Governance Issues in Post-Soeharto Indonesia

Mike Green

Speaking Notes for Asia Forum, 12/2/02

A trend in international development assistance in recent years, reflected also in NZ’s ODA programmes, has been a growing focus on good governance.

A 1998 discussion paper by the Advisory Committee on External Aid and Development defined good governance as “the effective management of a country’s resources in a manner that is participatory, transparent and accountable”. This definition went on: “It is also equitable and effective. It promotes the rule of law. [It] ensures that political, social and economic priorities are based on broad consensus in society, and the voices of the poorest and powerless are heard in decision-making concerning the allocation of development resources.”

A sub-set of good governance is good government, defined by the Advisory Committee as embracing “political accountability, reliable and equitable legal frameworks, bureaucratic transparency, and effective and efficient public sector management”.

Good governance is closely associated with democratisation, respect for human rights, and the promotion and consolidation of civil society organisations as both advocates and actors in participatory decision-making. Capacity building in both government sector and civil society is a key tool of assistance in good governance.

The increasing prominence of good governance in international development assistance arises from the convergence of two processes:

· the evolution of development theory and policy in donor countries and organisations, especially those placing human rights at the forefront of their approach. Analytical work in the 1980s persuaded donors that putting money into programmes and projects at national or local levels was unsustainable if the governance structures were opaque or repressive. The consequence, more often than not, was poor policy, misallocation of resources, corruption, extraction of resources with little re-investment, elite resistance to targetting the poor. In short, good governance was necessary for development assistence to be effective; and was a key element in ensuring local ownership and sustainability

· the recognition of need for assistance in this area in many developing countries, especially those emerging from authoritarian and repressive systems of government. Many of the new governments emerging in Eastern Europe or in parts of Africa and Latin America acknowledged that they were ill-equipped to carry through the kinds of reforms they wished to make, and actively sought foreign assistance and support.

Indonesia after the fall of President Soeharto is such a country, and its experiences since then show the complexity of the challenges confronting governments seeking to overcome a “good governance deficit”. They also point up some of the difficulties which donors face in this sector.

Before addressing these, I need to give you some background on Indonesia. In another speech I described Indonesia’s political history since independence as a search for a form of government appropriate to a country of its particular make-up: that is, an archipelago of some 17,000 islands with a huge population encompassing more than 200 ethnic groups, a similar number of languages and dialects, and five officially recognised religions (along with several not recognised and a wide variety of local customary beliefs). So we have seen experiments with parliamentary democracy (50s); “guided democracy” (58-65); “pancasila democracy” (66-98) - authoritarianism with the forms of constitutionalism; and now a form of democracy again.

The country’s economic fortunes have been equally varied. At independence the country had a small modern economic sector, shaped largely for the benefit of the Netherlands and Dutch businesses and superimposed on a traditional subsistence economy. Infrastructure was largely undeveloped, outside Java and parts of Sumatra. Highly educated or trained Indonesians were few. But the country had rich natural resources, many in demand internationally. This potential wealth was never realised because the primacy of politics over economics in Soekarno’s approach to government led inevitably to poor economic management. Persistent regional dissidence and, later, foreign adventurism further eroded the economy, which was in a parlous state by 1965 when Soeharto and the army began to take control of the government. Soeharto made economic development and internal stability the key planks of government policy, adjusting the political structures and foreign policy to serve these goals.

Indonesia’s economic system under Soeharto was controversial. A World Bank contact in Jakarta once told me that many Bank staff resented the success of Indonesia’s mix of political repression and state-directed economic development because it contradicted many of their cherished assumptions. But it was in many ways very successful, not only in stabilising the economy and putting it on a sustained growth path which attracted foreign investment but also in spreading the economic and social benefits more widely through the population.

