Pidato Bahasa Inggris : IMPROVING GOVERNANCE

Pidato CGI 3 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
Consultative Group for Indonesia
Bali, 22 January, 2003
Kwik Kian Gie
Mr. Chairm an,
Ladies & Gentlem en,
May I welcom e y ou all to Bali and I hope y ou hav e a chance to enjoy the beauty that Bali offers her guests. I am v ery
glad that only three m onths and ten day s after the bom bing in this island, all of y ou gather here today without
feeling of fear (at least that is what I hope). I still rem em ber with sorrow that som e of y our countries im posed trav el
ban or trav el restriction to Indonesia. What I still wonder is whether the state budget for 2003 that was am m ended
so abruptly in a panic should not be rev ised again, now that Bali is sav e and the occupancy rate of the hotels is
recov ering nicely .
Unlike the case in prev ious CGI m eetings, this tim e the topic giv en to m e concerns Im prov ing Gov ernance. This topic
has been the subject that I hav e pondered about for decades before the downfall of President Soeharto.
In 2000, when I was the Coordinating Minister in the Cabinet of Abdurrachm an Wahid, this issue becam e the focus
of attention. It, howev er, nev er got off the ground, due to factors that I will elaborate later on.
For m e, Im prov ing Gov ernance is not an independent issue and is not the m ain problem faced by this nation. The
m ain issue encountering the Indonesian people is KKN (Indonesian acrony m for Corruption, Collusion and Nepotism )
that has m ade hum an resources to becom e decadent. Decadence of character, v alue sy stem and m orality of m any
am ong the ruling elite of the Indonesian people has dev astated just about ev ery thing, including gov ernm ent
institutions and their working m echanism . So long as this decadence of the hum an factor still persists, the Im prov ing
Gov ernance concept, no m atter how well designed, becom es futile. It would be futile, not only in spite of already
hav ing a well designed concept, but ev en after hav ing form ed the perfect organization including its sy stem and
procedure. I observ ed with concerned that so m uch m oney and energy hav e been wasted by people who are not
knowledgeable about Indonesia for the dev elopm ent of concept and for building the insitutions, and then let them be
m anned by corrupted people.
Is it not obv ious that after 3 2 y ears of the presence of so m any international agencies in Indonesia, the KKN and
flawed policies are getting m ore and m ore sev ere ? That is because the already decadent hum an factor, by using his
extrem ely intelligent capacity , will m ake sure that the already reform ed organization becom es inoperable, because
a perfectly operating organization will ham per his corruption interests.
This, howev er, does not im ply that dev eloping the organization becom es useless. But the prerequisite for good
gov ernance is no doubt the eradication or the significant lessening of KKN. I will shortly explore the relationship
between the crucial factors of gov ernm ent organization that are sy nergetic with efforts for elim inating the corrupted
m orality and m ind of the hum an factor.
Pidato CGI 3 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
The Carrot and Stick Concept
The concept to eradicate corruption is v ery sim ple. It is the carrot and stick. The effectiv eness of this approach has
been prov en by m any countries, am ong others Singapore, and is currently being im plem ented in the Peoples
Republic of China.
Carrot refers to the net incom e of civ il serv ants and those in the m ilitary and police force, which is clearly
adequate to cov er the costs of liv ing at standards that are com m ensurate with the corresponding education, skills or
expertise, leadership, rank, and standing. If necessary the incom e is fixed so high that it is not only sufficient for
decent liv ing, but also adequate for respectable liv ing.
Stick refers to punishm ent : when all of the needs are m et and one still com m its corruption, then the punishm ent
m ust be sev ere because there are no m ore reasons to justify the acts of corruption.
Salary System
Let m e start with salaries as the appropriate carrot. Current salary structures are com plex. On top of the basic
salary , there are all kinds of allowances both m onetary and in kind ty pically tied to rank or position. But the salary
structure and sy stem s of prom otions do not appear to be linked to m erit and abilities. And this should be changed.
The greater the work-load and responsibility , the higher should be the net incom e.
