Pidato CGI 3 (dalam bahasa Inggris)

MENTERI NEGARA PERENCANAAN PEMBANGUNAN NASIONAL/KEPALA BAPPENAS

IMPROVING GOVERNANCE
Consultative Group for Indonesia
Bali, 22 January, 2003
Kwik Kian Gie

Mr. Chairman,
Excellenties,
Ladies & Gentlemen,

May I welcome you all to Bali and I hope you have a chance to enjoy the beauty that Bali offers her guests. I am very glad that only three months and ten days after the bombing in this island, all of you gather here today without feeling of fear (at least that is what I hope). I still remember with sorrow that some of your countries imposed travel ban or travel restriction to Indonesia. What I still wonder is whether the state budget for 2003 that was ammended so abruptly in a panic should not be revised again, now that Bali is save and the occupancy rate of the hotels is recovering nicely.

Unlike the case in previous CGI meetings, this time the topic given to me concerns Improving Governance. This topic has been the subject that I have pondered about for decades before the downfall of President Soeharto.

In 2000, when I was the Coordinating Minister in the Cabinet of Abdurrachman Wahid, this issue became the focus of attention. It, however, never got off the ground, due to factors that I will elaborate later on.

For me, Improving Governance is not an independent issue and is not the main problem faced by this nation. The main issue encountering the Indonesian people is KKN (Indonesian acronym for Corruption, Collusion and Nepotism) that has made human resources to become decadent. Decadence of character, value system and morality of many among the ruling elite of the Indonesian people has devastated just about everything, including government institutions and their working mechanism. So long as this decadence of the human factor still persists, the Improving Governance concept, no matter how well designed, becomes futile. It would be futile, not only in spite of already having a well designed concept, but even after having formed the perfect organization including its system and procedure. I observed with concerned that so much money and energy have been wasted by people who are not knowledgeable about Indonesia for the development of concept and for building the insitutions, and then let them be manned by corrupted people.

Is it not obvious that after 32 years of the presence of so many international agencies in Indonesia, the KKN and flawed policies are getting more and more severe ? That is because the already decadent human factor, by using his extremely intelligent capacity , will make sure that the already reformed organization becomes inoperable, because a perfectly operating organization will hamper his corruption interests.

This, however, does not imply that developing the organization becomes useless. But the prerequisite for good governance is no doubt the eradication or the significant lessening of KKN. I will shortly explore the relationship between the crucial factors of government organization that are synergetic with efforts for eliminating the corrupted morality and mind of the human factor.

The Carrot and Stick Concept

The concept to eradicate corruption is very simple. It is the carrot and stick. The effectiveness of this approach has been proven by many countries, among others Singapore, and is currently being implemented in the People’s Republic of China.

“Carrot” refers to the net income of civil servants and those in the military and police force, which is clearly adequate to cover the costs of living at standards that are commensurate with the corresponding education, skills or expertise, leadership, rank, and standing. If necessary the income is fixed so high that it is not only sufficient for decent living, but also adequate for “respectable” living.

“Stick” refers to punishment : when all of the needs are met and one still commits corruption, then the punishment must be severe because there are no more reasons to justify the acts of corruption.

Salary System

Let me start with salaries as the appropriate carrot. Current salary structures are complex. On top of the basic salary, there are all kinds of allowances both monetary and in kind typically tied to rank or position. But the salary structure and systems of promotions do not appear to be linked to merit and abilities. And this should be changed. The greater the work-load and responsibility, the higher should be the net income.

This implies that the salary structure should be in line with market realities. The President of the Republic of Indonesia’s salary is lower than that of the president director of a state-owned enterprise and the net salary of a cabinet minister is lower than that of a middle-ranking employee of IBRA. It is no wonder then, if you put a person in a uniform and give him $ 50 a month, corruption will flourish. Thus we need to start with reforming our civil service salary structure so that it is just and based on merit.

Reforming and Streamlining the Bureaucracy

The total number of our state personnel is approximately four million persons. If we take a cursory look at the size of buildings of departmental, non-departmental, and of other government agencies, the immediate question that comes to mind is : how many government personnel members are working in those buildings? Even more difficult to imagine is what they are all doing during working hours.

