---------------------------------------------------------- FREE for JOIN Indonesia Daily News Online via EMAIL: go to: http://www.indo-news.com/subscribe.html - FREE - FREE - FREE - FREE - FREE - FREE - Please Visit Our Sponsor http://www.indo-news.com/cgi-bin/ads1 ---------------------------------------------------------- Subject: Secret WB Document on Corruption in Indon - Pt I (prev. is Pt II) Note: Previous message is incorrectly numbered Pt I (in subject title at top, not in text). It is Pt II. Hereinbelow is Pt I. Dear Readers, Several persons familiar with the World Bank claim that the document below is authentic. But inasmuch as Joyo has no way of verifying such claims, this document is being sent to list members for informational purposes only. The copy received did not include the name(s) of the author(s) of the Memorandum nor of the introductory paragraph describing the Memorandum. -- Joyo ############################################################# Secret WB Document on "Why Corruption Levels are Unlikely to Change under the Proposed Arrangements" This is an internal World Bank document describing why the loan conditions attached to the $600 million Social Safety Net Adjustment Loan [SSNAL] for Indonesia will not have a significant impact on corruption. This was written in December, 1998, but the conditions remain largely unchanged today. This has obvious implications for donors planning to make pledges to GOI at the upcoming CGI meeting. SUMMARY: Main points of the memo (excerpts): "Why Corruption Levels are Unlikely to Change under the Proposed Arrangements [i.e SSNAL conditionalities]. 1. The institutional weaknesses that allow for systemic corruption have not changed. 2. The experimental designs and departmental commitments that underlay past successes cannot cope with the large and varied portfolio of SSN programs to be conditioned under the loan. 3 . The GOI's current anticorruption initiatives, including those undertaken in conjunction with the Bank's lending program, do not inspire confidence, at least in the short term. 4. At this point, officials' ability to sustain a system of corrupt resource transfers far outstrips the capacity of civil society to constrain official corruption through monitoring, publicity, and other available mechanisms. " CONCLUSION of Memo (excerpts): "With the appraisal of the SSNAL moving forward, you confront three basic options: (I) do not make the loan because there are insufficient assurances of integrity in SSN expenditures, (ii) make the loan on the basis of some version of the integrity conditions now being contemplated, or (iii) make the loan without any reference to or representations about corruption - acknowledging that the need for balance of payments support is overriding. I am not sure to what extent option (iii) has been aired. Of course, it would be perfectly consistent with past lending programs, in which the Bank stipulated that it had confidence that audit mechanisms and investment targets were such as to minimize the risk of default. The new variables at play now are Indonesian and international concerns about corruption in development - including multilateral lending - programs, and direct criticism of the Bank concerning the governance of its programs in Indonesia. Obviously, our target is option (ii). The question is whether the insufficiency of definable conditions or of Indonesian fulfillment of those conditions triggers (I) or (iii). To my untutored sensibility, it seems that (I) is not seriously being contemplated. To adopt option (iii) would mean climbing down off the soapbox and reversing course. The one big advantage this would have is in avoiding any Bank certification that Indonesia has actually met a series of anti-corruption conditions. It seems to be broadly assumed that the conditions under option (ii) are unlikely actually to bite, given the pressures to disburse and the difficulties of suspending tranches. I may be underestimating the Bank's commitment in this regards, and if so, my apologies. I just think it's worth considering whether releasing the initial tranche upon certification that the integrity conditions have been met (option ii) doesn't then provide a cover for all sorts of manipulations - creating, to use a now tired concept, a problem of moral hazard. " ************************************************************************ TEXT OF MEMORANDUM: Memorandum to Task Manager, Social Safety Net Adjustment Loan December 7, 1998 Comments on Draft MOP and Policy Matrix Cognitive Dissonance The Bank intends to move $600 million in budget support to the GOI, with the quid pro quo that (I) some commensurate (not identical) amount will be budgeted and spent by the GOI on the social safety net programs, (ii) these programs will be targeted to the populations most in need, and (iii) the programs will be monitored in a way that maximizes effectiveness in terms of support actually reaching the target population. There is a tension among all these goals, and particularly between (I) and (iii). I will focus on the latter. Essentially, the question is whether, with the existing governmental institutions and modalities in place (e.g. highly centralized power structure, low civil service pay, routine expectation of graft, ineffective and arguably predatory audit systems), a combination of (I) popular pressure for reformasi and suppression of KKN and (ii) agreed structures for information dissemination, reporting, and external monitoring will be sufficient to constrain abuses. What the Bank is putting forward, as I understand it (national control commission on top of some version of monitoring systems derived from the Kecamatan Development Project and Urban Poverty Project), does not strike me as sufficient at this point in my work. Sufficient for what? The idea, I think, is to "ring-fence" in such a way that