This im plies that the salary structure should be in line with m arket realities. The President of the Republic of
Indonesias salary is lower than that of the president director of a state-owned enterprise and the net salary of a
cabinet m inister is lower than that of a m iddle-ranking em ploy ee of IBRA. It is no wonder then, if y ou put a person in
a uniform and giv e him $ 50 a m onth, corruption will flourish. Thus we need to start with reform ing our civ il
serv ice salary structure so that it is just and based on m erit.
Reforming and Streamlining the Bureaucracy
The total num ber of our state personnel is approxim ately four m illion persons. If we take a cursory look at the size of
buildings of departm ental, non-departm ental, and of other gov ernm ent agencies, the im m ediate question that com es
to m ind is : how m any gov ernm ent personnel m em bers are working in those buildings? Ev en m ore difficult to
im agine is what they are all doing during working hours.
Such a large num ber of civ il serv ants is related to the fact that since the founding of the Republic of Indonesia, no
audit has ev er been carried out with regard to the structure of organisation, the num ber of personnel, lines of
com m and, span of control, decision m aking sy stem and procedure, etc.
This consequently led to the application of what in organisation and m anagem ent theory is referred to as the
Parkinson Law. This theory states that a m an alway s has a need to be regarded as being im portant by his
env ironm ent. The sy m bol of his im portance is the total num ber of his subordinates in the organisational structure.
Thus unconsciously , ev ery person in the organisation wants to show how im portant he is by appointing subordinates.
The greater the total num ber of his subordinates, the m ore im portant is his position in society . In accordance with
this theory , ev ery organisation has a tendency to continue to balloon regardless of its actual needs.
Pidato CGI 3 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
In a priv ate com pany organisation, which is often far bigger in size than in a gov ernm ent m inistry , it is a com m on
practice to periodically , such as ev ery 3 to 5 y ears, audit its organisation. Here organisation and m anagem ent
experts assess whether the organisation is still optim al to achiev e the objectiv es of the relev ant organisation.
In the audit procedure, the experts and consultants do not look at the existing organisational structure. Instead, they
exhaustiv ely interv iew the chief executiv e officers on the objectiv es to be realised by their organisation. The results
of the interv iew are then profoundly analy sed. The experts and consultants then use their expertise to design an
organisation that exactly and optim ally can realise the objectiv es of the organisation. The design does not only
pertain to the structure but also the total num ber of personnel, their qualifications, duties, responsibilities, decision
m aking sy stem and procedure, the com m unication sy stem , and the span of control of the organisation.
After form ation of the ideal organisation has been com pleted, then in-depth discussions are conducted with the key
executiv e m em bers for m aking further im prov em ents. When the relev ant organisation structure is judged as
already suitable and the executiv e leadership truly has a sense of ownership of such organisation, then they
autom atically will hav e a high com m itm ent to realise it.
The whole design and explanation of such optim al organisation are then com pared with the existing organisation. It
can alm ost be assured that the existing organisation is too bulky , haphazard, with confusing and ov erlapping lines of
com m and, and so on. It is the duty of the executiv e leadership of the organisation to adjust the existing organisation,
if necessary with the assistance of the m anagem ent consultants.
This procedure is referred to as the structure follows strategy approach. It is the rev erse of the thus far com m only
im plem ented procedure. In our case, ev ery tim e a new organisation is form ed and the old one is reform ed, the first
thing to do is to draw the organisation structure which we are already fam iliar with, nam ely by drawing em pty
square boxes along v ertical and horizontal lines. When the structure is com pleted, each of the em pty square boxes are
then filled with the nam es of the persons to be appointed for the positions designated in the respectiv e boxes. This
procedure is extrem ely erroneous, but has nev ertheless been followed by people who are ignorant of organisation and
m anagem ent principles. This wrong procedure is called the strategy follows structure m ethod. It is thus ev ident that
strategy has becom e subserv ient to the prev iously im posed organisation. How would it be possible under such
approach to effectiv ely attain the objectiv es ?
