler, William H. Kremer, Dennis LeVett, Harold O. Levy, David Link, David S. Mandel, John P. Manning, Edwin S. Marks, JayMazur, Robert McCarthy, Stephen G. McConahey, J. Kenneth Menges, Jr., Philip Merrill, Jeremiah L. Murphy, Martha T. Muse,Della Newman, Paul Hae Park, Gerald L. Parsky, Michael J. Polenske, Donald Robert Quartel, Jr., J. Steven Rhodes, John L.Richardson, Margaret Milner Richardson, Larry D. Richman, Edwin Robbins, Robert G. Rogers, Otto Ruesch, B. Francis Saul, III,Timothy R. Scully, J. Michael Shepherd, George P. Shultz, Raja W. Sidawi, Debbie Siebert, Thomas L. Siebert, Kenneth Siegel, RonSilver, William A. Slaughter, Wilmer Thomas, Norma Kline Tiefel, Mark C. Treanor, Christine M. Warnke, Pete Wilson, DeborahWince-Smith, Herbert S. Winokur, Jr., Paul Martin Wolff, Joseph Zappala, Richard S. Ziman

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