Component Description

Component Description

Support to

Strategic Plan of

Transparency International Indonesia

2010-2012

Good Governance and

Anti-Corruption

Component 3 of

SUPPORT TO GOOD GOVERNANCE IN

INDONESIA

2010-2013

Transparency International Indonesia

Danida

Component title / Good Governance and Anti-Corruption
Partner Organizations / Transparency International Indonesia in cooperation with Stabil in Balikpapan; Bastari Kalsel in Banjarbaru, Pattiro (Centre for Regional Information Analysis) in Semarang.
Immediate Objectives / 1) Improved Economic Governance Indicators and business climate through the reform of the business operating environment at the local level and the implementation of good corporate governance principles; 2) Reduced corruption in targeted regions of Indonesia through greater public participation in the development and implementation of local public procurement budgets and increased media coverage; 3) TI Indonesia and its partners operating a sustainable, effective, and efficiently managed growing organization.
Description / The Component is fully aligned with and will support elements of Transparency International Indonesia’s Strategic Plan from 2010 to 2013, with focus on three areas, namely enabling environment for anti-corruption (policy, legislations, regulations) at the national and local levels; develop “islands of integrity” (refer to annex 7); and provide capacity strengthening for TII and its partners. The activities will target national and local legislatures, civil society organizations, media, businesses, business associations and government agencies. The main outputs include reform of business licensing regulations and practices in local governments; engagement of the private sector through promotion of good corporate governance principles; and measuring state capture ofaccess to public credit financing for Small and Medium Entreprises (SMEs) and informal sector. Research and advocacy on enabling the environment for anti-corruption will be undertaken both at the national and targeted local levels. The Component will support the Ministry of Administrative Reform (MenPAN) to implement Integrity Pacts in local governments. Strengthening of citizen participation and accountability in the development planning process, and support to reform of the legal framework of public procurement is included. The Component will educate and strengthen the capacity of the media in its coverage of corruption and develop a TII network with youth organizations; Integrity Pact implementation will focus on target areas: Balikpapan (East Kalimantan), Makassar (South Sulawesi), Semarang (Java), Dharmasraya (West Sumatra), and Banjarbaru (South Kalimantan), and one additional city to be selected with the MenPAN. TII will work with and through partner organizations on the implementation of Integrity Pacts. Relating to capacity strengthening, strengthen the management capacity of TII and its local partners. The outcome monitoring system will link to the Indonesian Corruption Perception Index Survey. At the output level, various indicators and milestones (number of regulations passed, Integrity Pacts adopted, etc.) will be used to monitor progress. The component will be managed by TII’s existing management structure. A Steering Committee will oversee the component.
Total Amount / IDR 27.467.447.750 DKK 15 million
Implementation period / 1 January 2010 to 31 December 2013

Table of content

1National Sector Context......

1.1Overview of Economic Governance Indicators in Indonesia......

1.2The challenges of Decentralization......

1.3Corruption in public procurement......

1.4Transparency and accountability in Business Licensing......

1.5Recent sector policy developments......

1.6Key sector actors and stakeholders......

1.7Development partners in the sector......

1.8National Outcome Indicator......

2Description of component......

2.1Strategy......

2.1.1Reforming the Business Environment......

2.1.2Promoting Good Corporate Governance......

2.1.3Measuring state capture in access to public credit finance and public aid......

2.1.4Local public procurement budgets......

2.1.5Strengthening existing Integrity Pacts......

2.1.6Replication and up scaling of the Integrity Pact......

2.1.7Strengthen participation and accountability in development planning......

2.1.8Media educated and facilitated in coverage of corruption......

2.1.9Developing TII network with Youth communities......

2.1.10Capacity strengthening......

2.2Expected Outcomes......

2.3Outputs and activities......

3Specific measures to address cross-cutting issues and priority themes......

3.1Gender......

3.2Private sector......

3.3Potential impact on public health and education......

3.4Environment......

3.5Good Governance and Democratization......

4Budget......

5Management and Organization......

6Financial Management and Procurement......

