Institutions hold key, not individuals    Mukul Raheja  ;   A researcher in public policy and business consulting

JAKARTA POST, 15 April 2014

                                      

                                                                                         

                                                             

The strength of democracy comes from strong, vibrant, incorruptible and well-functioning democratic institutions, not assumedly charismatic individuals. The very fact that the electorate and a political party are putting high hopes and expectations in an individual politician or leader is evident of a huge vacuum in a democracy. It is also clear from this blind faith in an individual that there is a bankruptcy of ideas and an absence of mature political debate in that democracy. Niall Ferguson, a well-known historian, noted in his book Civilization: The West and the Rest that what has separated the Western world from the rest of the world in the past few centuries is the presence and evolution of strong institutions, especially democratic institutions. There is a very valid reason that both historically, and in contemporary literature, institutions have been credited with such vitality. The reason is very unambiguous and it is that individuals, no matter how charismatic and apparently incorruptible they are, cannot replace the role of institutions in a democracy. Unfortunately, what has been happening in democracies in the past decade or so is exactly contrary to the aforementioned accepted notion. The recent nomination of the incumbent governor of Jakarta, Joko “Jokowi” Widodo, as presidential candidate by the Indonesian Democratic Party of Struggle (PDI-P), is again reflective of this fact. In India, the largest democracy in the world, the same story is being repeated with the nomination of Narendra Modi, the incumbent chief minister of the state of Gujarat, as the prime ministerial candidate of the Bhartiya Janta Party, which is the chief opposition party. This nomination of politicians who are projected as different from the run-of-the-mill politicians by the same old political parties is counterproductive for democracy in the long run. The first and foremost problem with this practice is that it is like packaging old wine in a new bottle. These old and established political parties — themselves guilty of ill practices like corruption, non-performance and governance failures in the past during their rule — resort to building PR campaigns around an individual, projecting him or her as the real change. This exercise reflects their inability to radically reform their own parties, their failure to come up with any solid future road map of what they intend to do if they come to power and their inability to fight elections on the plank of differences in policies and opinions. Though there has been much debate and endless discussion about these individuals, Joko Widodo and Narendra Modi, the whole discourse misses the larger point. The need of the hour, in order for the democracy to mature and for any real change to be seen in the long run, is to shift this debate to a much more relevant issue — why political parties refuse to change their ways and are unwilling to make a shift from the ill practices of vote-bank politics, money and muscle politics, as well as politics revolving around the manufactured charisma of individuals or the lack of it. The new Indonesian democracy is now already into its second decade but the problems that it faces remain more or less the same. The real change that the young and fledgling Indonesian democracy needs is for the electorate, especially youth, who make up a large proportion of the population, to be much more aspirational. It is not constructive for the electorate to buy into the politics that the same old parties, which have failed them in the past, are feeding them. What would be most regrettable for Indonesia as an evolving democracy would be getting stuck and trapped in the debate about whether an individual’s credential are good enough or not, or if an individual would prove to be the lesser evil. The voters, rather than being dictated by the debate, should drive and dictate the political debate themselves. The debate should be about the issues that matter to the nation and its people. The voters need to put hard and tough questions to their political leaders instead of believing their promises and lofty claims. The harsh questions that need to be asked should be about the concrete road maps of the political parties and their presidential candidates with which they will address burning issues and strengthen democratic institutions. The complete list of questions will not be complete unless the political discourse in the country is centered on the problems and issues, rather than individuals. How does the new government plan to address the problem of the majority of people in Indonesia working in the informal sector, and bring them into the formal sector? What is the stand of political parties and their presidential candidates on making democratic institutions like the General Elections Commission (KPU) and the Constitutional Court independent, strong and autonomous? What is their solution to implementing the right checks and balances to rid these institutions of corruption, but at the same time avoid political interference? How will the new government address the key problems in the relationships between the national and provincial governments? The duty falls upon the voters to be vigilant and well-informed and to direct the discourse toward the real issues. The electorate should make sure that elections are contested based on the debate of the issues mentioned in the candidates’ manifestos and not based on the debate centered on individuals. It is high time for the electorate to realize that it is not the individuals but rather strong democratic institutions and well-intentioned, well-planned and well-executed policies that will drive the democracy forward in the long run. The presence of clean individuals and able administrators is one of the very vital and necessary conditions of a democracy, but not a sufficient condition in itself. ●

The dire need for reform of Indonesia’s SOEs Mukul Raheja  ;   The writer, who holds a Master’s degree in international relations with a focus on political economy, is a researcher in public policy and business consulting

JAKARTA POST,  26 Februari 2014

                                                                                                                        

                                                                                         

                                                                                                                       