Though the economic achievements under Soeharto were real, they had a dark side - corruption, for example, and abuses of human and civil rights in the name of economic development. The implicit compact between the regime and the people, in which political rights and freedoms were traded off against economic growth and development, was vulnerable if economic performance fell away. In the latter part of 1997 and 1998 Indonesia suffered the worst economic collapse, outside a war-time situation, experienced by any country since WW2. This brought out into the open a wide range of suppressed dissatisfactions with the government which led, after serious civil disorder in Jakarta and other cities, to the resignation of Soeharto from the Presidency, 32 years after he came to power.

Since then Indonesian governments have been embarked on a two-fold reform process:

· stabilising the economy and restoring it to growth

· re-establishing and consolidating a democratic system of government

In both fields they have made progress, though I won’t be talking here about constitutional and political or economic reforms. But in both there have been many disappointments for Indonesia’s reformers and their foreign supporters.

These disappointments have been due in large part to the absence of the critical components of good governance from both the public and private sectors. To amplify this point, I return to the definitions with which I began.

Tested against these definitions, the Soeharto era governing system fell short in virtually every respect. Rather than being “participatory, transparent and accountable”, it was highly personalised and centralised, with the President at the apex of a network which transmitted decisions from Jakarta down to the local level and information from that level back up to Jakarta. Decision-making processes were obscure and secretive. While the President presented a formal accountability report to the Parliament at the end of each five year term in office, there was never any serious discussion of it, let alone a prospect that he might be judged to have fallen short and required to explain or make up for this. (His successor, Habibie, did fail this test in 1999 and withdrew his candidacy for a further term but the circumstances do not necessarily demonstrate improved accountability; nor do those surrounding the removal from office of President Wahid last year.) Accountability under Soeharto was to the President, with rewards and punishments determined by him using criteria and methods not obvious to outsiders.

Nor did the Soeharto model “promote the rule of law”. Soeharto accelerated and carried to a logical extreme the process of subordinating the judiciary to the executive begun by his predecessor. Successive Soeharto governments paid great attention to the forms of constitutionality and respect for the law but practice was very different. From the making of laws in Parliament through enforcement of laws by the Police to the redress of grievances through the courts, the whole system was subverted to meet the policy objectives of the power elite. If “political, social and economic priorities” were “based on broad consensus in society”, that was mainly because the consensus was coerced. The voices of the poorest and powerless were not heard. In a top-down authority structure members of the Jakarta elite professed to speak for these groups but their reality was often dispossession of their rights and property. While, from a certain perspective, these policies were effective, they were certainly not equitable. There is quite a lively academic debate about whether other models of development might have yielded similar or better growth rates with more equitable distribution of benefits.

Turning now to the “good government” definitions, the failings of the Soeharto model are equally evident. Political accountability as we know it - ie the checks and balances of Parliamentary oversight, independent audit, and public scrutiny - simply did not exist. The representatives of the people were hand-picked by the regime, and the five yearly elections were a kind of theatre - they were actually called “festivals of democracy”. The voters were expected to be quiescent between elections, and their elected representatives usually felt no need to visit their constituencies or to take much interest in the concerns of constituents. Civil society organisations were discouraged, except from performing charity or educational functions. Media exercised self-censorship or were controlled.

Legal frameworks, as I have suggested already, were neither “reliable” nor “equitable”. Nor were they impartial or open to public scrutiny. Bureaucratic processes were neither transparent nor efficient. The powers of control agencies such as the State Audit Board were limited by law and by the appointment of compliant heads. Corruption, collusion and nepotism thrived. Rivalries between government agencies were legion, and frequently deliberately stimulated as part of a Presidential divide and rule strategy.

Many commentators assumed that installation of a democratically elected government would of itself facilitate good governance reforms in the government system. In fact, many of the features of the Soeharto era persist, despite the holding in 1999 of Indonesia’s freest and fairest general election, the assertiveness of the new Parliament in exercising its powers and authority, the mushrooming growth of non-governmental advocacy groups, and vigorous media exposes of shady dealings.

