Corruption the biggest threat to Indonesian development
The Jakarta Post -- 13 April 2006
Paul Wolfowitz, Jakarta
What the Asian crisis showed -- nowhere more clearly than in Indonesia -- is that corruption is often is at the very root of why governments don't work.
Today, one of the biggest threats to development in many countries -- including this one -- is corruption. It weakens the systems, it distorts the market, and it therefore encourages non-productive skills.
In the end, governments and citizens will pay a price, in lower incomes, lower investment, and more volatile economic swings.
This is a lesson that Indonesia learned the hard way. After the progress of the last 20 years, corruption contributed significantly to the economic collapse of the late 1990s. It now looms as a major obstacle to achieving the development successes this country is capable of -- and which the Indonesian people deserve.
Corruption not only undermines the ability of governments to function properly, it also stifles private sector growth.
We hear it from investors -- both domestic and foreign -- who worry that where corruption is rampant, contracts are unenforceable, competition is skewed and the cost of doing business is stifling. When investors see that, they take their money elsewhere.
To give an idea: In Indonesia, 56 percent of surveyed firms say they are willing to pay more taxes -- in fact half are willing to pay up to 5 percent of their revenues -- if corruption could be eliminated.
Corruption thrives in countries where private investors face cumbersome procedures and excessive regulations. When extra licenses are needed to start a business, when extra signatures are required to import goods, it creates opportunities for abuse of authority and for corruption.
Our estimates show that the time to start a business has already fallen from 151 days to below 80 days, and we are hopeful that the government will reach its target. That would be a wonderful success story.
Perhaps the most important challenge lies in the enforcement of contracts. On this front, Indonesia ranks amongst the lowest in the world -- 145 out of 155. In fact, investors' lack of trust in the legal system is one of the problems that have brought investment levels down to half of those in your fast-growing neighbors.
Indonesia has already begun to confront some of these difficult challenges. President Yudhoyono has launched a tough anti-corruption drive that is holding public officials accountable across all levels of government.
New institutions like the Anti-Corruption Commission, the Anti-Corruption Court, the Judicial Commission and Timtastipikor are up and running and producing results. And institutions like the Supreme Audit Commission and the Attorney General's Office are showing newfound strength.
Even more important are the measures taken to reduce opportunities and incentives for corruption, led by an impressive economic team.
We know that when governments don't work, the development assistance we provide to governments doesn't work either. It means that children are denied the education they need. Mothers are denied the health care they deserve and countries are denied the institutions needed to deliver real results.
Fighting corruption is a long-term commitment. We cannot expect results overnight.
What we can expect is steady progress towards building transparent and accountable institutions. That is why fighting corruption requires a long-term strategy that systematically and progressively attacks the problem. And that is why any strategy for solving a problem requires the commitment and participation of governments, citizens and the private sector.
There's been a lot of attention recently to a number of actions we've taken to suspend lending in existing projects where corruption concerns have emerged.
The World Bank Group's country strategy for Indonesia is one that particularly emphasizes governance. In partnership with the Indonesian government, we will commit $900 million per year to strengthening governance, with the goal of improving service delivery in education, health and other essential services and enhancing the investment climate.
In countries like Indonesia where the government is committed to fighting corruption, our resources and expertise can make a difference.
Enforcement alone will not cure corruption. How much we do, and how much progress we make, depends on the desire of both governments and civil society to create the right setting for sound, strong, sustainable development.
The greatest changes come when the ideas people carry in their heads change. In many countries, people are not as tolerant of corruption as they were in the past.
The good news is that in Indonesia, the social and economic achievements of the last forty years have created a demand for government that works. The people of Indonesia recognize that with transparent and accountable governance, they stand a better chance of reducing corruption...of improving their quality of life...and securing a better future for their children.
The article is condensed from an address made by the World Bank President at a discussion on democracy, governance and development held Tuesday night in conjunction with Tempo media group's 35th anniversary.