Such a large number of civil servants is related to the fact that since the founding of the Republic of Indonesia, no audit has ever been carried out with regard to the structure of organisation, the number of personnel, lines of command, span of control, decision making system and procedure, etc.

This consequently led to the application of what in organisation and management theory is referred to as the Parkinson Law. This theory states that a man always has a need to be regarded as being important by his environment. The symbol of his importance is the total number of his subordinates in the organisational structure. Thus unconsciously, every person in the organisation wants to show how important he is by appointing subordinates. The greater the total number of his subordinates, the more important is his position in society. In accordance with this theory, every organisation has a tendency to continue to balloon regardless of its actual needs.

In a private company organisation, which is often far bigger in size than in a government ministry, it is a common practice to periodically, such as every 3 to 5 years, audit its organisation. Here organisation and management experts assess whether the organisation is still optimal to achieve the objectives of the relevant organisation.

In the audit procedure, the experts and consultants do not look at the existing organisational structure. Instead, they exhaustively interview the chief executive officers on the objectives to be realised by their organisation. The results of the interview are then profoundly analysed. The experts and consultants then use their expertise to design an organisation that exactly and optimally can realise the objectives of the organisation. The design does not only pertain to the structure but also the total number of personnel, their qualifications, duties, responsibilities, decision making system and procedure, the communication system, and the span of control of the organisation.

After formation of the ideal organisation has been completed, then in-depth discussions are conducted with the key executive members for making further improvements. When the relevant organisation structure is judged as already suitable and the executive leadership truly has a sense of ownership of such organisation, then they automatically will have a high commitment to realise it.

The whole design and explanation of such optimal organisation are then compared with the existing organisation. It can almost be assured that the existing organisation is too bulky, haphazard, with confusing and overlapping lines of command, and so on. It is the duty of the executive leadership of the organisation to adjust the existing organisation, if necessary with the assistance of the management consultants.

This procedure is referred to as the structure follows strategy approach. It is the reverse of the thus far commonly implemented procedure. In our case, every time a new organisation is formed and the old one is reformed, the first thing to do is to draw the organisation structure which we are already familiar with, namely by drawing empty square boxes along vertical and horizontal lines. When the structure is completed, each of the empty square boxes are then filled with the names of the persons to be appointed for the positions designated in the respective boxes. This procedure is extremely erroneous, but has nevertheless been followed by people who are ignorant of organisation and management principles. This wrong procedure is called the strategy follows structure method. It is thus evident that strategy has become subservient to the previously imposed organisation. How would it be possible under such approach to effectively attain the objectives ?

We can imagine what our bureaucracy has become after 57 years never having been audited. And just imagine how otherwise, the total number of the civil servants could have been reduced that would have resulted in huge savings in the government budget.

What is the relationship between the bureaucracy reforms described here and the eradication of corruption? There is a strong relationship. I am convinced that if the bureaucracy is structured in accordance with the needs to achieve optimal objectives, the total number of civil servants could be substantially reduced. Substantial expenses for salary, work space, office equipment, electricity and travel expenses, could be saved. The other side of the coin would be funds made available for increasing net income in the context of applying the carrot and stick method. With obviously adequate or even comfortable income levels, we can then feel at ease to most severely punish those still found guilty of committing corruption.

The indirect effect of the bureaucratic reforms on the eradication of corruption is the increased effectiveness of the bureaucracy. Because the bureaucracy has been made to shrunk in size, we can appoint individuals of the most excellent qualifications. It is certain that they are willing to accept the appointments because their net incomes have become adequate, at levels equalling the income of those employed in the private sector, where income is based on the merit system and is already well aligned with those in other segments of the whole economy.

Financing

The constraint is financing. The required funding will be huge because funds must be made available for the severance pay of those laid off. This severance pay should be large enough for three reasons. First, it should be big enough for humanitarian reasons. Secondly, a big amount of severance pay should entice personnel voluntarily quit their jobs. Thirdly, it should enable those laid off to have enough time to look for other jobs.

Alternative approach

An alternative strategy that can be carried out with a smaller cost to the budget is to eradicate corruption in stages, beginning from the top. This concept was once discussed during the administration of Gus Dur, who as the President endorsed the concept in principle. Its implementation was, however, cancelled.