We can im agine what our bureaucracy has becom e after 57 y ears nev er hav ing been audited. And just im agine how
otherwise, the total num ber of the civ il serv ants could hav e been reduced that would hav e resulted in huge sav ings
in the gov ernm ent budget.
What is the relationship between the bureaucracy reform s described here and the eradication of corruption? There is
a strong relationship. I am conv inced that if the bureaucracy is structured in accordance with the needs to achiev e
optim al objectiv es, the total num ber of civ il serv ants could be substantially reduced. Substantial expenses for salary ,
work space, office equipm ent, electricity and trav el expenses, could be sav ed. The other side of the coin would be
funds m ade av ailable for increasing net incom e in the context of apply ing the carrot and stick m ethod. With
obv iously adequate or ev en com fortable incom e lev els, we can then feel at ease to m ost sev erely punish those still
found guilty of com m itting corruption.
The indirect effect of the bureaucratic reform s on the eradication of corruption is the increased effectiv eness of the
Pidato CGI 3 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
bureaucracy . Because the bureaucracy has been m ade to shrunk in size, we can appoint indiv iduals of the m ost
excellent qualifications. It is certain that they are willing to accept the appointm ents because their net incom es hav e
becom e adequate, at lev els equalling the incom e of those em ploy ed in the priv ate sector, where incom e is based on
the m erit sy stem and is already well aligned with those in other segm ents of the whole econom y .
The constraint is financing. The required funding will be huge because funds m ust be m ade av ailable for the
sev erance pay of those laid off. This sev erance pay should be large enough for three reasons. First, it should be big
enough for hum anitarian reasons. Secondly , a big am ount of sev erance pay should entice personnel v oluntarily quit
their jobs. Thirdly , it should enable those laid off to hav e enough tim e to look for other jobs.
Alternative approach
An alternativ e strategy that can be carried out with a sm aller cost to the budget is to eradicate corruption in stages,
beginning from the top. This concept was once discussed during the adm inistration of Gus Dur, who as the President
endorsed the concept in principle. Its im plem entation was, howev er, cancelled.
In this approach, adequate incom e would be prov ided to the President, Vice President, Cabinet Ministers, Secretary -
Generals, Director Generals, Bureau Chiefs, and Project Leaders. This would also apply for positions that are crucial
and corruption-prone, nam ely tax officials, Custom s officers, State Prosecutors, Policem en, Judges, Mem bers of
Parliam ent, and other positions that need to be carefully identified. The essence is to identify sectors within the
bureaucracy that are crucial in causing losses to the state.
Their net incom e should be high enough to enable them not only to lead a reasonable but also a com fortable life,
equalling the standard of liv ing of those em ploy ed in the priv ate sector, or ev en of those working abroad. Howev er, if
despite all of this one still dares to com m it corruption, the penalty should be life im prisonm ent or capital
punishm ent.
If such a m ethod could prev ent high-ranking officials and corruption-prone state personnel from com m itting
corruption or could v ery significantly reduce the incidence of corruption, then substantial sav ings would be gained
from the absence of corruption or from the v ery significant reduction in corruption cases. The funds required to
increase incom es will be relativ ely sm all com pared to the sav ing gained from the elim ination or reduction of KKN at
the top of the bureaucracy or by KKN-prone personnel.
One constraint is the v ery large discrepancy between the new incom es of those at the top and those at the bottom of
the ladder in the civ il serv ice. This gap would be hard for subordinates to accept. At that tim e Gus Dur preferred this
approach, but the idea was leaked, and observ ers censured him heav ily . Gus Dur retracted the initiativ e.
Perhaps the idea could be tried again now, but socialise it first. Those not entitled to larger raises in incom es would no
doubt continue as usual to m ake ends m eet through corruption. In any case their petty corruption pales com pared to
corruption com m itted by the elite bureaucrats at the top. The sav ings gained from the elim ination of corruption
com m itted by top officials could be used to lift salaries of lower paid civ il serv ants.
