Indonesia’s reform and democracy (By: Kiki Verico)

Thursday, 8 April 2010

The Jakarta Post

The most recent tax scandal within Indonesia’s most celebrated reform bureau, the Finance Ministry, has shocked people and raised questions on the effectiveness of remuneration policies in combating corruption.

Given the recent policy to increase remuneration, the government, in particular the finance minister, has justified power to impose “strong sanctions” on those found guilty, without needing to worry about opposing views, as warranted if adequate remuneration is absent.

Because the benefits of corruption are greater than those of increased remuneration, the government needs to impose severe penalties to raise the “cost of corruption” so that it outweighs corruption’s perceived benefits. This is key in curbing the cause of corruption.

The ministry’s remuneration policy is part of a larger bureaucratic reform that is in line with Indonesia’s democratic commitment. Yet success stories of reform do not necessarily relate to democracy. Take Singapore as an example. Former prime minister Lee Kuan Yew succeeded in transforming a Singapore with a poor economy into one of the world’s developed countries.

Bureaucratically, Singapore is now one of the most efficient countries in the world (Quah, 2006).

Lee also argues that authoritarian regimes book faster economic growth than those in democratic systems (Lee Hypothesis in Amartya Sen’s Democracy as a Universal Value, 1999).

Indonesia is different. She needs democracy. Without it there will be no serious reform to establish healthy economic growth. Without it there would be no Corruption Eradication Commission (KPK), decisive members of parliament, strong opposition parties or freedom of the press.

Without democracy, legal reforms against organized crime would never have happened and most cases involving corrupt officials would be covered up with lies.

Democracy creates policy reform, transparency and good supervision. The collaboration of these three factors is a vital asset for sound economic development, and assuring clean governance.

These three factors minimize Indonesia’s development shortcomings and limit its “underground economy”. Democracy and  all reform programs must be continuously maintained. Trivial cases like the current tax scandal should not cease to be heard. Indonesia’s reform programs in fact should be used to further the course of reform.

Vice President Boediono, while accepting an honorary professorship at Gadjah Mada University (UGM), argued that the more prosperous a country’s GDP purchasing power parity, the stronger the life of its democracy would be. He said a minimum GDP PPP of less than US$6,600 per capita per year was needed to ensure the survival of Indonesia’s democracy.

World Bank statistics show that at the birth of Indonesia’s democracy in 2000, Indonesia’s GNI PPP

was $2,240, which increased to $3,830 in 2008, which is still well below Boediono’s claimed survival level. Thus, Indonesia’s democracy is at risk.

There are two theories linking democracy and economic growth: (1) A new democracy is formed as a result of economic crisis or negative economic growth. Some countries in Europe turned to democracy after global economic crises in the 1970s. (2) Democracy emerges in periods of positive economic growth and in the absence of economic crisis.

The latter is refuted by two further theories: (a) Democracy is a tool to persuade prosperity.

Democracy is not born from the pressures of economic crisis, but because of political awareness.

“Political rights, including freedom of expression & discussion, are not only pivotal in inducing social response to economic needs, they are also central to the conceptualization of economic needs themselves” (Amartya Sen, 1999).

Democracy is part of the capital of development. Countries like India and Botswana are evidence of this argument. Sen continues: “Democracy is not a luxury that can await the arrival of general prosperity”.

(b) Democracy is born after a country achieves economic prosperity. The case of the  People’s Republic of China supports this argument. President Hu Jintao stated “We should continue to expand orderly political participation of our citizens and perfect our democratic system” (Bill Emmott, Rivals, 2009).

Although China’s democracy is not synonymous with western pluralism, the country’s foundation of justice, human rights and accountability, based on the Confucian tradition of bureaucratic elites, still shares universal democratic values (Daniel Bell, 2006).

Achieving a respectable GDP PPP does not necessarily mean a country’s citizens will benefit from democratic values. Indonesia could have achieved a much higher GDP PPP than today’s level if it weren’t for the 1998 economic crisis — but that would have meant it would never have embraced democracy. According to the aforementioned patterns, Indonesia can be classified as “model-one”. Its democracy was born because of an economic crisis.

This proves that Indonesia would not have embraced democracy if it weren’t for the 1998 financial crisis, which triggered Suharto’s resignation. Unlike Greece, Spain and Portugal, which experienced economic transformations from authoritarian regimes to democracy in conjunction with the European Economic Community in 1980s, Indonesia and its Southeast Asian neighbors who suffered the 1998 crisis conducted their own economic reforms without outside help.

Indonesia’s democracy was unplanned. Indonesia suddenly entered into the democratic world with true freedom of the press, multi-party politics, transparency,  proper decentralization, participatory development planning and a significant reform policy that covered all aspects of governance, including legal and bureaucratic systems.

In the article titled “A Simple Theoretical Model of Bribe Uncertainty”, University of Indonesia Professor Ari Kuncoro discusses the positive impact of Indonesia’s democracy, namely decentralization.

At first, regional autonomy was seen as a means to decentralize bribery. Corruption moved vertically from the central government to local governments and shifted horizontally once many agents had become involved. This is called the phenomenon of “overgrazing the commons” (Treisman, 2000).

However, bribery did not  provide business certainty due to overlapping powers of veto among regulators.

Kuncoro proves that these uncertainties have a greater impact on entrepreneurs who are not able to persuade bureaucrats, such as small firms, non-exporters and local businessmen.

In general this study proves that decentralization has positively impacted supply-based economics because bribery’s increased uncertainty in itself creates disincentives to bribe.

Indonesia’s decentralization policy, which enforces tight supervision by independent institutions, including the KPK, will convince the public that democracy is valuable even for new democracies like Indonesia, which faltered in the beginning.

Indonesia needs a democratic system to execute its proper reform programs and good reform programs will ensure Indonesia’s stable democracy. So for Indonesia, democracy and reform programs are “inseparable twins”.

The writer is a PhD Student on the GSAPS Program at Waseda University, Tokyo, and a researcher at the University of Indonesia’s Institute for Economic and Social Research. (The Jakarta Post)