The durability of elements of the old regime should not surprise. It had been in place for some 30 years, refined and developed throughout this period to meet new challenges. The subversion of other arms of government by the executive had begun even before that. So most of the population had no experience or memory of any other form of government and no expectation of accountability to themselves as electors or of effective participation in public affairs. Attitudes and mindset are as important as - perhaps more important than - the constitution and laws.

Some of the reformers understood that success in bedding in a post-authoritarian system would depend on action to overcome the “good governance deficit”. They were encouraged in this by the donor community. The international aid agencies - but especially the IMF and World Bank - placed considerable weight on governance issues, in the former case as part of the conditionality of its lending and in the latter through specific programmes. Key bilateral donors - the US, EU, Nordics, and Australia, for example - also looked for ways to support improvements in governance. Many international NGOs and civil society organisations established themselves in Indonesia, offering advice and funding in this area. The first wave - IFES, IDEA, NDI and many others - came to support the general elections process.

Most of these, whether governmental or non-governmental, faced similar difficulties. Finding a point of entry to the Indonesian system through which effective programmes could be mounted was a problem for all, even those with a clear and limited mandate (eg in human rights, electoral assistance, support to the legislature etc). Finding a method of dealing with systemic problems on a huge scale was another issue: Indonesia’s public service is larger than NZ’s total population and scattered through a large number of organisations of very different kinds. Working around political constraints was a third problem: for example, proposals for restructuring or stream-lining agencies usually foundered on government reluctance to add to unemployment. Gaining acceptance among Indonesians of some basic governance concepts was often difficult: past lack of transparency has served politicians and bureaucrats quite well from their particular vantage points, and even the newer generation, many of whom have had to make “downpayments” in order to secure their jobs with little prospect of reovering their investment from salary alone, seem reluctant to change this. In the corporate sector, political interference, the machinations of former owners, and hostility to foreign takeovers has largely stymied the effort to sell off the assets of failed companies or to revive poorly-performed SOEs.

One of the more innovative approaches was the Governance Partnership which linked the Indonesian Government, civil society, and the international community (bilateral donors, UNDP, ADB, and the World Bank) in an effort to bring strategic guidance, consultation and coordination to assistance in the governance sector. The Partnership was modelled on a very successful UNDP initiative for coordinating international assistance for the 1999 general elections which donors and Indonesians alike considered to have been highly effective. The Partnership Board was jointly chaired by an Indonesian Minister (herself a prominent NGO figure) and a leading academic and religious personality, with other members drawn from Indonesian organisations and donor countries and agencies.

After a year the achievements of the Partnership were disappointing, and its structure and operations were reviewed. Among the problems identified were:

· uncertain commitment/ownership by the Indonesian Government (shown up in poor attendance by Indonesian Ministerial participants whose support was essential to drive activities through the bureaucracy)

· a consequent over-reliance on donor country participants to define priorities and activities (leading to a sense that foreigners were calling the shots)

· proposals for Board consideration which were too detailed for a strategic-level body and did not allow the Board to play its intended role in strategic direction, priority-setting and coordination.

At the time I left Jakarta the Partnership was just beginning to address these issues. The structure of the Partnership has been revised to give more power to the Indonesian members of the Board, with donors having an advisory role only. The Partnership has engaged more effectively with civil society and is developing a more independent identity. This year more emphasis is going into outreach activities to improve public understanding of good governance with a view to encouraging better quality proposals from a broader cross-section of society.

NZ, like other donors, has laid emphasis on good governance in its assistance programmes to Indonesia, and we have experienced most of the frustrations. The relatively small scale of our assistance made the selection of projects very important. But sustaining their momentum proved unexpectedly difficult. Changing personnel at Ministerial level and in the bureaucracy frequently stalled implementation while the rationale for the proposal was again explained and support won for continuation. Let me summarise some of our activities under the bilateral NZODA programme and the contestable Good Governance Programme:

· NZ has so so far contributed $450,000 to the trust fund administered by the Governance Partnership and, following a review of our ODA programme to Indonesia last year, Ministers have confirmed that the Partnership is a priority channel for funding into this sector.

