Corruption Diagnostics Prescribing a Reform Agenda for Indonesia

Corruption is “use of public office for private gain” Why study Corruption - Hurts Growth (hurting innovative activities and distorting budgetary priorities) - Leads to huge immediate and lingering economic losses After discussing on the definition, the following two points discuss on why it is necessary to talk about corruption.

Why study Indonesia Measure Indonesia status World Bank Governance indicator Ranks among bottom 10% Transparency International CPI Consistently ranks among worst; most corrupt country in 1995 World Economic Forum Ranks midway and lowest among Asian peers

Corruption Diagnostics Corruption = F (rent, risk) Rent High High corruption Watchdog systems Low Corruption potential Low corruption Risk

Corruption Diagnostics (contd.) Wholesale corruption targeting versus focusing on specific sectors Finding the Primary Root Targeting corruption reduction/ reforms on Primary Root This section will compare corruption to growth; we say that the point of focusing on Primary Root is to obtain the maximum bang for the reform buck a la Hausmann et al.

Diagnostic Framework High rent Low risk Natural endowments Economy structures and nature Value systems Incidence of political transition Quality and performance of Institutions Management of natural resources – are they leading to poorer administration and management in the country? Civil society, public information and media Electoral and political processes Branches of government Executive, Legislature & Judiciary Administration and civil services Oversight and regulatory mechanisms Rule of law

Analysis of corruption in Indonesia Maximizing World Bank’s investment in reforms Application of corruption diagnostic in Indonesia

High rent Low risk Natural endowments Economy structures and nature Value systems Incidence of political transition Quality and performance of Institutions Civil society, public information and media Electoral and political processes Branches of government Executive, Legislature & Judiciary Administration and civil services Oversight and regulatory mechanisms Rule of law Value systems imply emphasis more on cooperative (Asian) values rather than valuing fairness and prosecution; political transition with change from autocratic to democratic regime; the institutions of judiciary and civil services were ill-equipped to deal with transition and also dealing with the work load and demands of a democratic society; State conclusion here that Indonesia suffers from poor judicial system compounded by an inefficient civil service that was unable to help make the smooth transition to a democratic system. Fares well Cause for concern Primary root of corruption

Policy options for judiciary reform Introduction of special courts Setting up of Vigilance Committees Introduction of merit-based promotions in courts Sector-specific salary increases

Policy recommendations Addressing judiciary, civil service and political transition history From discussion with Schauer