In this approach, adequate income would be provided to the President, Vice President, Cabinet Ministers, Secretary-Generals, Director Generals, Bureau Chiefs, and Project Leaders. This would also apply for positions that are crucial and corruption-prone, namely tax officials, Customs officers, State Prosecutors, Policemen, Judges, Members of Parliament, and other positions that need to be carefully identified. The essence is to identify sectors within the bureaucracy that are crucial in causing losses to the state.

Their net income should be high enough to enable them not only to lead a reasonable but also a comfortable life, equalling the standard of living of those employed in the private sector, or even of those working abroad. However, if despite all of this one still dares to commit corruption, the penalty should be life imprisonment or capital punishment.

If such a method could prevent high-ranking officials and corruption-prone state personnel from committing corruption or could very significantly reduce the incidence of corruption, then substantial savings would be gained from the absence of corruption or from the very significant reduction in corruption cases. The funds required to increase incomes will be relatively small compared to the saving gained from the elimination or reduction of KKN at the top of the bureaucracy or by KKN-prone personnel.

One constraint is the very large discrepancy between the new incomes of those at the top and those at the bottom of the ladder in the civil service. This gap would be hard for subordinates to accept. At that time Gus Dur preferred this approach, but the idea was leaked, and observers censured him heavily. Gus Dur retracted the initiative.

Perhaps the idea could be tried again now, but socialise it first. Those not entitled to larger raises in incomes would no doubt continue as usual to make ends meet through corruption. In any case their petty corruption pales compared to corruption committed by the elite bureaucrats at the top. The savings gained from the elimination of corruption committed by top officials could be used to lift salaries of lower paid civil servants.

Criticisms

This idea was heavily criticised. Many voiced their opposition on the grounds that the government was out of step from the reality of the poor who correctly were struggling in their daily lives. Some mentioned that salaries at one time were raised tenfold in the Ministry of Finance and yet corruption continued to prevail. Moreover, human wants are unlimited and the corrupters continue on their merry way stealing trillions of rupiah. My answer to such criticisms is that they are right because there are no measures taken against those who commit corruption. That is, the carrot was given, but the stick was not applied.

Still another criticism cites evidence that the IBRA staff undoubtedly have net incomes that are sufficient to live very comfortably. That makes sense because they have been recruited from private companies. And yet, they still commit large-scale corruption using sophisticated techniques. Many of them were former technocrats hired by conglomerate bankers who swindled their own banks until these banks were taken over by IBRA. Now even IBRA is also swindled. Why? Once again, because there is no punishment.

In short, all of these criticisms fail to counter the validity of the carrot and stick concept, if and only if, the stick is effectively applied.
Punishment of Corrupters

In a society where corruption has reached a degree like it has in Indonesia, half-hearted punishment is no longer effective. A slap on the hand or public shame won’t work. Society is well aware of the extend corruption and its closeness to collusion and nepotism and that’s why we call it KKN. Indeed, corruption cannot be separated from collusion because corruption is always done by more than one person. Nepotism is also a very important factor because most acts of corruption are urged and given strong support by their children, spouse, and close relatives. For Indonesia, the most appropriate punishment is the death penalty, or at least life imprisonment.

In addition, as implied by the term KKN, punishment should not only be handed down to the one who has committed corruption but also to his or her spouse and children. As mentioned earlier, most officials in power commit corruption because of the encouragement, persuasion or nagging of the spouse and/or children. Therefore, if the actor is given death penalty, the children and the spouse must also be subject to punishment. The form of the punishment could be, for instance, confiscation of property and bankruptcy.

Where Should KKN Eradication Start?

The eradication of KKN should start from the top leadership. This does not only mean the President, but all high officials of the state. They should agree not to commit KKN if their net take-home pay is indeed adequate to live in line with the merit system. It should be explained to them in strong and clear terms that they will be punished severely if they still commit KKN.

Officials that are KKN-prone because they hold positions which are crucially susceptible to KKN should be singled out and asked to initiate the KKN eradication campaign. It should be explained to them as clearly as possible that their net incomes will be provided so that they can live very comfortably. But in return they are told that they may not commit KKN at the risk of being severely punished, and they are also demanded to firmly take actions and punish those that commit KKN.