The Jakarta Post -- 13 April 2006
Paul Wolfowitz, Jakarta
What the Asian crisis showed -- nowhere more clearly than in Indonesia -- is that corruption is often is at the very root of why governments don't work.
Today, one of the biggest threats to development in many countries -- including this one -- is corruption. It weakens the systems, it distorts the market, and it therefore encourages non-productive skills.
In the end, governments and citizens will pay a price, in lower incomes, lower investment, and more volatile economic swings.
This is a lesson that Indonesia learned the hard way. After the progress of the last 20 years, corruption contributed significantly to the economic collapse of the late 1990s. It now looms as a major obstacle to achieving the development successes this country is capable of -- and which the Indonesian people deserve.
Corruption not only undermines the ability of governments to function properly, it also stifles private sector growth.
We hear it from investors -- both domestic and foreign -- who worry that where corruption is rampant, contracts are unenforceable, competition is skewed and the cost of doing business is stifling. When investors see that, they take their money elsewhere.
To give an idea: In Indonesia, 56 percent of surveyed firms say they are willing to pay more taxes -- in fact half are willing to pay up to 5 percent of their revenues -- if corruption could be eliminated.
Corruption thrives in countries where private investors face cumbersome procedures and excessive regulations. When extra licenses are needed to start a business, when extra signatures are required to import goods, it creates opportunities for abuse of authority and for corruption.
Our estimates show that the time to start a business has already fallen from 151 days to below 80 days, and we are hopeful that the government will reach its target. That would be a wonderful success story.
Perhaps the most important challenge lies in the enforcement of contracts. On this front, Indonesia ranks amongst the lowest in the world -- 145 out of 155. In fact, investors' lack of trust in the legal system is one of the problems that have brought investment levels down to half of those in your fast-growing neighbors.
Indonesia has already begun to confront some of these difficult challenges. President Yudhoyono has launched a tough anti-corruption drive that is holding public officials accountable across all levels of government.
New institutions like the Anti-Corruption Commission, the Anti-Corruption Court, the Judicial Commission and Timtastipikor are up and running and producing results. And institutions like the Supreme Audit Commission and the Attorney General's Office are showing newfound strength.
Even more important are the measures taken to reduce opportunities and incentives for corruption, led by an impressive economic team.
We know that when governments don't work, the development assistance we provide to governments doesn't work either. It means that children are denied the education they need. Mothers are denied the health care they deserve and countries are denied the institutions needed to deliver real results.
Fighting corruption is a long-term commitment. We cannot expect results overnight.
What we can expect is steady progress towards building transparent and accountable institutions. That is why fighting corruption requires a long-term strategy that systematically and progressively attacks the problem. And that is why any strategy for solving a problem requires the commitment and participation of governments, citizens and the private sector.
There's been a lot of attention recently to a number of actions we've taken to suspend lending in existing projects where corruption concerns have emerged.
The World Bank Group's country strategy for Indonesia is one that particularly emphasizes governance. In partnership with the Indonesian government, we will commit $900 million per year to strengthening governance, with the goal of improving service delivery in education, health and other essential services and enhancing the investment climate.
In countries like Indonesia where the government is committed to fighting corruption, our resources and expertise can make a difference.
Enforcement alone will not cure corruption. How much we do, and how much progress we make, depends on the desire of both governments and civil society to create the right setting for sound, strong, sustainable development.
The greatest changes come when the ideas people carry in their heads change. In many countries, people are not as tolerant of corruption as they were in the past.
The good news is that in Indonesia, the social and economic achievements of the last forty years have created a demand for government that works. The people of Indonesia recognize that with transparent and accountable governance, they stand a better chance of reducing corruption...of improving their quality of life...and securing a better future for their children.
The article is condensed from an address made by the World Bank President at a discussion on democracy, governance and development held Tuesday night in conjunction with Tempo media group's 35th anniversary.
