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July, 2014:

Business and politics in Indonesia

Presidential candidate, Prabowo Subianto, and Golkar Chairman Aburizal Bakrie campaigning in Senayan- Mietzner

What are the institutional mechanisms that make these (often illicit) transactions an ongoing feature of Indonesian politics? More broadly, what are the consequences of increasing business-state overlap for public policy, both good and bad? This special edition of Inside Indonesia goes some way toward addressing these questions. The articles investigate the connections between public office and private capital in contemporary Indonesia, with a view to understanding the institutional landscapes that exacerbate, or limit, predatory politico-business alliances.

The edition opens with a timely economic overview from Hal Hill, a long-time observer of Indonesia’s political economy. A welcome change from the many negative characterisations of Indonesia’s corrupt government, Hill sketches out the remarkable economic progress the country has made over the past decade. Hill emphasises that, against the odds, economic policy makers have in many instances avoided political influence and put Indonesia on a stable path of economic growth. But he also highlights Indonesia’s pronounced and worsening inequality, arguing that it leaves the door open to populist appeals and politicised policy interventions. On the eve of Indonesia’s presidential election, Hill lays out five challenges for a new administration, including reduction of fuel subsidies and reform of the bureaucracy. He does not consider either Prabowo or Jokowi a ‘reform champion’ when it comes to economic policy, but is hopeful that the victor will surround himself with a ‘professional’ and experienced cabinet.

Eve Warburton’s article shifts gears and turns our focus to Indonesia’s political landscape. Warburton maps out the varied ways in which democratic institutions have become sources of capital generation for state officials and their business partners – or for entrepreneurs that have entered office directly. Collusive state-business alliances are motivated partly by personal enrichment, but also by how expensive it is to take part in Indonesia’s democracy. The business transactions that now feature so heavily in national and regional politics can have serious consequences for social policy and economic development, and for the quality of democratic institutions more generally.

Ward Berenschot and Darmawan Purba report on the recent gubernatorial elections in Lampung Province, where a single company dominates the local political economy. They describe how Sugar Group Companies (SGC) bankrolled one of their own company insiders to run for governor. Companies like SGC often claim they are compelled to cultivate political allies because they must face Indonesia’s notoriously unpredictable rules and corrupt rent seeking from state officials. But the authors make a powerful case that these business-state pacts are self-reinforcing, and only perpetuate regulatory uncertainty. Berenschot and Purba propose that enforcing transparency around campaign financing would help limit collusion on the scale witnessed in Lampung.

Teri Caraway and Michele Ford’s article provides insight into how local governments have become sites of contestation between labour and business. Wage disputes motivate both sides to lobby local government officials. Businesses use their influence behind closed doors. But, as the authors demonstrate with a case from Bekasi, during election season labour unions sometimes posses significant bargaining power, as political candidates try to win their support and leverage union networks.

In their articles, Danang Widoyoko and Patrick Anderson detail the nature and consequences of corrupt forest licensing. Danang, former Director of Indonesia Corruption Watch, looks back at an election in West Kalimantan, and the way that one candidate manipulated forest licenses to extort funds for his campaign. This case reveals the tragic environmental consequences of the symbiotic relationship between politics and business in resource rich regions.

Patrick Anderson from Forest People’s Programme reminds readers of the immense progress that environmentalists and anti-corruption activists have made in order to prevent cases like that described by Danang. The Corruption Eradication Commission has now turned its attention to the oil palm sector, with many arrests of company staff and state officials already underway. But Anderson argues that prosecutions alone are not a sufficient deterrent. There must be serious reform of the electoral system and the corrupt bureaucracy if Indonesia is to stamp out predatory deals between local governments and oil palm companies.

Andrew Rosser examines how some of Indonesia’s largest corporations continue to stall reform in the health sector. Important legal changes impacting the sale of cigarettes have been on the horizon for some time, and are imperative for a country where, according to the World Health Organisation, over 400,000 people die each year from tobacco related illnesses. Rosser shows that tobacco companies continue to use political connections within the parliament and in political parties to stall regulations that threaten their bottom line.

Finally, Anna Peterson takes a look at reform of one of Indonesia’s most important regulatory institutions. The Supreme Financial Audit Agency (BPK) is tasked with monitoring irregularities in the financial reporting of government organisations, and is thus key for preventing many of the illicit business transactions outlined in this edition. Peterson looks at how, despite much progress, the governing board remains politicised, primarily through members’ ongoing connections with political parties. As such there is much public skepticism about the capacity of the BPK board to fulfill its role.

Corporate lobbying, political extortion, and bribery are ubiquitous features of Indonesia’s evolving democratic political economy. Of course, such practices feature to different degrees in many democracies around the world. But Indonesia’s rising socio-economic inequalities, critical environmental damage, and its relatively young and fragile democratic institutions, mean that addressing illicit state-business transactions is a matter of urgency.

While the articles in this edition tend to paint a bleak picture, each also identifies forces for change – local entrepreneurs-cum-politicians who bring business acumen and efficiency to their new position in government, anti-corruption activists, progressive parliamentarians, just to name a few. Of course, the critical question now is who will lead a new administration, and which presidential candidate has the political will to reform the business of Indonesian politics.

Eve Warburton is a PhD candidate in the Department of Political and Social Change at the Australian National University. Her thesis focuses on politics and policy making in Indonesia’s natural resource sectors.

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