“The government has no business being in business” goes the famous quote. The practicality of these words is debatable, but it is unanimously acknowledged that the excessive involvement of state-owned enterprises (SOEs) in business crowds out private businesses and investment. The SOE sector in Indonesia is oversized and inefficient to say the least. The number of state-owned companies is 141, with another dozen companies in which the government has a minority stake. In terms of the total assets held, these SOEs account for Rp 3.5 quadrillion (US$300 billion). The total revenue estimates of these enterprises stood at an estimated Rp 1.5 quadrillion or about a fifth of the Indonesian gross domestic product (GDP) in 2012. Their sector-wide presence is extremely pervasive with interests in energy, power, transportation, aviation, agriculture, banking and telecommunications. One measure of the massive failure of the state enterprises is that in spite of their colossal size and spread, the majority of the population in Indonesia is still employed in the informal sector. Further, there is only one Indonesia SOE ranked in the Fortune 500 list; Pertamina. This is not to say that all state enterprises should be tarred with the same brush, even though the best of the state enterprises in Indonesia still suffer from endemic poor practices. It is, nonetheless, essential to differentiate between the loss-making SOEs and the profit-making ones. The optimal approach would be for the government to divest its stakes in the loss-making businesses and radically reform even the profit-making ones. It is incorrect and counter-productive to assume a profit-making state enterprise on paper is an actual profit-making and efficient business. More often than not, one of the major reasons for the apparent profitability of the SOEs is the explicit and hidden subsidies which come directly out of the taxpayers’ pockets. This has been amply demonstrated by examples in China where recent independent studies have shown that in the absence of all the government subsidies, SOEs which appear to be doing great would actually be making losses. State enterprises also have an unfair advantage due to various factors like priority bank lending, an absence of healthy competition from private businesses and access to natural resources at giveaway prices due to the lack of proper bidding procedures to name a few. According to the Indonesian government’s own figures for 2012, the total subsidies earmarked for fuel and electricity amounted to Rp 300 trillion out of a total state budget of Rp 1.6 quadrillion. These subsidies go into offsetting the losses to the state enterprises for selling the fuel and electricity at subsidized prices. The bulk of the subsidies will go to fuel because Indonesia now depends on imports for more than 60 percent of its consumption. Another major problem and the most critical one that SOEs in Indonesia face is the widespread corruption. This corruption is not only detrimental to the smooth operation and efficiency of the company, but also results in direct loss to the state exchequer and taxpayers. In the past few years many SOEs have been investigated by the Corruption Eradication Commission (KPK) for gross irregularities. The list includes many well known names spread across various sectors like PT Adhi Karya in the construction sector, Telkom the country’s telecommunications giant, PGN and PLN the state natural gas and power companies respectively and Sang Hyang Seri the wholly state-owned agro chemical company. The constant meddling in the affairs of the state enterprises by influential legislators and members of the government is another issue that plagues these enterprises. The recent revelations and allegations by Karen Agustiawan, the president director of Pertamina, are an indication of the mammoth complications in running a state enterprise in Indonesia. She alleged that several lawmakers threatened to undermine her position if the state energy company did not pay them undisclosed sums of money. The interference of political parties and the government in the appointment of executives to the board of SOEs is a reflection of how these enterprises are used as cash cows for political and economic gains. The list of reforms that are required to fix the problems hindering SOEs is long and the road is difficult. The attempts made in the past by the State-Owned Enterprises Minister Dahlan Iskan at even minor reforms fell flat on their face and the frustration is only growing. The ministry is a toothless body with excessive interference by the House of Representatives. The first major step toward change would be attracting the best talent to the SOEs and appointing them to senior positions in an open and transparent manner. State enterprises like Pertamina and Garuda Indonesia have gained under the stewardship of their able leaders. The next step in the right direction would be for these companies to be evaluated on the measures of profitability and efficiency like a world-class multinational national company and not under the shield of subsidies. Another reform would be to open some of the previously closed sectors to private businesses and ensuring a healthy competition to keep even the best of the state enterprises on their toes. In order to efficiently tackle the crisis of corruption marring the state enterprises, the best way forward would be for these enterprises to be publicly listed on the Indonesia Stock Exchange (IDX). This would ensure enhanced transparency of information dissemination regarding their corporate governance structure, subject them to rigorous disclosure requirements and expose them to increased public scrutiny and independent audits. The major reform of freeing these enterprises from overt political influence, though extremely difficult, needs to be done through strong political will in order to achieve any real change. The need is for Indonesia to have independent, transparent, efficient and corruption-free state enterprises, limited to operating in only a selected number of strategic sectors where they have a comparative advantage. Otherwise in their current state, they will be a liability and not an asset to the state and economy. They will be also be detrimental to private businesses and investment and thwart the growth of medium-sector enterprises, which Indonesia badly needs in order to generate more employment in the formal sector. In the past there has been some lip service paid to the need for reform but no real reform itself. It will take an administration with a firm agenda for reform and strong political will to achieve any real change. ●