pidato cgi 3 (dalam bahasa inggris)

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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 y ou all to Bali and I hope y ou hav e a chance to enjoy the beauty that Bali offers her guests. I am v ery

glad that only three months and ten day s after the bombing in this island, all of y ou gather here today without

feeling of fear (at least that is what I hope). I still remember with sorrow that some of y our countries imposed trav el

ban or trav el 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 rev ised again, now that Bali is sav e and the occupancy rate of the hotels is

recov ering nicely .

Unlike the case in prev ious CGI meetings, this time the topic giv en to me concerns Improv ing Gov ernance. This topic

has been the subject that I hav e 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, howev er, nev er got off the ground, due to factors that I will elaborate later on.

For me, Improv ing Gov ernance 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 acrony m for Corruption, Collusion and Nepotism)

that has made human resources to become decadent. Decadence of character, v alue sy stem and morality of many

among the ruling elite of the Indonesian people has dev astated just about ev ery thing, including gov ernment

institutions and their working mechanism. So long as this decadence of the human factor still persists, the Improv ing

Gov ernance concept, no matter how well designed, becomes futile. It would be futile, not only in spite of already

hav ing a well designed concept, but ev en after hav ing formed the perfect organization including its sy stem and

procedure. I observ ed with concerned that so much money and energy hav e been wasted by people who are not

knowledgeable about Indonesia for the dev elopment of concept and for building the insitutions, and then let them be

manned by corrupted people.

Is it not obv ious that after 32 y ears of the presence of so many international agencies in Indonesia, the KKN and

flawed policies are getting more and more sev ere ? 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, howev er, does not imply that dev eloping the organization becomes useless. But the prerequisite for good

gov ernance is no doubt the eradication or the significant lessening of KKN. I will shortly explore the relationship

between the crucial factors of gov ernment organization that are sy nergetic with efforts for eliminating the corrupted

morality and mind of the human factor.



The Carrot and Stick Concept

The concept to eradicate corruption is v ery simple. It is the carrot and stick. The effectiv eness of this approach has

been prov en 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 civ il serv ants and those in the military and police force, which is clearly

adequate to cov er the costs of liv ing 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 liv ing, but also adequate for “respectable” liv ing.

“Stick” refers to punishment : when all of the needs are met and one still commits corruption, then the punishment

must be sev ere 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 ty pically tied to rank or position. But the salary

structure and sy stems 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 employ ee of IBRA. It is no wonder then, if y ou put a person in

a uniform and giv e him $ 50 a month, corruption will flourish. Thus we need to start with reforming our civ il

serv ice 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 gov ernment agencies, the immediate question that comes

to mind is : how many gov ernment personnel members are working in those buildings? Ev en more difficult to

imagine is what they are all doing during working hours.

Such a large number of civ il serv ants is related to the fact that since the founding of the Republic of Indonesia, no

audit has ev er been carried out with regard to the structure of organisation, the number of personnel, lines of

command, span of control, decision making sy stem 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 alway s has a need to be regarded as being important by his

env ironment. The sy mbol of his importance is the total number of his subordinates in the organisational structure.

Thus unconsciously , ev ery 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 , ev ery organisation has a tendency to continue to balloon regardless of its actual needs.



In a priv ate company organisation, which is often far bigger in size than in a gov ernment ministry , it is a common

practice to periodically , such as ev ery 3 to 5 y ears, audit its organisation. Here organisation and management

experts assess whether the organisation is still optimal to achiev e the objectiv es of the relev ant organisation.

