Indonesia's new corruption court bill, passed by parliament this week, is a setback for reform efforts and long-term economic growth, and shows how hard it is to change a culture of endemic graft. By diluting the powers of the corruption court, Indonesia risks losing some of its new-found lustre after making significant progress in fighting graft. Southeast Asia's biggest economy is back on many investors' radar screens this year, thanks to the combination of greater political stability, strong economic growth, and better security, all of which have lifted its appeal relative to its neighbors'. Jakarta hasn't enjoyed that sort of euphoria for more than a decade, largely because it had to deal with the aftermath of the Asian financial crisis and political upheaval following the ouster of the autocratic former President Suharto. The renewed appeal owes much to President Susilo Bambang Yudhoyono, elected in 2004 on promises to tackle graft, and whose success on that front helped him win a second term in July. Under Yudhoyono, the Corruption Eradication Agency (KPK), which investigates and prosecutes suspects, and the corruption court, which handles cases, have made real progress in putting scores of corrupt officials and businesspeople in jail. Indonesia's corruption ranking has dramatically improved in the past decade, up from a score of 9.3 in 1998, to 31.4 in 2008, according to the World Bank's World Governance Indicators, which are based on a range of corruption perception data and where scores range from 0-100, with 100 the best. Yet despite that improvement, it still lags far behind other Asian nations. Singapore scored 99.5 last year, while only the Philippines and Vietnam rank worse than Indonesia in the region. Right now, investors are more willing to consider higher risk for higher returns. So short term, the new corruption court law may not be seen as a deterrent, some experts say. “What matters at this stage in Indonesia is not what the law says, but what the actual level of corruption is,” said Michael DeSombre, a Hong Kong-based lawyer at Sullivan & Cromwell. “Although this development looks like it is potentially a step in the wrong direction, I do not believe at the end of the day that it would actually make much of a difference.” Almost all country risk or investment attractiveness rankings used by big investors have corruption as a key component. Goldman Sachs, for example, includes corruption and rule of law as 2 of 13 equally-weighted variables in its Growth Environment Scores. So longer term, the new law may well make Indonesia less attractive compared to its less-corrupt peers. Geckos vs crocodiles Further progress in eradicating graft is at risk because of efforts to undermine both the KPK and corruption court. The new bill dilutes the corruption court's powers by relaxing rules on the composition of the panel of judges, allowing a district court or the supreme court to decide the number of career judges, who are generally considered more corrupt, and ad hoc judges, who are seen as more independent. At the same time, the KPK's corruption-busters have come under attack from the police, in what many Indonesians refer to as the battle of the “geckos” and the “crocodiles”. When the KPK wire-tapped a senior police official and caught him soliciting a bribe in connection with a bank investigation, the police official concerned told local media that the KPK were like geckos, or tiny house lizards, taking on a crocodile. Public sympathy lies with the geckos, in a country where it is almost impossible to avoid corruption. At one level, there's the traffic cop who stops motorbikes, cars and taxis for some bogus offence. Paying up is faster than spending hours in a police station dealing with the paperwork. Local television sometimes broadcasts clips showing traffic cops brazenly soliciting money from drivers at major junctions. Services that citizens of developed countries take for granted – obtaining licences, permits and identity cards – may require small fees or “donations” to civil servants. Such petty corruption is a fact of life in Indonesia and reflects the generally low salaries for civil servants, the police, and others in positions of power or influence. “You need time to fight poverty. You have to increase the salaries, the allowances, and I think it has to do with the reform of the bureaucracy,” said Todung Mulya Lubis, a respected lawyer and anti-corruption activist. Economic impact More serious is the corruption that local and foreign investors encounter, the kind that newspapers here report on with an almost numbing sense of normality and routine: central bankers who bribe parliamentarians to get legislation passed, businessmen who bribe officials to ensure monopoly interests are protected. Such corruption is part of the reason why Indonesia has long lagged China and the region's other high-growth economies. Daniel Kaufmann, formerly of the World Bank and the man who created the governance indicators, says empirical evidence shows that improvement in any of the six areas measured, including rule of law and control of corruption, will boost long-term growth. “We estimate that a country that improves its governance from a relatively low level to an average level could almost triple the income per capita of its population in the long term, and similarly reduce infant mortality and illiteracy,” Kaufmann said.
