Curbing Corruption while Promoting Business & Economic Growth

Jakarta, 6 July 2011Curbing Corruption While Promoting Business & Economic Growth
By: Wijayanto
wijayanto@paramadina.ac.id

Among the Most Corrupt Country?
What is Indonesia’s Main Challenge as a Nation? (Kompas, 2010)
Source: Corruption Perception Index, Transparency International, 2010

Encouraging Development.....
CPI Change (2003 – 2010)
Over the last eight years, Indonesia’s CPI has shown the most encouraging development, while Malaysia has decreased continuously;
Indonesia
Malaysia
3
Source: Corruption Perception Index, Transparency International, 2010
Source: Corruption Perception Index, Transparency International

Press Freedom Bias?
Corruption Perception Index ,
Indonesia (1995 – 2009)
Press Freedom Bias??
Establishment
of KPK
Source: TI, Freedom House, and “KorupsiMengorupsi Indonesia”, Wijayanto & RidwanZachrie

Why Curbing Corruption is so Tough?
Indonesia: Most Corrupt Institutions
Global: Most Corrupt Institutions (2010)
The four most importance institution on curbing corruption are among the most corrupt;
This phenomenon is not unique. Globally, Police, Legislative and Political Party are among the most corrupt institution;
However, in many countries, the judiciary system is relatively less corrupt;
Source: Transparency International

From Whom We Should Learn?
Source: Transparency International Indonesia, 2010

Learning from Yogya & Solo.......
The city majors drive Toyota Kijang, instead of high-end sedans;
Establish pro-people budget, a large portion of budget is allocated to improve public facilities instead of for personnel expenses;
Simplify business licensing and building permit process:
Create clear standard operating and procedure;
Publish cost and time line;
Established task force to managed this process;
Firing or removing public officials who are not inline with government’s agenda to improve public service quality;
Simple initiatives with huge impact
Source: Transparency International Indonesia Website (Jokowi and HerryZudianto) and Various Sources

Corruption and Doing Business....
Corruption Perception Index ,
vs. Ease of Doing Business
Strong Correlation between Ease of Doing Business and Corruption Perception Index (C=0.69);
Improving business climate & governance is inline with reducing corruption;
Klitgaard Theorem:
Clear rule of the game in business will reduce discretion, monopoly and improve accountability
Best
C
D
M
A
CPI Score
Accountability
Monopoly
Discretion
Corruption
Best
Worst
Ease of
Doing Business
Source: Transparency International 2009; World Bank 2010

Ease of Doing Business: The Ranking
Source: World Bank, Ease of Doing Business 2010
Ease of Doing Business
(Total Ranking)
Cross Border Trading
Building Permit
Protecting Investor

Starting Business
Getting Credit
Registering Property
In Indonesia, Starting Business, Getting Credit and Registering Property are rather difficult and complicated. In the 6 main ASEAN economies, we are only better than the Philippines

Closing Business
Paying Taxes
Enforcing Contract
Indonesia is behinds ASEAN’s peers in term ease of paying taxes and enforcing contract. Serious improvement should be done if we would like to keep our economy competitive;

High Tax Rate, But Low Tax Revenue...
Despite Indonesia’s high tax rate (second highest in ASEAN)....
....tax revenue only account for 11% of GDP (the lowest in the six main ASEAN economies);
In part, it is because the lack of inefficient and complicated tax collection procedure, a possible source of corruption;
Tax Misery Index
(2009)
Tax Revenue / GDP
(2009)
Source: Heritage Foundation & Forbes: Tax Misery Index

Thank You

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Curbing Corruption while Promoting Business & Economic Growth

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