Dan Murphy, Jakarta – Lucrative deals no longer flow to former President Suharto's children and some of his best-known cronies. But for most of Indonesia's elite, the tight links between business and politics remain intact.
Despite grassroots campaigning against corruption and legislative attempts to level the playing field, old ways are proving resilient, reports the latest edition of the Far Eastern Economic Review published Thursday.
It's no wonder. Suharto may be gone but most officials who worked under him remain, beginning with President B.J. Habibie, Suharto's protege and longest-serving minister. When he took Suharto's place amid massive demonstrations last year, Habibie vowed to "stamp out corruption." But that would require fundamental reforms such as putting government supply contracts out to tender, and eliminating reliance on middlemen – who often have relatives in government. So far, only spotty attempts at such reforms have been made.
"The corrupt culture of governance hasn't changed and I would argue that in the present government, the hanky-panky has even gotten worse," says Rizal Ramli, director of the economic consulting service Econit and a long-time government critic. He claims the number of officials reaching for kickbacks has increased ahead of legislative polls due in June and the selection of a new president in November.
"We're now in this temporary time where the officials are afraid the next regime could clean them out, so they're grabbing what they can," agrees Teten Masduki, a lawyer and coordinator of Indonesian Corruption Watch, a non-government organization.
Meanwhile, the government is expanding its role in the economy exponentially as it nationalizes much of the banking industry and threatens to seize billions of dollars in assets from bad debtors. The intervention is needed to clean up the financial system, but it also increases the scope for corruption. "You certainly have to be worried, given the government's track record when it comes to allocating capital," says a bank regulator.
During his first weeks in office, Habibie appointed his brother, Junus Effendi, to run the Batam Island industrial development zone near Singapore – a post that Habibie himself held for years. A public outcry followed and Junus resigned, saying he didn't want his brother to be dogged by nepotism charges. Other Habibie relatives have extensive business ties with government agencies: Brother Timmy's Timsco Group has built much of Batam's infrastructure.
In a quiet signal of no-confidence in the government's honesty, the World Bank in April postponed a $600 million loan to Indonesia's social-welfare program. Bank officials say privately that they feared the funds would be diverted to the campaign coffers of Golkar, the party of Suharto and Habibie.
Citizens far from indifferent
Ordinary Indonesians are far from indifferent to the price they pay for endemic corruption. Students have marched repeatedly on Suharto's lavish Jakarta home to demand an accounting of how he and his family obtained their wealth. Corruption-watch groups have sprung up across the nation, and newspapers feverishly report corruption allegations that would have been unprintable during the Suharto regime.
Aware of the public mood, the legislature has drafted several clean-government bills; one would require public officials to disclose their wealth upon entering and leaving public posts. However, it does not require disclosure of family members' wealth – a major loophole.
Habibie appointed an anti-corruption team in November headed by Hartarto Sastrosunarto, a 31-year veteran of Suharto's government and now minister for development supervision. Hartarto promised to "fight nepotism." But his relatives own dozens of companies and in February one of them – Mahaka Niaga Perdana, owned by son-in-law Muhammad Lutfi – received a $110 million government contract to supply 400,000 tons of imported rice to the Bureau of Logistics, or Bulog.
Mohammad Ismet, an official in Bulog's stock and supply office, says the price was $277 per ton. That was 22% above the February spot price for rice, but, according to Mohammad, was 10% below what Bulog had agreed to pay another company in December; that company failed to deliver. (During preparation of this article, Hartarto was overseas and didn't respond to questions relayed by his secretary; attempts to reach Lutfi by telephoning his office were fruitless.)
Under pressure from the World Bank and International Monetary Fund, Bulog briefly adopted an open-tender system last year. But Mohammad says open tendering is not required and was not used in this case. Other government offices also report a lack of standardized procedures: "Most of our outside contracts are done on an ad hoc basis. There is no special procedure required," says Mohamad Rosul, head of the Finance Ministry's planning bureau.
Habibie's government last year canceled hundreds of contracts that it said were unfairly awarded – many by state oil company Pertamina (P.PTM) for middleman services from companies controlled by the Suharto family. But oil contractors say some of the companies simply renegotiated lower prices and resumed business. (Pertamina didn't respond to faxes and phone calls seeking comment.)
During Suharto's last months, as a condition for receiving IMF loans after the rupiah crashed, the government ended a host of import and distribution controls that fostered monopolies, such as those in wheat and cloves. The legislature has since passed a law that bars companies from holding more than a 50% market share in any industry. But lawyers say it falls short because it exempts state companies and focuses on market share while ignoring anti-competitive practices.
Ultimately, any battle against corruption must be joined in the courts. But judges are poorly paid and appointed by the executive branch. "The first step is to make the legal system independent," says Laksamana Sukardi, an adviser to presidential hopeful Megawati Sukarnoputri. "Nobody wants their cases taken to court because they know the judges are dishonest and can be bought."
Public hopes for thorough reforms have been pinned on the election of a new government. But doubts and cynicism are setting in as Golkar flexes its grassroots muscle. One change seems certain no matter who wins: Power – and hence favors – will be shared more widely than under Suharto. Suharto's family and friends built their business empires over his three decades of authoritarian rule. The next president's powers will be checked by a new array of opposition parties and demanding local governments. That won't ensure a clean business environment, but it may at least make cronyism more competitive.