KKN’s Destructive Influence

The decay attributed to KKN, that have already become manifested in decadence in the minds, feeling, morality, mentality and character, will in turn lead to very insensible/irrational policies. The result is conspicuous social injustices and gaps. To illustrate, in 1998 the total number of companies in Indonesia is 36,816,409 business entities. The large-scale ones comprise 1,831 units or 0.01% of the total, but their share in the GDP is 40%. The other 99.99% contributes only 60% of GDP. In terms of providing job opportunities, the small and medium-scale enterprises, which account for the 99.99%, absorb 99.44% of the workforce. Each of the big companies contributes Rp. 238 billion to the GDP every year. The small and medium companies contribute on the average Rp. 17 million per year. The average contribution of each of the big companies to the GDP is 14,000 times larger than the average contribution to GDP of the small and medium enterprises. Because the formation of the GDP more or less reflects the average role and income, the gap between the average income of the big companies and the average income of the small and medium companies also reflects such discrepancy.

Such condition was created by the cleverest officials in power during the New Order, who were dubbed as “the most qualified cabinet in the world” by the Time magazine.

What is the more comprehensive condition of the Indonesian people today?

Our country, which is rich in oil, has become the net importer of oil in order to meet its own domestic need. The country, which is endowed with so vast and so dense forests making it to become the biggest producer and exporter of timber in the world, is now confronting the problem of deforested forests while funds allotted for reforestation have now only reached Rp 10 trillion due to corruption. Despite having become deforested, the illegal logging activities have continued, with the timber smuggled out of the country amounting to approximately two billion US dollars per annum. Our mineral resources have been irresponsibly exploited, the largest part of the proceeds pouring into the pockets of the foreign contractors and their individual Indonesian cronies. The people, who are actually the owner of the earth, waters and of all the wealth contained therein, only get very minimal benefits.

Our fish are stolen by foreign ships at a value estimated at three to four billion US dollars per year. Almost all agricultural products are imported. Our sand is stolen approximately amounting to at least three billion US dollars per annum.

Could Indonesia survive without debts ?

Of course it can if KKN could be eradicated. With regard to taxes, our tax revenue for the 2003 fiscal year is estimated to amount to Rp. 240 trillion. This amount is considered too small because our tax ratio is still low. Therefore extensification and intensification efforts will be stepped up. Nobody speaks about tax leakages. In practice, the amount of tax to be finally settled is decided by the tax payer together with the tax official. If the amount agreed upon is Rp. 400 million for instance, very often the amount paid to the state treasury is only Rp. 100 million. The tax payer is given a receipt from the state treasury for Rp. 100 million only, and he is given a guarantee that nobody will make a problem out of it. Let’s say that not 75 percent but more conservatively 50 percent is paid to the state treasury. The remaining amount is corrupted by the tax official. The corruption costs for obtaining the tax can be roughly estimated at Rp. 80 trillion (or the equivalent of 8 billion US Dollars annually).

Add up the value of fish, sand and log stolen of US$ 9 billion, then the total amount will already reach US$ 17 billion. If the bank recapitalization bonds can be withdrawn using methods which could be accounted for, at least another total of Rp. 4 billion could be retrieved. All that will amount to US$ 21 billion within one year only. By comparison, all of our external debt amounts to around US$ 76 billion. On the assumption that the leakage in the routine and development budget are estimated at only 20%, the total of leakage will be another Rp. 74 trillion. The grand total will thus reach USD 28.4 billion (equivalent of Rp 284 trillion).

We are disregarding such funds of US$ 28.4 billion, but today we are begging you Gentlemen for an amount of around US$ 3 billion or even less.

Why so ? The persons that are given the power to govern are mostly corrupt. Therefore it is these people that should become the object and focus as the first step in Improving Governance. Many concepts have been expounded to resolve the problem. And tens if not hundreds of million dollars have been spent on concepts that are contained in text-books and have already been mastered by many young Indonesians that have studied in and have obtained their Ph.D degrees from the best universities in the world. The crux of the matter, however, lies not in improvements of the organisation and system that are objects without a soul, but lies in the human factor that operate the organisation and system.

All that I have expounded here, has been more elaborately published in a book that has been distributed to everyone in this respectful audience. Several thousands of copies in the Indonesian language have also been distributed to a large range of parties.

Thank you.