Pidato CGI 3 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
This idea was heav ily criticised. Many v oiced their opposition on the grounds that the gov ernm ent was out of step
from the reality of the poor who correctly were struggling in their daily liv es. Som e m entioned that salaries at one
tim e were raised tenfold in the Ministry of Finance and y et corruption continued to prev ail. Moreov er, hum an wants
are unlim ited and the corrupters continue on their m erry way stealing trillions of rupiah. My answer to such
criticism s is that they are right because there are no m easures taken against those who com m it corruption. That is,
the carrot was giv en, but the stick was not applied.
Still another criticism cites ev idence that the IBRA staff undoubtedly hav e net incom es that are sufficient to liv e
v ery com fortably . That m akes sense because they hav e been recruited from priv ate com panies. And y et, they still
com m it large-scale corruption using sophisticated techniques. Many of them were form er technocrats hired by
conglom erate bankers who swindled their own banks until these banks were taken ov er by IBRA. Now ev en IBRA is
also swindled. Why ? Once again, because there is no punishm ent.
In short, all of these criticism s fail to counter the v alidity of the carrot and stick concept, if and only if, the stick is
effectiv ely applied.
Punishm ent of Corrupters
In a society where corruption has reached a degree like it has in Indonesia, half-hearted punishm ent is no longer
effectiv e. A slap on the hand or public sham e wont work. Society is well aware of the extend corruption and its
closeness to collusion and nepotism and thats why we call it KKN. Indeed, corruption cannot be separated from
collusion because corruption is alway s done by m ore than one person. Nepotism is also a v ery im portant factor
because m ost acts of corruption are urged and giv en strong support by their children, spouse, and close relativ es. For
Indonesia, the m ost appropriate punishm ent is the death penalty , or at least life im prisonm ent.
In addition, as im plied by the term KKN, punishm ent should not only be handed down to the one who has com m itted
corruption but also to his or her spouse and children. As m entioned earlier, m ost officials in power com m it corruption
because of the encouragem ent, persuasion or nagging of the spouse and/or children. Therefore, if the actor is giv en
death penalty , the children and the spouse m ust also be subject to punishm ent. The form of the punishm ent could be,
for instance, confiscation of property and bankruptcy .
Where Should KKN Eradication Start?
The eradication of KKN should start from the top leadership. This does not only m ean the President, but all high
officials of the state. They should agree not to com m it KKN if their net take-hom e pay is indeed adequate to liv e in
line with the m erit sy stem . It should be explained to them in strong and clear term s that they will be punished
sev erely if they still com m it KKN.
Officials that are KKN-prone because they hold positions which are crucially susceptible to KKN should be singled out
and asked to initiate the KKN eradication cam paign. It should be explained to them as clearly as possible that their
net incom es will be prov ided so that they can liv e v ery com fortably . But in return they are told that they m ay not
com m it KKN at the risk of being sev erely punished, and they are also dem anded to firm ly take actions and punish
those that com m it KKN.
KKNs Destructive Influence
Pidato CGI 3 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
The decay attributed to KKN, that hav e already becom e m anifested in decadence in the m inds, feeling, m orality ,
m entality and character, will in turn lead to v ery insensible/irrational policies. The result is conspicuous social
injustices and gaps. To illustrate, in 1 998 the total num ber of com panies in Indonesia is 3 6,81 6,409 business
entities. The large-scale ones com prise 1 ,83 1 units or 0.01 % of the total, but their share in the GDP is 40%. The other
99.99% contributes only 60% of GDP. In term s of prov iding job opportunities, the sm all and m edium -scale
enterprises, which account for the 99.99%, absorb 99.44% of the workforce. Each of the big com panies contributes
Rp. 23 8 billion to the GDP ev ery y ear. The sm all and m edium com panies contribute on the av erage Rp. 1 7 m illion
per y ear. The av erage contribution of each of the big com panies to the GDP is 1 4,000 tim es larger than the av erage
contribution to GDP of the sm all and m edium enterprises. Because the form ation of the GDP m ore or less reflects the
av erage role and incom e, the gap between the av erage incom e of the big com panies and the av erage incom e of the
sm all and m edium com panies also reflects such discrepancy .
