“KPK obstructs investments”: State officials’ hallucination

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Anthony Budiawan Managing Director of the Political Economy and Policy Studies (PEPS)

IO – Revision to the Corruption Eradication Commission (Komisi Pemberantasan Korupsi – “KPK”) Law has become a wild shot. It has heated up and caused a lot of people to protest, including college students. In fact, KPK Law revisions were the trigger for many college students and other students to take to the streets and demand the revision be revoked, which was a fait accompli validation on 17 September. 

Both the House of Representatives (Dewan Perwakilan Rakyat – “DPR”) and members of the Government stated that KPK’s existence is already off the rails, making revisions to laws regulating it necessary. They stated that the KPK’s existence is a danger to investments and the national economy, that KPK’s actions – i.e. sting operations – scare investors away. This reduces investments, and economic growth falls. 

This is an absurd, speculative, and delusional opinion. 

Since the economic crisis hit Indonesia in 1998, Indonesia’s total investments, both Foreign Investments (Penanaman Modal Asing – “PMA”) and Domestic Investments (Penanaman Modal Dalam Negeri – “PMDN”) declined constantly until 2002. In 2001, investments were down 10.4%. In 2002, investments crashed 47.6%, i.e. from IDR 215.4 trillion (2001) to IDR 112.8 trillion (2002). At the time of this investment crash, the Government also established the KPK with the hope that it would be the first step to free Indonesia from chronic corrupt practices. After all, Indonesia was one of the most corrupt countries in the world at the time. 

After KPK was established, investments rose 42.1% in 2003. However, it dropped back for the next three years (2004-2006). Booming of commodity sales in the subsequent years leveraged investments 77.1% and 38.5% in 2007 and 2008, respectively. The 2007/2008 global financial crisis affected Indonesia in 2009, causing investments to drop 23.9%. Afterwards, investments rose sharply at 48% (2010), then dipped to 22.4% (2011), rising back to 30.5% (2012) and again to 44.7% (2013). 

With this data, it would be difficult to say how exactly KPK’s existence obstructs investments. It is true that later investment growth slowed down, i.e. only 7.1% in 2014, 14.2% in 2015, 3.8% in 2016, 14.4% in 2017, and 4.11% in 2018. Is this slowdown of investment growth is caused by KPK’s existence? Or is it due to other causes, say, incorrect economic policies? 

Let’s look further afield and check out China, a country with phenomenal economic growth. 

China performed economic reforms from central planning to a market economy in 1978. Along with this transition, corruption cases also increased sharply, even reaching gigantic proportions. Rife corruption in the 1980’s caused the people to finally erupted in the great Tiananmen protest in 1989. 

The Chinese Communist Party, the sole ruling political party, declared war against corruption several times: first in 1982, again in 1986, and finally in 1989 (after the Tiananmen protests). Following up on the declaration, more and more officials were arrested and tried for corruption. Some of them were even executed. 9,000 corruption cases were prosecuted in 1980, increasing sharply to 77,400 cases in 1989. Throughout 1991-1997, the number of prosecuted corruption cases remained at 60,000 a year. Corruption in China worsened in the 1990’s became even bigger, involving more and more high officials from State-owned enterprises, the Government, and the party. More than 10,000 officials were jailed for corruption every year. More than half were sentenced to 5 years of imprisonment or more, some even served life sentences. About 400 officials were sentenced to death and they were duly executed, while another 240 were also sentenced the same but their execution was delayed. 

China handles her corruption much more intensely than Indonesia, with many more people arrested and sentenced than in Indonesia. However, amid the arrest of these corruptors and even with capital punishment, investments to China flow strongly. China has enjoyed the highest economic growth level in the world, an average of 9.5% per annum for 40 years (1979-2018). Foreign investments to China skyrocketed nearly 100 times in 1984-2017: From USD 1.4 billion in 1984 to USD 3.5 billion in 1990, rising again to USD 40.7 billion in 2000, again to USD 114.7 billion in 2010, and again to USD 135 billion in 2017. 

It is obvious that China’s much harsher and more intense efforts at corruption eradication than Indonesia – the arrests, prosecution, and even death sentences to corruptors – did not reduce foreign investments from flowing to China. Looks like the harsher China is to corruptors, the more people want to invest there. Therefore, any opinion that states that KPK’s existence obstructs investments is untrue. Could it be that corruptors simply put out this delusional opinion merely to maintain their clutches on Indonesia?