Indonesia’s Climate of Graft Snarls Investment

When Indonesia’s longest suspension bridge suddenly collapsed last month, killing more than 20 people, allegations immediately surfaced that corruption was behind the disaster.

Police have come up with little explanation as to why the 720-meter-long structure in East Kalimantan — built just 10 years ago to resemble San Francisco’s Golden Gate Bridge — gave way, sending dozens of vehicles into the river.

But they are investigating accusations by the country’s corruption-fighting commission and others that the materials used were of poorer quality and cheaper than the construction company claimed.

“The bridge collapse is one example of how quality is being compromised by corruption, where A-grade materials are substituted with lower-grade ones. That’s very dangerous,” said the chairman of the Indonesian Chamber of Commerce, Suryo Bambang Sulisto.

“It’s common for corruption to happen at all stages in Indonesian infrastructure projects, whether it’s during the tender process or extortion along the way.”

After the incident, lawmakers called for an audit of every major bridge in the country, in which East Java alone found nine on the brink of buckling.

As developed countries remain in the economic doldrums, overseas investors have taken a keen interest in Indonesia, with foreign direct investment expected to top $20 billion by the year end.

A wealth of natural resources and a burgeoning middle class that fuels Indonesia’s economic expansion, forecast to reach 6.5 percent this year, make the country an attractive prospect.

But investors consistently cite corruption as a major deterrent and bemoan the lack of reliable infrastructure, with companies often forced to build their own roads, bridges, railways and ports to do business in the sprawling archipelago of 17,000 islands.

Indonesia’s 2011-25 development plan calls for around $440 billion of investment in highways, harbors and power plants, and to tackle crippling traffic in major cities.

According to the London-based risk consultancy Business Monitor International, high levels of corruption have “severely impeded investment in the country’s infrastructure from non-public sources.”

“Although the Indonesian government is working hard to attract private investors, there is still an underlying threat of corruption and a lack of transparency in the tendering process,” a BMI report said.

A World Bank analysis found corruption could add up to 20 percent to the existing costs of projects in Indonesia.

President Susilo Bambang Yudhoyono has won two elections on promises to tackle graft in one of the most corrupt countries in Asia, but critics say he has failed to make any genuine difference to the culture of graft and impunity.

A Gallup poll released in October found that 91 percent of Indonesians believe corruption in government is widespread, compared to 84 percent in 2006.

At an event to mark International Anti-Corruption Day on Friday, Yudhoyono called for action and told law enforcers to go after the big fish.

“We should not make this event a ceremonial thing, but let’s use it to reflect and improve our efforts to eradicate corruption in this country, especially during my term,” he said, according to his official Web site.

“What we need is action,” he said, calling on anticorruption activists and leaders of nongovernmental organizations to help eradicate graft.

But corruption is an old and deep-seated problem, said economist Sri Adiningsih from Gadjah Mada University.

“Here in Indonesia, it is a common practice for businessmen to bribe officials to get a project,” Adiningsih said.

“The government have actually placed layers of preventive measures to deal with this problem. However, we are still lacking efforts in law enforcement,” she said. “It is very difficult to tackle this widespread practice since the younger civil servants tend to follow the common practice as soon as they are involved in the system.”

Indonesia has set up several bodies to tackle graft and the country’s corruption ranking has improved slightly to 100 from 110 last year, out of 183 countries, according to a report by Transparency International last week.

Poor infrastructure has also elevated distribution costs, so that a 50-kilogram sack of cement which sells for around $9 in Jakarta can cost as much as $130 in the remote and poorly connected eastern Papua region.

“Logistics costs, which normally account for five to six percent of production costs, can eat up between 10 to 15 percent in Indonesia,” Indonesian Employers Association chairman Sofjan Wanandi said.

“If this goes on, Indonesians will likely start importing more goods instead of producing locally,” he added.



Corruption sure is not a new thing for Indonesia. What would you suggest to solve these kind of problem? What sort of action Government needs to take?




~ by extendasia on December 12, 2011.

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