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Governance and Politics: Anti-Corruption and The World Bank's Strategies in Indonesia

This article explores the challenges of combating corruption in Indonesia and examines the World Bank's anti-corruption strategies in the country. It discusses the historical context, political economy, and stakeholder dynamics that affect anti-corruption efforts. The article also highlights public attitudes towards corruption and the desired outcomes for convicted corruptors. It concludes with recommendations to strengthen demand for reforms and improve the effectiveness of anti-corruption measures.

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Governance and Politics: Anti-Corruption and The World Bank's Strategies in Indonesia

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  1. Flagship Course PREM WEEK 2003 Governance and Politics Anti-Corruption and The World Bank- the case of Indonesia -Sarwar Lateef

  2. Politics and Governance • Bank anti-corruption strategies must be grounded in understanding of domestic political context • Path dependence- the historical context • Political economy of corruption – winners and losers • Transition poses particular challenges PREM Week 2003 Politics and Governance

  3. The Bank and politics • World Bank cannot assume it’s seen as a neutral objective actor • Bank relations with former governments can affect its credibility as a player. • Bank’s record in reducing corruption in its own projects essential for credibility • Bank may become lightning rod for civil society efforts to force establishment to address the past: e.g., odious debt PREM Week 2003 Politics and Governance

  4. The Case of Indonesia • Indonesia at near bottom of the corruption league – Indonesians think so too: 75% see corruption in public sector as very common. • Two challenges: 1. Developing an effective strategy without a client and with a compromised reputation. 2. Political transition: operating in an environment with high fiduciary risks. PREM Week 2003 Politics and Governance

  5. Inheritance: The Suharto Franchise • A “stationary bandit” (Mancur Olssen) • A four legged throne: the army, the civil service, state enterprises, and the conglomerates • The nature of the franchise: policy corruption plus bureaucratic corruption • The first family and the transition from stationary to roving bandits PREM Week 2003 Politics and Governance

  6. Corruption and Transition • Simultaneity of economic recovery, political reform and decentralization • Franchisees liberated • Inexperienced and hungry political leadership, a compromised elite • Sharing the spoils of office: Corruption as a weapon in political competition • Media increasingly powerful PREM Week 2003 Politics and Governance

  7. Trends in corruption • Perception that corruption is getting worse- political openness: media focused heavily on corruption • Absent a stationary bandit, many roving bandits • Large increase in state-owned assets, particularly under IBRA following financial crisis: their disposal increases opportunities for rent seeking. • Decentralization is seen in Jakarta as leading to more corruption • Upcoming elections driving party fund raising. PREM Week 2003 Politics and Governance

  8. Trends in corruption…. But…. • Big ticket corruption stymied by political competition • Declining public expenditures and investments • Bottom line: More actors but a smaller pie PREM Week 2003 Politics and Governance

  9. Stakeholders tally • President apparently an ally, but gap between rhetoric and practice • Parliament initially strong on corruption but money politics gaining strength • Bureaucracy resisting change • Decentralized leadership greedy for power • Civil society, public angry, but costs of collective action high and effective demand for reforms weak • Bottom line: weak demand for reforms: slow progress on anti corruption measures. PREM Week 2003 Politics and Governance

  10. Public Attitudes towards CorruptionPartnership for Governance Reform in Indonesia Survey 2001 PREM Week 2003 Politics and Governance

  11. Which Cases Should Be PursuedPartnership for Governance Reform in Indonesia Survey 2001 PREM Week 2003 Politics and Governance

  12. Desired Outcome for Convicted CorruptorsPartnership for Governance Reform in Indonesia Survey 2001 PREM Week 2003 Politics and Governance

  13. Context for Bank Strategy • Government not a credible client for anti-corruption work • Bank seen as part of the problem – odious debt issue • Civil society weak, disorganized, and suspicious • Bank operations fraught with fiduciary risk • Bank culture changing, but slowly. PREM Week 2003 Politics and Governance

  14. The World Bank Anti Corruption Strategy • Anti Corruption in Country Strategy • Strengthen demand for reforms • Raise the costs of corruption: justice sector reforms • Reduce Opportunities for corruption • Strengthening Controls for supervision • Strengthen enforcement PREM Week 2003 Politics and Governance

  15. Country Assistance Strategy for Indonesia • Reduce lending drastically. • Link future increase in lending to improvements in fiduciary controls based on CPAR and CFAA assessments • Work with Partners: • Empower communities and beneficiaries • Work with reformers in government • Close coordination with ADB and JBIC • Civil society key partner • New CAS beginning July 2003 will focus more systematically on anti-corruption PREM Week 2003 Politics and Governance

  16. Strengthen demand for reforms • Support to The Partnership for Governance Reforms: • Diagnostic work: surveys, papers, analytical work • “Corruption and the Poor” • Donor coordination and active CGI involvement on governance issues • More open, public stance on corruption, including in Bank published documents PREM Week 2003 Politics and Governance

  17. Raising the costs of corruption: the justice sector • Facilitating dialogue through Partnership • Direct policy dialogue with government, particularly in support of governance audits of key institutions, and in support of a national strategy for reform • Analytical work to understand better how to improve access to justice for the poor. • Supporting private sector dialogue with GOI • Strengthening external demand for reforms through aid coordination • Supporting through Partnership and directly key institutions including the National Law Commission’s work, the office of the Ombudsman • Bottom line: progress painfully slow. PREM Week 2003 Politics and Governance

  18. Reduce Opportunities for Corruption • Policy advice: • IBRA asset sales: establishing principles • Bank Bali • Private provision of infrastructure: support to regulatory framework • Privatization: stress on transparency • Trade policy: open and competitive markets PREM Week 2003 Politics and Governance

  19. Reduce Opportunities for Corruption… • Through better project design • Corruption mapping: “its incentives, stupid!” • Involving project beneficiaries in the design and implementation of projects • Kecamatan Development Project • Water Resource Management Project • Education projects • Reducing opportunities for collusion in procurement • Strengthening the Bank’s safeguards PREM Week 2003 Politics and Governance

  20. Reduce Opportunities for Corruption… • Enhance disclosure • Assist government enhance its own disclosure • More systematic disclosure in Bank projects • Enhance access to Bank documents (translation important) • Training for civil society to monitor Bank projects (arms length) PREM Week 2003 Politics and Governance

  21. Strengthening Controls and Supervision • Risk assessment of portfolio • Strengthening fiduciary controls – staffing, monitoring of key indicators. • Fiduciary risk assessments with INTIU- a new instrument: the case of Sulawesi urban: despite missing documentation, poor fiduciary management, evidence of extensive collusion • Corruption in Annual Portfolio Performance Review • Moving towards a risk management strategy PREM Week 2003 Politics and Governance

  22. Strengthen enforcement • Enhance remedies/sanctions • Discourage impunity • Use INTIU more strategically • Publishing all findings • Require anti corruption plans when corruption endemic in sector/ministry PREM Week 2003 Politics and Governance

  23. Lessons from Indonesia for high risk environments • Move from a zero tolerance approach to a risk management approach: • Upstream assessment of corruption in sector work • Know your customer before you lend or procure • Better project design • Systematic safeguards in all projects • Reduce impunity through consistent firm action • Focus supervision resources on high risk interventions PREM Week 2003 Politics and Governance

  24. Lessons from Indonesia contd. • Partnerships key, don’t go it alone. • Community/ beneficiary empowerment key • Other key lenders must share goals • Civil society/media important allies • Information and disclosure policy crucial • Push limits of disclosure policy • Be totally transparent • Don’t try to pretend that there is no problem PREM Week 2003 Politics and Governance

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