Transforming Indonesia: The Challenges of Good Governance and Development

image gegTransforming Indonesia: The Challenges of Good Governance and Development, a speech (abridged version) by Dr. Budiono, Vice President of Indonesia, at the Blavatnik School of Government and Global Economic Governance Program, University of Oxford on October 30, 2013. In his lecture, he discussed the challenges facing Indonesia’s development as the country seeks to ensure strong economic growth and accountable, democratic governance.

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Transforming Indonesia: The Challenges of Good Governance and Development

Learning from Indonesia’s varied and at times checked historical experience it has become increasingly clear to me that the problems of politics, economics and governance cannot be completely separated or pursued independently of each other.

This is especially true in a fledgling democracy and a developing country like Indonesia as we have to simultaneously strive to consolidate our participatory system of government, sustain economic growth and widely distribute its fruits if we wish to take the country into the realm of the virtuous circle of development.

This world view changed dramatically with the onset of the Asian financial crisis in 1997 which affected Indonesia the most, as the authoritarian system of government was seen to be part of the problem.  Henceforth Indonesia has been engaged in transforming its political system at all levels of government to become much more democratic, decentralized and publicly accountable. The key word in Indonesia’s transition was Reformasi or reform, rather than revolution. Although dissatisfactory to some who wished for more radical changes and a complete break with the past regime, the majority of Indonesians opted for an orderly and constitutional process of political transition towards democracy through a more inclusive negotiated process.

On the economic front, the key goal after the crisis was to regain market confidence quickly. While abandoning the New Order mode of restrictive political control, the transition government continued the prudent management of the macro economy that was the hallmark of the Soeharto period, thus providing a firm anchor for all other policies being pursued. All the costs of the crisis were accounted for and the government decisively stepped in by guaranteeing their resolution or absorbed them.

At the same time the crisis also forced Indonesia to undertake long overdue reforms that had been avoided during the good time. Reforms were launched to liberalize trade, to strengthen the foundations of good governance in the financial and public sectors, including making the central bank independent of government. To help the poor maintain their consumption level at the pre-crisis level, the government launched an extended social safety net program consisting of food, education and health supports.

Fifteen years have passed since the crisis and we have now come a long way. Many have argued that Indonesia’s democracy is still at the procedural level and falls short of substantive. Transactional politics and corruptions have continued seemingly unabated, distorting policies and eroding trust.

One all encompassing program to improve governance is anticorruption drive. Eradicating corruptions is now at the very top of our national agenda. Opinion surveys have consistently shown that corruptions have been viewed by the public as the number one enemy of the society. Since 2002 no less than 360 persons ranging from Parliament members, police officials, bureaucrats, bankers, governors, judges, mayors and businessmen have been put in jail by the Corruption Eradication Commission (KPK), with many more high profile scandals still under investigations.

My sense is that now anticorruption mind-set is beginning to spread steadily across the public institutions. However, it is also clear that much remains to be done. In Corruption Perception Index 2012, Indonesia ranked 118th of 176 countries, worse than the previous year (100th), even though the index itself actually improved from 3.0 to 3.2 in 1-10 scale.

One important aspect of our democratization is the devolution of power to the regions. It has important ramification on governance. The total number of new provinces and districts increased from around 330 in 1998 to around 530 at present, with widely different endowments and capacities.

The wide-ranging decentralization that began in earnest in 2001, have brought many benefits. At the same time, however, they have also opened new opportunities for corruption as more power and resources are being devolved to the regions. The large numbers of regional leaders being indicted for corruption has strengthened our conviction that eradicating corruption remains the country’s first priority.

There is another group of problems that we are now facing, namely those emanating from the relations between the legislative and the executive branches. The Parliament which acted more as a rubber stamp during the New Order has now become a truly powerful institution. The policy areas requiring approval from Parliament under our system are very wide so that many government policies must undergo vigorous and often lengthy debates.

While this is necessary in a healthy democracy, it must also be admitted that it now often takes a much longer time to pass legislation. Moreover, political self-interests can sometimes undermine necessary but unpopular policies and hard decisions or reforms can be delayed or rejected.

On the economic front, inadequate infrastructures have been a constant source of complaint, especially from the businesspeople. The Global Competitiveness Index (GCI) Report states that inadequate infrastructures, considered as “largely underdeveloped”, have remained the most serious constraints to the Indonesian economy.

I have found that the problem in infrastructure development is not merely about the money, but even more often it is about regulations and institutions. The downward trend in private investment partly reflects the regulatory and institutional challenges that investors face in doing business in Indonesia.

Physical infrastructures are clearly very important. But perhaps a more challenging task is improving the business environment and the quality of public services, all of which directly hinge on our programs to reform the bureaucracy.

An important initiative that I wish to mention here is the launching of a computerized recruitment system which has enhanced transparency, improved the quality of the recruits and saved money. We have also taken actions to improve the ease of doing business, some of them being initiatives taken by the regional governments.

Economic growth must be supplemented with social protection and social promotion policies for the poor and the vulnerable. The inclusiveness of development is critical to the creation of a large middle class and the maintenance of a strong social cohesion. Both are necessary for consolidating democracy. Together with bureaucratic reform and corruption eradication, poverty reduction has been on the highest priority list of the current administration. (Source: globaleconomicgovernance.org, The Jakarta Post and Republika) ***

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