7Monitoring, Reporting, Reviews, and Evaluations......

7.1Milestones (output level)......

Independent certification

8Key assumptions and risks......

8.1Institutional factors – capacity of local partners......

8.2National level factors......

8.3Sustainability and replicability......

Annexes

Strategic Plan of TII
Logical Framework
Detailed Budget
ToR for Steering Committee
Partner organizations
Achievements of first Phase of Danish support and Integrity Pact implementation strategy
Ongoing and planned programs
financial and procurement procedures

Acronyms

CPI / Corruption Perception Index
EGI / Economic Governance Index
TII / Transparency International Indonesia
ICW / Indonesia Corruption Watch
IDR / Indonesia Rupiah
IMO / Independent Monitoring Organization
IP / Integrity Pact
Keppres / Presidential Decree
KMC / Kecamatan (Sub-District) Monitoring Committee
KPK / The Corruption Eradication Commission
KPPOD / Regional Autonomy Watch
LFA / Logical Framework Analysis
MenPAN / State Ministry for State Apparatus Reforms
MoU / Memorandum of Understanding
NPPO/LKPP / National Public Procurement Office
OSS / One Stop Service
Pattiro / Centre for Regional Information Analysis – partner organization
Perpres / Presidential regulation
TII/TI Indonesia / Transparency International Indonesia
UU / National Law

Exchange rates used (5 September 2009):

1 DKK = 0.19 US$

1 DKK = 1,803 IDR

1National Sector Context

1.1Overview of Economic Governance[1] Indicators in Indonesia

Economic governance is characterized as “the essential governance functions that facilitate trade and that expand participation in markets”.

In 2007 Regional Autonomy Watch (KPPOD) conducted a nation-wide Economic Governance Index (EGI) Survey to measure local governments’ performance across nine economic governance indicators. The survey revealed that the quality of infrastructure is the primary concern of businesses at the district level. Approximately 35% of firms stated this as their number one constraint in doing business. Poor quality roads and frequent power outages are the main problems with 75% of firms saying that there has been no improvement in infrastructure since 2006. Uncertainty concerning Business Licensing Procedures also needs to be urgently addressed, as the survey revealed that only about half of the surveyed firms possess a business registration permit, even though this is required by law. Compliance rates are much lower for other basic business licenses. Despite a ministerial decree two years ago mandating the establishment of district One Stop Service (OSS) Centers for business licensing, only 7% of firms had used them to obtain their current registration permit.

Much remains to be done in order to improve the quality of infrastructure and public service provision to local businesses. Efforts by government and development partners to improve economic governance should therefore focus on strengthening transparency and accountability in infrastructure development, through the reform of public procurement practices. Strengthened transparency and accountability in the business licensing process is expected to positively impact on the business climate, boost registration, business creation, and investment.

1.2The challenges of Decentralization

Decentralization, initiated with the adoption of law 22/1999 and law 25/1999 and later revised with laws 32/2004 and 33/2004, has been a major break from Indonesia’s centralized past, opening the way for better public service provisions, through more coherent development strategies, improvement of local governance and greater accountability to local communities. However, many still believe that the current reality reflects more decentralization from central government to local governments rather than decentralization from central government to local communities. The entire process was led through the fragile assumption that the structure of government would determine the quality of governance, and that greater responsiveness and accountability would follow if the governance system were closer to the people. However, if not adequately accompanied by capacity building, institutional development, and strengthened public participation and monitoring, decentralization is unlikely to produce the desired outcome and could in fact increase opportunities and incentives for corruption.

1.3Corruption in public procurement

Public procurement is the main component of National and Local Development programs. In 2007, from a total National Budget of Rp. 763 trillion, Rp. 240 trillion was used for public procurement, i.e. 31% of the National Budget. At the local level, decentralization has allowed local governments to manage larger budgets. On average, throughout Indonesia, 60 percent of the local development budgets are being used for procurement.