the set of social safety net (SSN) programs we're concerned about suffer minimal losses to corruption, are implemented with maximum efficiency, and set some standards of integrity and legitimacy to be followed up under the longer-term programs on governance and other areas. This means entering a tripartite agreement - a new social contract of sorts - involving the GOI, social organizations, and the Bank. This agreement will create special rules for our sub-set of SSN programs that will not apply elsewhere at this point, but might later be developed into a formal system of wider application. The source of cognitive dissonance here is that we and the GOI are moving too much money too fast to ensure much integrity. It's quite possible that continuation of the estimated 20-30% leakages is consistent with other objectives of this loan -- e.g. getting money into the hands of large numbers of unemployed, keeping the GOI from taking grave monetary policy risks in the absence of this budget support, ensuring the GOI stays afloat and services its debts including those owed to the Japanese banks. If however, we are committed to the idea that these SSN programs need to be cleaner than before and set standards for later reforms, I do not think the safeguards discussed to date will suffice. In the sections that follow, I will explain why I think this is the case, provide some strategic thinking about where corruption of the padat karya variety comes from and how it fits into the political economy, make some alternative suggestions about how the Bank and the GOI might try to constrain corruption under some special short-term "ring-fence" arrangements, then briefly explain what this might mean for this loan package. Why Corruption Levels are Unlikely to Change under the Proposed Arrangements The events of last May, the continuing calls for reform and transparency, and the apparently successful Bank-funded experiments with civic monitoring all provide some basis for confidence that cleaner program implementation is possible, especially with the loan conditionalities now being contemplated. For the following reasons, I do not think a high level of confidence is warranted with respect to the integrity of padat karya program implementation during the life of the loan program. 1. The institutional weaknesses that allow for systemic corruption have not changed. These are mostly familiar. The potential sources of discipline in the system are all legally (and politically) beholden to the president: the judiciary, the Attorney General and procuracy, the audit system with BPK at the apex, MPR and DPR, subnational government units, the civil service. Internal controls through line supervision and the Inspectorate General appear to be more a part of the problem at this point than a potential solution. Budgeting systems and expenditure controls are of a piece with a governmental system that tasks the same people with multiple and contradictory roles, resists drawing lines and setting up checks and balances, and opens broad discretionary space for officials to exploit. Development budgets get tapped for civil service allowances that are project-related, and get siphoned off, in the absence of strict accounting, audit, oversight, and performance review. Decentralization has made very little headway against the top-down, highly centralized, systems of planning and public finance. "Autonomous region" is really an Orwellian term that does little to mask the subordination of sub-central jurisdictions. In this system, with regional and local governments highly dependent on budget transfers from the center, any proposal that floats up from the bottom faces a lengthy gauntlet of control points - as does any financial flow from the top down to the bottom. The net result appears to be a series of payment extractions which can cut a project budget, if approved, down to 50% or less in the circuit from proposal to implemented project. This is only a brief summary that can be further elaborated if necessary. 2. The experimental designs and departmental commitments that underlay past successes cannot cope with the large and varied portfolio of SSN programs to be conditioned under the loan. Unfortunately, I do not yet have complete information on the Bank-supported programs that have used community and NGO monitoring with some success. I expect to have it this week. However, even assuming that these worked perfectly, it does not seem likely that these mechanisms, which are project- specific, could be expanded easily and effectively to cover the full range of padat karya programs - especially since are already being implemented according to the traditional logic of Indonesian government programs. Presumably, in the more successful model programs, civic organizations were involved from inception, to design, implementation, monitoring, audit, and performance review. This would argue for a carefully-crafted "project" structure for all of padat karya, which does not appear consistent with what is now contemplated. Since such designs, in a sense, depend for their success on the size of the ring-fenced zone, the question then becomes how large this zone can become while still keeping the usual pressures toward inefficiency and corruption at bay. The premise that these types of mechanisms can be replicated without limit under a fast-disbursing loan does not seem tenable. 