In the audit procedure, the experts and consultants do not look at the existing organisational structure. Instead, they

exhaustiv ely interv iew the chief executiv e officers on the objectiv es to be realised by their organisation. The results

of the interv iew are then profoundly analy sed. The experts and consultants then use their expertise to design an

organisation that exactly and optimally can realise the objectiv es 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 sy stem and procedure, the communication sy stem, 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

executiv e members for making further improv ements. When the relev ant organisation structure is judged as

already suitable and the executiv e leadership truly has a sense of ownership of such organisation, then they

automatically will hav e 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 ov erlapping lines of

command, and so on. It is the duty of the executiv e 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 rev erse of the thus far commonly

implemented procedure. In our case, ev ery 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 v ertical 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 respectiv e boxes. This

procedure is extremely erroneous, but has nev ertheless 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 ev ident that

strategy has become subserv ient to the prev iously imposed organisation. How would it be possible under such

approach to effectiv ely attain the objectiv es ?

We can imagine what our bureaucracy has become after 57 y ears nev er hav ing been audited. And just imagine how

otherwise, the total number of the civ il serv ants could hav e been reduced that would hav e resulted in huge sav ings

in the gov ernment budget.

What is the relationship between the bureaucracy reforms described here and the eradication of corruption? There is

a strong relationship. I am conv inced that if the bureaucracy is structured in accordance with the needs to achiev e

optimal objectiv es, the total number of civ il serv ants could be substantially reduced. Substantial expenses for salary ,

work space, office equipment, electricity and trav el expenses, could be sav ed. The other side of the coin would be

funds made av ailable for increasing net income in the context of apply ing the carrot and stick method. With

obv iously adequate or ev en comfortable income lev els, we can then feel at ease to most sev erely punish those still

found guilty of committing corruption.

The indirect effect of the bureaucratic reforms on the eradication of corruption is the increased effectiv eness of the



bureaucracy . Because the bureaucracy has been made to shrunk in size, we can appoint indiv iduals of the most

excellent qualifications. It is certain that they are willing to accept the appointments because their net incomes hav e

become adequate, at lev els equalling the income of those employ ed in the priv ate sector, where income is based on

the merit sy stem 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 av ailable for the

sev erance pay of those laid off. This sev erance pay should be large enough for three reasons. First, it should be big

enough for humanitarian reasons. Secondly , a big amount of sev erance pay should entice personnel v oluntarily quit

their jobs. Thirdly , it should enable those laid off to hav e enough time to look for other jobs.

Alternative approach

An alternativ e 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, howev er, cancelled.

In this approach, adequate income would be prov ided 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 liv ing of those employ ed in the priv ate sector, or ev en of those working abroad. Howev er, 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 prev ent high-ranking officials and corruption-prone state personnel from committing

corruption or could v ery significantly reduce the incidence of corruption, then substantial sav ings would be gained

from the absence of corruption or from the v ery significant reduction in corruption cases. The funds required to

increase incomes will be relativ ely small compared to the sav ing gained from the elimination or reduction of KKN at

the top of the bureaucracy or by KKN-prone personnel.

One constraint is the v ery large discrepancy between the new incomes of those at the top and those at the bottom of

the ladder in the civ il serv ice. This gap would be hard for subordinates to accept. At that time Gus Dur preferred this

approach, but the idea was leaked, and observ ers censured him heav ily . Gus Dur retracted the initiativ e.

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 sav ings gained from the elimination of corruption

committed by top officials could be used to lift salaries of lower paid civ il serv ants.

Criticisms



This idea was heav ily criticised. Many v oiced their opposition on the grounds that the gov ernment was out of step

from the reality of the poor who correctly were struggling in their daily liv es. Some mentioned that salaries at one

time were raised tenfold in the Ministry of Finance and y et corruption continued to prev ail. Moreov er, 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 giv en, but the stick was not applied.

Still another criticism cites ev idence that the IBRA staff undoubtedly hav e net incomes that are sufficient to liv e

v ery comfortably . That makes sense because they hav e been recruited from priv ate companies. And y et, 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 ov er by IBRA. Now ev en IBRA is

also swindled. Why ? Once again, because there is no punishment.

In short, all of these criticisms fail to counter the v alidity of the carrot and stick concept, if and only if, the stick is

effectiv ely applied.

