Indonesia: Governance Partnership Initial Participant Survey Results and Selected Issues for Discussion Background Handout Prepared by World Bank as input to participatory discussions during October 10th Video-Link and subsequent discussions The final results of this participant survey (once all entries are in) and further materials on governance can be found at: http://www.worldbank.org/wbi/governance

Corruption can change Over Time (Selected Countries; ICRG index, rescaled 0-10) 10 High corruption Indonesia El Salvador 8 Russia Indonesia 6 Russia 4 Firm’s Senior Management Time Spent with Officials Do the bribes paid by firms make life easier for them? Not necessarily; as it turns out, firms that pay more bribes end up spending more (not less) time with bureaucrats. In Russia, various estimates suggest that senior managers/owners of SMEs end up spending between 20-30 percent of their time negotiating with officials. Excessive control by officials over enterprise translates into excessive regulations, inordinate amounts of time spent by the enterprise’s owner with bureaucrats, and bribery. Our evidence suggests a very close association throughout the world between the extent of bribery and (higher) senior management time wasted with officials on licenses, as well as a close association between bribery and higher cost of investing and cost of capital for firms. Thus, we find no empirical support for the traditional “grease” argument, which suggested that petty bribery can help oil the squeaky wheels of commerce in developing countries. To the contrary, the business community ends up losing by bribing. El Salvador Poland 2 Poland Low corruption Finland Finland 1988-92 1992 1993 1994 1995 1996 1997 1998 7

Respondents’ Occupation Governance Partnership Participant Survey Initial Results (IGOPASU; as of October 9th, subtotal of 40 responses) Respondents’ Occupation IGOPASU Initial Analysis of Participant Responses from survey (IGOPASU) for Indonesia Governance Partnership Workshop. Based on 40 responses.

Extent and Cost of Corruption IGOPASU

Most Vulnerable Institution (misgovernance) % of respondents IGOPASU

Most Vulnerable Institution(by occupation) IGOPASU

Main Obstacle to Transparent Justice IGOPASU % of respondents IGOPASU Note: no respondent chose lack of training or job security

Main Obstacle to Transparent Justice (by occupation) IGOPASU Note: no respondent chose lack of training or job security

Key Focus in Short Term (Likely Early Wins)? % of respondents IGOPASU

Most Important Short Term Focus/Measure (by occupation) IGOPASU

Main Governance Partnership Ally? % of respondents IGOPASU

Main Ally for Governance Partnership (by occupation) IGOPASU

Best Role for Donors? % of respondents IGOPASU

A simple Formula synthesizing Governance/Anticorruption: National Governance: Challenges in Integrating Anti-Corruption Into Institutional Change A simple Formula synthesizing Governance/Anticorruption: IG and AC = KI + LE + CA Improving Governance and Anti-Corruption = = Knowledge/Info.Data + … ...+ Leadership (incl. Political) + ... ... + Collective Action (change)

Anticorruption: 8 common myths Complementing previous Survey Results, from other materials... Anticorruption: 8 common myths Government the ‘driver’ in Anti-Corruption (A-C) Awareness-Raising and Educating population is key Need to study the full situation anew before any action It is perfectly well known what needs to be done Paramount: A-C Autonomous Agencies/Commissions High Pay to public service for combating corruption It is central to fight bureaucratic corruption Strict Enforcement approach: ‘A-C campaigns’

Control of Corruption: Aggregate Research Indicators (Out of 155 worldwide, selected countries, 1998)* POOR GOOD Source: ‘Governance Matters’, PRWP 2196 by Kaufmann, Kraay and Zoido; based on data from 1998. For details and data, visit http://www.worldbank.org/wbi/governance There is a margin of error (thin line); extreme care in interpretation is needed.

Broadening our Perspective: Assessing Governance Control of Corruption (or Graft) Rule of Law Absence of Regulatory Burden Government Effectiveness Voice and Accountability (Civil Liberties) Political Stability and lack of Violence

Civil Liberties Corruption/Absence of Rule of Law & Civil Liberties High Corruption [and Absence of Rule of Law] Low Not Free Partly Free Free Civil Liberties Based on averages of data from 160 countries.

Parliamentary legislation Central Bank Influence Firms Reporting Negative Impact of High Level Corruption ‘State Capture’ Source: WBES Survey 1999, 20 transition countries 50 % 45 % 40 % 35 % 30 % %of all Firms report negative impact of grand corruption 25 % 20 % 15 % 10 % % 5 Hungary Estonia Russia Azerbaijan Adverse Impact of ‘Purchases’ of: Parliamentary legislation Decrees Central Bank Influence

% Firms that pay public procurement kickbacks (of those that trade with the state)

Enormous Social/Economic costs of state capture: Much lower growth in sales and investment in economy

Another bad result: weak property rights Firms reporting insecure property and contract rights % 80 70 60 50 % of All Firms 40 30 20 10 Lit Est Uzb Pol Sln Hun Azer Cro Slk Geo Bul Arm Bel Rom Cze Kaz Kyr Rus Ukr Mol

Lower Income Households ‘Pay’ Disproportionally Bribe/Total Income ratio % ( A Latin American Country )

In diagnostic in Latin American Country it is found that lower Public Sector Salary does not Increase Bribery 15.5% 15% Bribe* = 3MS 12% 8.4% 9% 7.7% Bribe* Bribe* = 6% = 0. 2MS 0. 5MS 3% 0% Monthly Salary Monthly Salary Monthly Salary Less than 3MS Between 3 & 13 MS More than 13 MS * Average bribe to public officials

Implications for Further Participatory Discussion Anti-corruption efforts should also focus on ‘grand’ corruption and state capture Use Broader Governance framework Incentives and Systemic Reforms vs. pure enforcement Collective responsibility and Collective Action Judiciary part of the problem or the solution? Build on work already done; no ‘wheel-reinventing’ The ‘power’ of Information and Data-Empirics Consensus and Coalition-Building is key For details, survey, and data: http://www.worldbank.org/wbi/governance/

http://www.worldbank.org/wbi/governance/ 1

Data Presented for Analysis and informing Policy Advise, not for Precise Rankings The data contained in this presentation originates from various enterprise surveys (as well as outside expert rating agencies) and are subject to a margin of error. The purpose is therefore not to present precise comparative rankings across countries, but instead to illustrate characteristics of governmental and corporate performance in order to assist in drawing implications for action. No ranking of countries or official endorsement is intended in presenting results from these external sources. Further details and data, visit: http://www.worldbank.org/wbi/governance