Corruption in Indonesia: A Curable Cancer?

• Author: KING, DWIGHT Y.

"Corruption in our country is not the result of corrupt minds but of economic pressures... Eventually, when economic development has gone so far as to produce a good overall standard of living, government employees will receive adequate salaries and have no reason to practice corruption. [But] no corrupt act, even under the pretext of helping people, can be justified." --former Indonesian President Soeharto(1)

Few modern leaders have embodied Louis XIV's statement that "L'etat, c'est moi" as completely as former President Soeharto of Indonesia. One of the prime manifestations of his dominance was his blatant disregard for international norms and the extent of corruption he sanctioned. Contending that corruption was merely a matter of small bribes, kickbacks, gratuities and petty theft by underpaid, low-level government employees, Soeharto disregarded practices such as the millions of dollars in under-the-table payments made by companies to senior government officials to win major government contracts. In his view, the rules of the political game permitted him, and his aides, to bestow an assortment of benefits on crony businessmen, family members and loyal officials. These ranged from lucrative distribution and supply deals with state-owned companies, financing from state banks, preferential consideration on government-funded infrastructure projects and export/import monopolies.

It is little wonder that under Soeharto's leadership Indonesia acquired a reputation as one of the most corrupt countries on earth. Transparency International's corruption index recently ranked it the third most corrupt country in the world, behind Cameroon and Nigeria.(2) What may be worse is the perception both inside and outside the country that corruption worsened during the 1990s. Hardly a week passes without new press reports of corruption or judicial proceedings that reveal illegal payments. Worrisome as well is the perception that the incidence of corruption on a grand scale has increased exponentially. The most dramatic instance of this can be found in the pages of Time Magazine, which pegged the accumulated assets of President Soeharto and his family at US$ 15 billion in mid- 1998.(3)

Time Magazine's report argued that two factors pushed Indonesia into "a league of its own" as far as corruption was concerned. First was the cascade of funds pouring into business and real estate, with the World Bank estimating that Indonesia received more than US$130 billion in foreign investment from 1988 through 1996. Second was the impact of all six of the President's children becoming major players in business in Indonesia. An estimated US$73 billion passed through the family's hands between 1966 and 1998. It seemed self-evident to many within Indonesia that such wealth could not have been accumulated legally, particularly in light of the fact that several of the large business empires owned and run by the presidential family had been built in less than a decade.

Corruption, collusion and nepotism (korupsi, kolusi, dan nepoisme or KKN) became the rallying cry of the Reformasi forces that proved instrumental in the fall of President Soeharto in May 1998. The failure of his successor, President B.J. Habibie, to put his mentor on trial for corruption and to resolve several other high profile cases of alleged corruption, along with the crisis in East Timor, were decisive factors in the rejection of Habibie's re-election bid by the supreme People's Consultative Assembly (MPR) in October 1999. Instead, the MPR elected two leaders widely perceived as KKN-free: Abdurrahman Wahid as President and Megawati Soekarnoputri, daughter of independence leader and Indonesia's first president, Soekarno, as Vice President.

Within their first month in office, Wahid and Megawati began implementing a new corruption law and reopened the investigation into Soeharto's wealth that had been closed by Habibie's government shortly before Habibie left office. With the assistance of the newly seated House of Representatives (DPR), they also moved to expedite the resolution of the Bank Bali scandal, the most prominent case of KKN. Many Indonesians considered the Bank Bali scandal and the inability of the Habibie administration to deal with the resulting crisis that led to the temporary suspension of funding by the IMF as the coup de grace to the Habibie campaign for election.(4)

Despite the ubiquitous nature of corruption in Indonesia, this article will focus only on governmental or bureaucratic corruption. Governmental corruption differs from other kinds of corruption in at least two ways: 1) it involves the buying and selling of influence or power over public policy in ways that benefit only particular individuals or groups (e.g., families, cronies and clients); and 2) the corrupt behavior is more easily protected behind a facade of legality because of the corrupt official's position and identity (the concept of `legalized corruption'). This paper begins with a brief historical sketch of the origins of Indonesia's corruption problem, concentrating on Soeharto's New Order (1966-98), and follows with a discussion of the New Order's impact on future efforts to curtail corruption. Next, reforms are suggested and their prospects considered. Finally, I conclude by arguing that the character of the new regime of President Abdurrahman Wahid will largely determine whether grand corruption (or top-level corruption that paralyzes or distorts development) will be controlled in the future.