Punishment of Corrupters

In a society where corruption has reached a degree like it has in Indonesia, half-hearted punishment is no longer

effectiv e. 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 alway s done by more than one person. Nepotism is also a v ery important factor

because most acts of corruption are urged and giv en strong support by their children, spouse, and close relativ es. 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 giv en

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 liv e in

line with the merit sy stem. It should be explained to them in strong and clear terms that they will be punished

sev erely 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 prov ided so that they can liv e v ery comfortably . But in return they are told that they may not

commit KKN at the risk of being sev erely 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 hav e already become manifested in decadence in the minds, feeling, morality ,

mentality and character, will in turn lead to v ery insensible/irrational policies. The result is conspicuous social

injustices and gaps. To illustrate, in 1 998 the total number of companies in Indonesia is 36,81 6,409 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 prov iding 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 ev ery y ear. The small and medium companies contribute on the av erage Rp. 1 7 million

per y ear. The av erage contribution of each of the big companies to the GDP is 1 4,000 times larger than the av erage

contribution to GDP of the small and medium enterprises. Because the formation of the GDP more or less reflects the

av erage role and income, the gap between the av erage income of the big companies and the av erage income of the

small and medium companies also reflects such discrepancy .

Such condition was created by the clev erest 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 v ast 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 hav e

now only reached Rp 1 0 trillion due to corruption. Despite hav ing become deforested, the illegal logging activ ities

hav e continued, with the timber smuggled out of the country amounting to approximately two billion US dollars per

annum. Our mineral resources hav e been irresponsibly exploited, the largest part of the proceeds pouring into the

pockets of the foreign contractors and their indiv idual Indonesian cronies. The people, who are actually the owner of

the earth, waters and of all the wealth contained therein, only get v ery minimal benefits.

Our fish are stolen by foreign ships at a v alue estimated at three to four billion US dollars per y ear. 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 rev enue for the 2003 fiscal y ear 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 pay er together with the tax official. If the amount agreed

upon is Rp. 400 million for instance, v ery often the amount paid to the state treasury is only Rp. 1 00 million. The

tax pay er is giv en a receipt from the state treasury for Rp. 1 00 million only , and he is giv en a guarantee that nobody

will make a problem out of it. Let’s say that not 7 5 percent but more conserv ativ ely 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 equiv alent of 8 billion US Dollars annually ).

Add up the v alue of fish, sand and log stolen of US$ 9 billion, then the total amount will already reach US$ 1 7 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 retriev ed. All that will amount to US$ 21 billion within one y ear only . By comparison,

all of our external debt amounts to around US$ 7 6 billion. On the assumption that the leakage in the routine and

dev elopment budget are estimated at only 20%, the total of leakage will be another Rp. 7 4 trillion. The grand total

will thus reach USD 28.4 billion (equiv alent of Rp 284 trillion).

We are disregarding such funds of US$ 28.4 billion, but today we are begging y ou Gentlemen for an amount of

around US$ 3 billion or ev en less.

Why so ? The persons that are giv en the power to gov ern are mostly corrupt. Therefore it is these people that should

become the object and focus as the first step in Improv ing Gov ernance. Many concepts hav e been expounded to

resolv e the problem. And tens if not hundreds of million dollars hav e been spent on concepts that are contained in

text-books and hav e already been mastered by many y oung Indonesians that hav e studied in and hav e obtained

their Ph.D degrees from the best univ ersities in the world. The crux of the matter, howev er, lies not in improv ements

of the organisation and sy stem that are objects without a soul, but lies in the human factor that operate the

organisation and sy stem.

All that I hav e expounded here, has been more elaborately published in a book that has been distributed to ev ery one

in this respectful audience. Sev eral thousands of copies in the Indonesian language hav e also been distributed to a

large range of parties.

Thank y ou.

pidato cgi 3 (dalam bahasa inggris)

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