As Indonesia gears up for election, fears of corruption soar

From a distance, Indonesia over the past decade looks like an unalloyed success story.

But the country's gains remain fragile as the country prepares for a pivotal election next year, the outcome of which will either ratify both the democratic and economic gains of the past decade, or signal a return to money politics at its worst.

This week, Indonesians – and foreign investors – are most concerned about the appointment of a new finance minister without a background in finance, who also happens to be the father of President Susilo Bambang Yudhoyono's daughter-in-law. They speculate the appointment has more to do with freeing up funds for next year's elections than it does with the nation's financial management.

First, the good news

Fifteen years ago, longstanding dictator Soeharto was forced out of power by an economic crisis that galvanized student protesters and millions of workers who had lost their jobs in the monetary crisis. In May 1998, a combination of democratic opposition and bloody rioting, some of it encouraged by ambitious generals eager to grab a greater share of power for themselves, opened the door to fundamental political change in the world's fourth largest nation, and most populous Muslim one.

The early years after Soeharto were rough. The country's small cadre of militant Islamists, forced into the shadows by Soeharto's police state, emerged from hiding at home and exile abroad, helping to fuel religious conflicts on Sulawesi and the Maluku islands, while their allies in big cities like Jakarta carried out vigilante raids on nightclubs and bars. Churches, hotels, and nightclubs were also bombed by a terrorist group inspired by Al Qaeda, most famously the 2002 Bali bombing that killed 202 people. 

Democratization also brought a mad rush of decentralization without sufficient legal reform, which saw local leaders and their business partners across this nation of 240 million people try to set up their own smaller version of the corrupt system that served Soeharto so well.

In essence, Soeharto had gathered all the strings of power and influence in Indonesia to his hand, which enabled vast fortunes to be amassed by a small number of people around him, but also left Indonesia's corruption somewhat controlled and understandable for foreign and local investors alike. When his hand was symbolically cut off by the 1998 uprising, those strings snapped and twanged out in different directions, toward new potential seats of power. At the time, restoring order appeared to be such a formidable task that many wondered if Indonesia might have to survive a break up into a set of new states drawn along ethnic or regional lines.

But then in 2004, the retired general Susilo Bambang Yudhoyono was elected president, ending a period of bumbling national leadership. While not without his flaws, SBY (as he's universally called here) helped bring the country under control, didn't have much of a reputation for corruption himself, and set Indonesia on a path for renewed prosperity. In 2009, he won 60 percent of the vote in a three-way election, a stunning mandate that showed Indonesians were well pleased with what he'd done in his first five years.

Now, the bad news

But today, if you talk to Indonesians about SBY, you are far more likely to get an earful about the rampant corruption that many long-time businessmen and bankers here insist is worse than ever.

"Under Soeharto, they'd come to you and ask you to put some money on the table for them, and they'd take the money, says the owner of a furniture factory in the Central Java city of Surakarta. “Now, they ask the same but then they take the money, the table, and everything else they can find in the room," he says.

Another factory owner in Tangerang, an industrial town on the outskirts of Jakarta, has a similar view. He makes clothes, mostly for export, and is grumbling about a 45 percent increase in the minimum wage in the province this year, from 1.5 million rupiah a month ($154) to 2.2 million ($226). His principal complaint is that the surge in labor costs year-to-year made managing his cash flow and margins almost impossible. He's in the process of cutting 2,000 of the 6,000 jobs at his factory (with plans to open up a new factory in a province with lower wage costs). But he finishes his complaint by saying the following: "Of course, I'd be happy to pay 2.2 million a month if all the bribes I have to pay were ended – my margins would go up. But the bribes, I have no control over."

A foreign visitor expecting high praise for SBY now has to look hard to find it. Bankers, street peddlers, businessmen, and shopkeepers have soured on the president, who is term-limited out next year and appears to be spending as much of his time managing the affairs of his scandal plagued Democratic Party as he does the affairs of state.

Anas Urbaningrum, the chair of SBY's party, was forced to quit earlier this year after he was named a suspect in a kickback scheme involving the construction of a sports complex in the city of Bogor, West Java.