CORRUPTION BEFORE SOEHARTO

Some of the practices we now view as corrupt can be traced back to the classical agriculturally-based kingdoms on Java dating from around the 10th century. A king's power depended heavily on his control over resources and the loyalty of the political elite. These could be secured through coercion or by satisfying the material interests of the elite. Usually lacking sufficient coercive capacity to enforce acceptance of his rule, the ruler sought to win voluntary allegiance through the distribution of fiefs and benefices.(5) Javanese kings rewarded officials by placing them in positions in which they were expected to exploit for their own benefit. The use of official positions for self-enrichment was thus not regarded as corruption, provided that the exactions did not disrupt the economy or incite public protests. As a result, expectations or norms emerged regarding appropriate types and levels of tribute to be paid to the king, as well as acceptable levels of extraction from the people living off the land. However, it was not uncommon for unscrupulous officials bent on self-aggrandizement to breach these norms.

This pattern of traditional politics was not unique to pre-colonial Java. The German sociologist Max Weber, perhaps the first scholar to take notice of its occurrence more generally in pre-modern societies, attempted to describe and explain it by introducing the concept of patrimonialism. Subsequent scholars have used the term "neo-patrimonialism" to describe modern states exhibiting patrimonial characteristics. Harold Crouch insightfully utilized the topic of "neo-patrimonialism" to explain the relative stability of authoritarian rule in Indonesia under Guided Democracy (1959 to 1965) and the New Order (1966 to 1999). I will discuss the "neo-patrimonial" model and whether it applies to Indonesia after Soeharto later in this article.

The Dutch arrived in the Indonesian archipelago in the 16th century. During the early period of their rule, some Dutch practices resembled those in traditional Java. The salaries paid by the Dutch East India Trading Company (VOC) were nominal because officials were expected to take advantage of the opportunities open to them to carry out additional outside commercial activities. Eventually, these perquisites of office became so normal that instead of receiving even a nominal salary, an annual `office charge' had to be paid by VOC officials to the company.(6) Later in the 18th century, embezzlement and lack of transparency--which were viewed by investors in the Netherlands as corrupt business practices-were among the causes of the VOC's fall into bankruptcy and ultimate takeover by the Dutch Crown in the 19th century.

On Java, where the Dutch encountered complex and hierarchically-structured societies, the Dutch crown ruled indirectly through the hereditary aristocracy. The traditional aristocracy became a class of administrators (pamong praja) employed first by the VOC and then the colonial government. These indigenous administrators depended on Dutch power for their positions and authority rather than on their legitimacy in the eyes of the ruled. This arrangement tolerated self-aggrandizing behavior by the local elites, as long as the Dutch remained satisfied and open revolts were contained. Dutch colonial policy also relied on resident Chinese to serve as tax collectors, who were expected to support themselves on whatever margin they could extract over and above the amount levied by the Dutch colonial administration.

Corruption may have declined for several years after independence due to a combination of factors: these include the idealism generated by the revolution and the founding of the new Republic; the success of macro-economic policy in controlling inflation; and a free and critical press. In addition, an independent and aggressive judiciary willing to prosecute ministers, Army officers and political parties limited the level of corruption at the time.(7) By the mid- 1950s, corruption became prevalent again. A new type of corruption emerged in 1954 when military commands in several export-rich areas outside Java began opposing central government economic policies, favorable to import-oriented Java, by establishing smuggling operations.

Corruption on a grander scale began in the late 1950s after Soekarno launched his authoritarian system known as Guided Democracy. Parliamentary institutions were suspended...