According to the Commission for the Eradication of Corruption (KPK), around 30% of the procurement budget is lost into corruption. Almost 80% of the cases handled by the Commission are related to public procurement. Corruption in public procurement often starts in the planning phase, with the intervention of well-connected businesspersons to influence budget allocation, generating significant gaps between budget priorities and the needs of local communities. State capture allows influential corporations to shape public policies and protect vested interests and rent seeking activities.

Internal supervision agencies have too often shown their limitations and inability to detect corruption in public projects.This emphasizes the need to externalize monitoring in order to guarantee its independence and effectiveness. As beneficiaries of public projects, local communities should take a central role in the monitoring process. Opportunities for public participation in the monitoring of public service delivery are guaranteed by the Freedom of Information Act (UU No. 14/2008) and the law No 20/2001 on Corruption Eradication. Therefore, in order to ensure accountable and efficient utilization of public resources, it is critically important to empower local communities to participate in the development and monitoring of local development programs, from the planning to the implementation phase.

A small-scale survey conducted by TII in several cities revealed that although local communities were aware of the importance of public participation in addressing omnipresent corruption issues, they stressed the under-representation and marginalization of the communities as the key obstacle to effective participation. Citizens highlighted the need to develop dialogue between local communities and government agencies, notably through the establishment of an independent organization that could voice their concerns and monitor follow up actions.

1.4Transparency and accountability in Business Licensing

Despite several attempts to reform the regulatory framework, notably through the development of One Stop Services, transparency and accountability in business licensing procedures remains largely insufficient; indeed, despite governmental instructions, no clear guidelines and action plan has been developed to rationalize procedures, increase transparency, certainty, and efficiency in the licensing process. [v1]Consequently, many businesses are taking the risk to operate without proper licenses in order to avoid the administrative burden and unpredictable cost of such process.

1.5Recent sector policy developments

Since the beginning of the current phase of the project in 2007, the administration of President Susilo Bambang Yudhoyono has issued several important regulations related to economic governance, designed to complement existing laws drafted within the National Action Plan to Eradicate Corruption (2004-2009).

The long awaited law on Freedom of information (No 14/2008) was ratified on 3 April 2008, almost five years after the first draft was submitted to the parliament.This is the first comprehensive law regulating the public’s right to information, and outlining the obligations for public agencies in terms of information disclosure. [v2]The law regulates the kind of information to be disclosed and what kind of information can be exempted and for how long. In addition, the law has institutionalized the Information Commission as an independent regulating institution mandated to handle disputes related to disclosure obligations as defined by the law. Several limitations have been identified, however, including the fact that state owned companies, notably national oil and mining companies are not subject to the obligations defined by the law. This was highlighted by TII as the principle obstacle to implementing the Extractive Industry Transparency Initiative Principles. There is also an article on the criminalization of misuse of public information that is perceived as an attempt to restrain the freedom of the media, as it does not clearly define what would constitute a ‘misuse’ of public information. Although not perfect, the law has set in motion moves towards increased transparency and also has a strategic role to play in complementing existing anti-corruption laws such as the Law on Anti-corruption (Law No. 31/1999), the Law on the Commission for the Eradication of Corruption (No. 30/2002), the Law on the protection of victims and witnesses (Law No. 13/2006), and the Law on Money laundering crimes (Law No. 15/2002).

A new Presidential Instruction (Perpres 106/2007) was issued in December 2007, under Presidential Decree No. 80/2003 on public procurement, to establish an independent National Procurement Policies Office (NPPO or LKPP). The NPPO is mandated to regulate public procurements, and address inefficiency and under spending of the National and Local Budgets. The National Development and Planning Agency expects that improved regulatory and supervision frameworks could contribute to curb corruption and increase the efficiency of public procurement by 30 to 40 per cent. The business community has long hoped for the establishment of effective complaint handling mechanisms, allowing bidders to report irregularities in public tenders for further independent investigation and arbitration. However the NPPO has not been granted authority to handle complaints and arbitrate litigations. Complaints should instead be submitted to the head of the relevant public department for arbitration. The National Ombudsman Office welcomes complaints but can only issue recommendations or report cases to relevant authorities. The NPPO is currently reviewing existing regulations in order to identify gaps and contradictions, and will shortly submit anamendmentdraft for the Presidential Decree 80/2003 on public procurement. TII has been actively involved in the consultation process, and intends to work with the NPPO on the development of a National Law on Public Procurement.