· the National Commission on Human Rights, established by President Soeharto in the early 1990s and widely expected to be an ineffective sop to international opinion, earned a reputation for independence and willingness to speak out for the oppressed, but it was always seriously under-resourced. In order to build its organisational capabilities we funded a 1999 visit by two senior staff of the Commission to the NZ Human Rights Commission and other relevant institutions to study management sytsms and processes. To boost the Commission’s research capabilities we established and financed seven two year fellowships which provided additional staff capacity at a time of rising demand. Other donors followed our lead. The Commission did not seek further funding for these positions from us at the end of the period, and we are not currently directly involved with it - in part because problems arising in the Commission, such as conflict between conservative and reform-minded members, untransparent processes for selecting new members, waning public confidence, and administrative weakness have led to donor disillusionment with the Commission. Donors now have many other good causes and organisations to support.

· working with the then Ministry for Human Rights Affairs we funded a national workshop on implementation of the National Human Rights Plan of Action and, later, a workshop on the rights of the disabled.

· in response to a request from the then Minister of Finance, we sponsored a visit to NZ by senior officials from a range of Indonesian agencies to study aspects of public sector reforms, and follow up assistance to the Ministry of Finance to introduce some of these. One tangible outcome was a considerable improvement in the presentation of the State Budget, hitherto a confusing and untransparent document. Regrettably, this promising cooperation was severely affected by changes in personnel at the political and official levels but NZODA is shortly to put out to tender a proposal for a large, multi-year project in improving fiscal management and transparency within the Budget Analysis Unit of the Ministry.

· President Wahid established a National Ombudsman’s Office as a device to improve redress for ordinary citizens and to encourage public service organisations to be more responsive. Like the Human Rights Commission, it was severely under-funded and donors, including NZ helped to make up some of its needs. Assistance to date has included exchanges of high-level visits from the NOC and NZ’s Office of the Ombudsmen, and supporting engagement at international meetings. Further cooperation is possible in training for caseload and investigations management. The Governance Partnership has recently approved a major institutional strengthening programme for the NOC.

· for the 1999 general election we provided an experienced trainer of electoral personnel, and $30,000 for specific projects coordinated by UNDP

· several small projects funded from HOM Funds or SCDF involve rights and advocacy, either for specific activities or for institutional strengthening of NGO or community-based organisations seeking to intervene more effectively. Examples include farmer groups exchanging practical experience through periodic workshops (East Kalimantan), textile producer cooperatives (Flores) and labour organisations (Jakarta).

Under the new NZODA Strategy for Indonesia approved last year work will shortly begin to design a Flexible Facility for HR Projects.

Not all of NZ’s contributions were made through the NZODA programme. For example:

· IFES, the International Federation of Electoral Studies, contracted the head of our Electoral Commission to provide expert comment on Indonesia’s draft electoral laws in 1999. IFES also took Rod Donald MP to Indonesia as a contributor to discussions about the new electoral system to be adopted, drawing on his experience as an advocate of MMP;

· the Reserve Bank, building on contacts made in the regional central bank organisation, provided assistance to Bank Indonesia in developing inflation targetting;

· Audit NZ, also building on contacts made through a regional organisation, has developed a programme which gives auditors from the State Audit Board experience in public sector auditing here. This programme has also involved some lectures and training in Jakarta and seems likely to become a two way exchange of personnel.

None of these is large in scale, and I wouldn’t pretend that NZ’s assistance in these fields is making a critical difference. “Niche projects with niche impacts” is one description of our effort. But, compared to aid in an earlier era, when the focus was on building infrastructure or providing technical training, this is a much more complex area in which to work, results take longer to show through, and success is much harder to measure, especially at the overall country level. But there are things we can do, and Indonesia badly needs help in this sector, so governance is one of the six key areas of focus of the new NZODA Indonesia strategy and operational framework, agreed to by NZ and Indonesia last year.