In 2011, party treasurer Muhammad Nazarrudin fled the country ahead of a corruption indictment, but was ultimately extradited from Colombia to face trial. Party member and Sports Minister Andi Mallarangeng, a former democracy activist, was forced to quit over corruption charges in late 2012 and in January of this year, Democratic Party MP Angelina Sondakh was given a four year jail sentence for demanding kickbacks in exchange for awarding government education grants.

And it isn't just SBY's party, it's almost everyone.

If you look at the constellation of Indonesia's political parties, it's hard to find strong ideological differences. There's a group of vaguely Islamist parties and a group of vaguely nationalist ones, but almost all of them are indistinguishable when it comes to performance in parliament – which often seems largely about looking for ways to collect rent and strengthen the positions of the individuals at the top of the party.

Juwono Sudarsono, an urbane defense scholar who has served in the cabinets of four different Indonesian presidents, including SBY, says that while democracy in Indonesia is working in a formal sense, with regularly scheduled, mostly-fair elections, the practical outcomes are frequently disastrous. The national political parties appear to represent business oligarchs (many of whom lead the parties) rather than national interests, and Indonesia's legal institutions are fairly powerless to reign in their behavior, he says.

He recalls 2007, when he was serving as defense minister in SBY's first cabinet. He was trying to get a defense budget passed, which included measures to improve the pay and conditions of low-ranking soldiers. Separately, representatives of the eight largest parties in parliament all approached him, and said that he would have to find a way for some of the contracting and procurement for the military to flow through the hands of businessmen they would appoint before they'd vote in favor. Essentially, they wanted a promise of payment in exchange for doing the nation's business.

With his hands tied and worried about at least controlling the graft, he worked for weeks on a deal in which 10 percent of the defense budget could be skimmed, but not more, and quietly sold the idea to Indonesia's international lenders. "I didn't like it, but I had to protect against it becoming 60 percent or something like that," he says. Juwono left government service after the 2009 elections.

Stories like his are common here, and it’s part of the reason the appointment of Hatta Rajasa as finance minister this week has prompted so many skeptical responses.

Indonesia's key economic ministries, particularly the Finance Ministry and the Central Bank, have almost always been reserved for so-called technocrats since the Soeharto years. While many ministries were said to be "wet" in the local parlance (that is, providing ample opportunity for graft), the government has always worked hard to keep the more technical financial ministries "dry" as a way to ease international concerns about the stability of the currency and the chances of a ballooning budget deficit.

Hatta, who was already serving as coordinating economic minister, heads the National Mandate Party (PAN) a vaguely Islamist party that also has close ties to SBY. Hatta's daughter Siti Ruby Aliya Rajasa married SBY's son Edhie "Ibas" Baskoro Yudhoyono in 2011.

Indonesian bankers and politicians say Hatta had repeatedly clashed with outgoing finance minister Agus Martowardojo over the latter's reluctance to bump up government spending until better corruption and accountability measures were put in place.

Martowardojo's predecessor, the highly regarded Sri Mulyani Indrawati, was pushed out in 2010 after repeatedly clashing with powerful business and political interests over reform measures, perhaps chief among them Aburizal Bakrie, the Indonesian billionaire who also heads the Golkar Party, which is the second largest party in parliament and has named Mr. Bakrie its candidate for president next year. Sri Mulyani was immediately named the director of the World Bank Group.

"The consensus among everyone I talk to is this is about shaking loose money for the elections," says a long-time Jakarta banker who asked not to be named.

It's not just in that area.

A researcher into Indonesia's booming forestry industry says in the past few months he's seen a large uptick in clear-cutting of natural forest that the government long-ago licensed for "conversion" into acacia or eucalyptus plantations. His read on the situation was that forest that have been left alone for years are being mulched for cash now because of the electoral needs of various political parties.

Running campaigns in a country like Indonesia – with hundreds of inhabited islands, stretching a distance equivalent to that between London and Baghdad – is always an expensive business, and money tells.

Juwono, the former defense minister, and many others here worry that Indonesia's dominant political parties effectively control the money game, and are in turn controlled by entrenched business interests who see no value in the kind of economic competition that could help bring the tens of millions of Indonesians still living on less than $2 a day out of poverty.

In other words, fair elections by themselves don't make fair societies.