3 . The GOI's current anticorruption initiatives, including those undertaken in conjunction with the Bank's lending program, do not inspire confidence, at least in the short term. These are mainly the following: the draft anti-corruption law, the BPKP anti-corruption plan, the decentralization plans now under discussion, and the national control team being set up under Mar'ie Mohammed. The draft anti-corruption law has serious problems, including the breadth of definitions of corruption and potential liability, and the highly inconsistent approach toward the balancing of evidentiary presumptions against procedural safeguards. At best, it might be a fig leaf for a system attempting to establish anti-corruption credentials. At worst, it could set up a general anti-corruption dragnet in which many political opponents could be caught. The BPKP anti-corruption plan exists only in Indonesian. My first impressions are that BPKP has drawn on a wide range of expert input, comparative studies, and theoretical background in framing its approach. On the other hand, to the extent this plan represents BPKP's desire to become a full-service anti-corruption agency, which it appears to be, there are a number of grounds for doubt. BPKP is not an independent audit agency, despite its self-advertisement. It reports to the President and is subject to the same budgetary and civil service constraints as other agencies. The existence of its tentative plan should not carry much, if any, weight, in the ultimate decision as to whether and where to create an anti-corruption agency. The decentralization plans also have an anti-corruption aspect to them, in that they purport to move policy initiative and fiscal resources to lower levels. Given past experience with decentralization, which has strengthened the hand of the center rather than the regions and localities, there is little likelihood of near-term change, even if one suspends judgment about long-term outcomes. The national control team under Mar'ie Mohammed has a perfectly sensible rationale - to set up an independent watchdog over SSN programs. This also gains support from some extraordinary events that have taken place recently - from the forced exit of Suharto, to the pressure on Habibie for elections and reform, to the many local revolts against corruption that have seen mayor's offices occupied and officials prosecuted for misdeeds. The question here, which is a general question concerning the whole system, is whether the energy behind such episodic eruptions can be tapped on a more routine basis to hold officials accountable. Both the decree setting up the control team and its current travails inspire little hope. The decree suffers from a number of cardinal sins, among them: (I) making the team a creature of Mr. Mohammed, who is named in the decree as its chair; (ii) putting the Coordinating Economic Ministry and the Ministry of Finance in charge of its budget; and (iii) retaining in the hands of the President the residual power to define the team's powers further. It is possible that the team will take an independent path under Mr. Mohammed, but it is not structurally independent. Furthermore, these and other concerns have apparently led civic organizations to shy away from it, making it difficult to fill the NGO positions on the team. 4. At this point, officials' ability to sustain a system of corrupt resource transfers far outstrips the capacity of civil society to constrain official corruption through monitoring, publicity, and other available mechanisms. This is perhaps obvious, but it merits some discussion because it bears directly on the Bank's intended mechanisms for monitoring and control under the loan package. Civic and political organizing, indeed all potentially competing power centers with the exception of moderate Islamist groups such as ICM and NU, were suppressed under Suharto. New and more active NGOs, an increasingly outspoken press, and students taking to the streets to demand reform, do not yet amount to a sustained and capable civic structure able to hold the government accountable. The emergence of such a strong form of social capital is a longer-term process. For now, this emergent structure has only limited and episodic leverage against an official structure with centuries of experience in deploying highly sophisticated networks of power, information control, and graft. To be perhaps somewhat presumptuous, cultural dispositions to draw lines around official power, to set up countervailing power structures, to ask sensitive questions, and to demand straight answers are only beginning to gain ground. The idea of an independent nongovernmental body able to fulfill all these roles is virtually unprecedented anywhere, and seems especially improbable in Indonesia. If such a structure were to emerge in effective form, now is the time for it - but the point here is that it has not yet emerged, and that the current arrangement being put in place under Mr. Mohammed is not capable in its current form of performing all necessary functions. What the above factors mean, at least at this point in my analysis, is that there is little reason to hope that corruption will be substantially reduced in the SSN programs as a result of the conditionalities now being discussed. For purposes of this analysis, one could define "substantial" reduction in corruption as a halving of leakage rates from the 20-30% range to the 10- 15% range or lower. If, for example, one were to estimate total expenditures on labor intensive public works during the period of the loan at U.S. $600 million, this reduction in leakage would mean an increase in resources flowing to the target activities in the amount of approximately U.S. $60 to $90 million (roughly 20 to 50 million workdays, depending on the type of program). As to what alternative approaches and conditionalities might achieve this goal, I will hazard some suggestions further on in this memo. First, some (admittedly speculative) discussion of the broad incentive structures that appear to give rise to corruption in the SSN programs. -end Part I- ++++++++++++++++++++++++++++++++++++++++++++++++++++ Didistribusikan tgl. 23 Jul 1999 jam 09:54:15 GMT+1 oleh: Indonesia Daily News Online <[EMAIL PROTECTED]> http://www.Indo-News.com/ ++++++++++++++++++++++++++++++++++++++++++++++++++++
