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Anti-corruption in Indonesia

Corruption, and anti-corruption efforts, have long been a part of Indonesia’s political and business landscape. Corruption at a government and bureaucratic level has existed since before dependence, and was heightened during Suharto’s presidency from 1967 to 1998. Measures to crack down on corruption in the proceeding years have had mixed effectiveness, with the country still suffering hangovers of bribery, rent-seeking and graft at national and provincial levels.

In practice, this has led to a general atmosphere of caution around foreign investment into the country, hampering efforts to improve poor ‘ease of business’ ratings. In the World Bank’s 2016 Doing Business report, Indonesia was ranked 109th out of 189 economies on this indicator, significantly lower than close neighbours like Vietnam, Thailand and Malaysia. Consequently, recent efforts to address this poor standing, have focused on reducing corruption in business.

In 2015, Transparency International ranked Indonesia 90th out of 176 countries (1 being highly corrupt and 176 being least corrupt), a slight rise from 88thth place in 2015. In the 2015-16 World Economic Forum Global Competitiveness Report, corruption was identified as the most problematic factor for doing business in Indonesia, beating out access to financing, inflation and inefficient government bureaucracy. Indeed, corruption often has a negative effect on other problematic areas, such as infrastructure, political stability and labour.

Indonesia’s national agency for fighting corruption is the Komisi Pemberantasan Korupsi (Corruption Eradication Commission), established in 2002.  It has had some success since its formation, with a high conviction rate in bribery cases concerning procurement of government contracts.

However, the KPK has had to deal with an antagonistic police force, often limiting its effectiveness. In the 2009 cicak vs buaya case, it was famously compared to a gecko fighting a crocodile in the form of the police, by then Police chief detective Susno Duadji, after two of its deputy chairmen were arrested by the police on allegedly trumped up charges of extortion and bribery.

The cicak buaya metaphor emerged again in 2015, when KPK deputy chairman Bambang Widjojanto was arrested after the commission declared police chief Budi Gunawan to be a suspect in a gratification case. These cases have called into question the political will for anti-corruption measures in Indonesia.

To mitigate the risk of corruption in Indonesia, Australian companies should get professional advice where appropriate and thoroughly investigate the issues in entering the market and establishing business relationships. Many well-established companies will be registered with the Indonesian Chamber of Commerce. Checking if a local company is registered helps to verify if it legally exists.

There are many people and organisations you can turn to for help. Choosing the right partners and the right professional advisers is a major step in mitigating risk. Your bankers, lawyers, insurers and accountants should also be able to give you knowledgeable advice about the risks you may face.

Australians doing business overseas must also be aware that under Australian law (Division 70 of the Criminal Code Act 1995) they can face criminal prosecution in Australia for bribing a public official in another country.