Such condition was created by the clev erest officials in power during the New Order, who were dubbed as the m ost
qualified cabinet in the world by the Tim e m agazine.
What is the more comprehensive condition of the Indonesian people today?
Our country , which is rich in oil, has becom e the net im porter of oil in order to m eet its own dom estic need. The
country , which is endowed with so v ast and so dense forests m aking it to becom e the biggest producer and exporter of
tim ber in the world, is now confronting the problem of deforested forests while funds allotted for reforestation hav e
now only reached Rp 1 0 trillion due to corruption. Despite hav ing becom e deforested, the illegal logging activ ities
hav e continued, with the tim ber sm uggled out of the country am ounting to approxim ately two billion US dollars per
annum . Our m ineral resources hav e been irresponsibly exploited, the largest part of the proceeds pouring into the
pockets of the foreign contractors and their indiv idual Indonesian cronies. The people, who are actually the owner of
the earth, waters and of all the wealth contained therein, only get v ery m inim al benefits.
Our fish are stolen by foreign ships at a v alue estim ated at three to four billion US dollars per y ear. Alm ost all
agricultural products are im ported. Our sand is stolen approxim ately am ounting to at least three billion US dollars
per annum .
Could Indonesia survive without debts ?
Of course it can if KKN could be eradicated. With regard to taxes, our tax rev enue for the 2003 fiscal y ear is
estim ated to am ount to Rp. 240 trillion. This am ount is considered too sm all because our tax ratio is still low.
Therefore extensification and intensification efforts will be stepped up. Nobody speaks about tax leakages. In practice,
the am ount of tax to be finally settled is decided by the tax pay er together with the tax official. If the am ount agreed
upon is Rp. 400 m illion for instance, v ery often the am ount paid to the state treasury is only Rp. 1 00 m illion. The
tax pay er is giv en a receipt from the state treasury for Rp. 1 00 m illion only , and he is giv en a guarantee that nobody
will m ake a problem out of it. Lets say that not 7 5 percent but m ore conserv ativ ely 50 percent is paid to the state
treasury . The rem aining am ount is corrupted by the tax official. The corruption costs for obtaining the tax can be
roughly estim ated at Rp. 80 trillion (or the equiv alent of 8 billion US Dollars annually ).
Add up the v alue of fish, sand and log stolen of US$ 9 billion, then the total am ount will already reach US$ 1 7 billion.
If the bank recapitalization bonds can be withdrawn using m ethods which could be accounted for, at least another
Pidato CGI 3 (dalam bahasa Inggris) Forum Kwik Kian Gie Mari Kita Berdiskusi
total of Rp. 4 billion could be retriev ed. All that will am ount to US$ 21 billion within one y ear only . By com parison,
all of our external debt am ounts to around US$ 7 6 billion. On the assum ption that the leakage in the routine and
dev elopm ent budget are estim ated at only 20%, the total of leakage will be another Rp. 7 4 trillion. The grand total
will thus reach USD 28.4 billion (equiv alent of Rp 284 trillion).
We are disregarding such funds of US$ 28.4 billion, but today we are begging y ou Gentlem en for an am ount of
around US$ 3 billion or ev en less.
Why so ? The persons that are giv en the power to gov ern are m ostly corrupt. Therefore it is these people that should
becom e the object and focus as the first step in Im prov ing Gov ernance. Many concepts hav e been expounded to
resolv e the problem . And tens if not hundreds of m illion dollars hav e been spent on concepts that are contained in
text-books and hav e already been m astered by m any y oung Indonesians that hav e studied in and hav e obtained
their Ph.D degrees from the best univ ersities in the world. The crux of the m atter, howev er, lies not in im prov em ents
of the organisation and sy stem that are objects without a soul, but lies in the hum an factor that operate the
organisation and sy stem .
All that I hav e expounded here, has been m ore elaborately published in a book that has been distributed to ev ery one
in this respectful audience. Sev eral thousands of copies in the Indonesian language hav e also been distributed to a
large range of parties.
Thank y ou.


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