The newly ratified Law 25/2009 on Public Services is a major breakthrough in attempting to strengthen transparency and accountability in public service delivery. The law attempts to foster transparency and accountability in Public Service Delivery by strengthening the legal framework regulating interaction between the government apparatus and the general public. The law aims at clearly defining the rights, responsibilities, and mandate of each party, by enforcing good governance principles, notably participation, professionalism, transparency, accountability, and procedural certainty. New regulatory developments will attempt to improve professionalism, responsibility, and efficiency, which will require an in-depth analysis of public service delivery procedures in order to rationalize the process and reduce bureaucracy, notably by regulating the number of people and departments involved.

Article 20 of the law is particularly awaited as it covers the obligation for public service providers to develop, socialize, and implement minimum standards of public service delivery. The development of such standards shall involve civil society representatives, and encompass crucial aspects such as standard cost and duration of the service, complaint handling, and persons in charge.

1.6Key sector actors and stakeholders

Government institutions

The Commission for the Eradication of Corruption (KPK) and Special Court for Corruption Crimes (Tipikor)

The KPK was established under Law 30/2002, which was passed in December 2002. The same law mandated the creation of a Special Court for Corruption. According to the aforementioned law, “The KPK is to be a State agency that will perform its duties and authority independently, free from any and all influences. The KPK is formed with the primary purpose of improving the effectiveness and efficiency of efforts to eradicate criminal acts of corruption.”

The Commission was established a year later, in December 2003, to coordinate with institutions authorized to eradicate corruption; to supervise institutions authorized to eradicate corruption; to conduct investigations, indictments, and prosecutions against corrupt acts; to conduct preventive actions against corrupt acts; and to monitor state governance.The KPK has been particularly effective in investigating and prosecuting corruption, with a 100% conviction rate at the Special Court for Corruption, including high profile public officials such as governors, numerous member of the House of Representatives, an Attorney General, and the former Deputy Governor of the Central Bank. As developed further in section 9.2, the existence of the Tipikor Court is endangered by a judicial review and resistances within the House of Representative.

The Administrative Reform Ministry (MenPAN)

The main functions of The Ministry of Administrative Reform, based on the Presidential Regulation No. 9 / 2005, are to strengthen the capacity of government staffs at both national and local level to provide public services, monitor the performance of their institution, and develop a bureaucratic reform strategic plan; to coordinate relatedpolicy implementation among state institutions at local and national level in relation yohuman resources, public services, monitoring and the accountability of performance; Internal Asset Management; Monitoring of basic government tasks and functions; and report to the President as regards performance evaluation of the various state institutions.

Presidential Instruction number 5 / 2004 on Accelerating Combating Corruption, mandates the Administrative Reform Ministry (MenPAN) to facilitate and monitor the implementation of the government’s anti-corruption strategy (KORMONEV).The Ministry requires innovative tools to establish success stories of bureaucratic reform and anti-corruption initiatives. It should be noted here that the MenPAN’s relative lack of influence at the national level is balanced by stronger authority at the regional level.

National Public Procurement Office (NPPO)

The NPPO is mandated to regulate public procurements, and address inefficiency and under spending of the National and Local Budgets (refer to section 1.5 for a more detailed description).

Mensesneg (State Secretariat)

The State Secretariat is a ministerial department mandated to provide technical assistance to the President and Vice-President in fulfilling executive tasks, notably the production and analysis of legal drafts. The State Secretariat recently invited TII to assist in the establishment of a special presidential task force to combat corruption. In cooperation with TII, Mensesneg’s strategy will focus on two main issues: use the CPI survey as a benchmark to monitor anti-corruption strategies, and implementing bureaucratic reform at the national and local level to develop a better business climate.