IO – Last week, on 9 December, was International Corruption Day. It was also a week in which Ari Ashara, the head of Garuda, Indonesia’s national flag carrier, was unceremoniously removed from his post for having been involved in a smuggling operation in which Harley Davidson components and Bromption luxury folding bikes were stashed in the belly of a newly purchased Airbus A330-900 Neo aircraft being ferried from Paris to Jakarta. According to media reports, a total of four Garuda directors were on board the flight; more heads are likely to roll in the coming days and weeks.
Erick Thohir, a well-respected businessman and now serving as the minister of state-owned enterprises, was lauded for ousting the Garuda chief and his no nonsense approach in dealing with corruption. Unlike his predecessor, Rini Soemarno, Thohir has sent a loud and clear message to his ministry and those working inside state-owned enterprises: there is a new sheriff in town, and it is not business as usual.
One former Garuda executive pointed out that smuggling operations by Garuda top brass is not unusual: “Currently Garuda has 145 planes and around 50 AB320s being operated by its low-cost carrier, Citilink. Of the 195 planes, only 31 are too small to carry contraband. So that means around 160 jets have been ferried to Indonesia just before they entered service, which means there were 160 opportunities to carry contraband.”
Smuggling is just a small piece of the larger picture. Just prior to Askhara’s firing, it was announced that Emirsyah Satar, who formerly served as the air carrier’s CEO, would be detained by the Corruption Eradication Commission, or KPK, as a suspect of money laundering and bribery pertaining to the procurement of aircraft parts.
Garuda’s biggest losses occur, however, when there are huge markups on aircraft, with the excess going into the pockets of unscrupulous politicians. Garuda insiders admit this is a common problem and can explain, in large part, why Garuda struggles to make a profit.
Garuda is not alone when it comes to chicanery, and it is no secret that state-owned enterprises are the main source of ill-gotten gains. For example, executives at the national electricity company, PLN, and the national oil and natural gas company Pertamina, frequently feature in scandals.
The most famous, and telling, story of corruption, waste and irregularities involved Pertamina in the mid-1970s when its president director, Ibnu Sutowo, single-handedly bankrupted the company. Treating its coffers like a slush fund, Sutowo expanded Pertamina’s businesses outside the oil industry such as hotels, restaurants, insurance and travel agencies. Pertamina monies were also used to pay for lavish birthday parties and gifts, and eventually the company collapsed and went bankrupt with $10.5 billion in debt. It was only after then President Suharto sent his finance minister to New York City to negotiate loan restructurings with Pertamina’s lenders could the company be revived.
Although Pertamina today is not as badly managed as when Sutowo was running the show, it is considered to be a hotbed of corruption. The most recent example of high crimes taking place within Pertamina’s boardroom involves Karen Agustiawan, a former president director, who was sentenced last June to eight years in prison by the Jakarta Corruption Court after being convicted of graft in a case involving the acquisition of a oil and gas block located in Australia.
Despite these scandals, watchdog agencies such as Transparency International have noted an improvement in the scale of corruption in recent years. In its latest 2018 Corruption Perceptions Index, Indonesia climbed seven ranks to 89th position out of the 180 countries covered in the survey and placed fourth among ASEAN states after Singapore, Brunei Darussalam and Malaysia, respectively. And, compared to previous administrations in the post-Suharto era, Indonesia under Jokowi has consistently shown favorable grades.
Still, Indonesia should not be complacent. Despite the gains in its global rankings, businessmen continue to complain about corruption. This matters a lot, for economic studies from leading think tanks have shown a positive correlation between corruption and investment. The exact scale of corruption in Indonesia is hard to estimate, but it surely costs the national economy a substantial portion of income and losses in potential investment.
On an international level, the United Nations estimates that $2.6 trillion are stolen annually through corruption, a sum equivalent to five percent of global GDP. This represents a massive piece of the global economy, and in Indonesia and elsewhere it raises critical questions around morality, distributive justice, economic efficiency and public trust in government.
Jokowi must be especially diligent in his second term of office. Given the fact public spending on infrastructure will continue to rise and most of those projects involve state-owned enterprises, the potential for corruption remains very high.
Another risk that merits Jokowi’s attention is the China factor: while China’s heavy involvement in Indonesian infrastructure development through its One Belt One Road initiative should be viewed primarily in a positive light, the negative experiences of some recipient countries such as Sri Lanka and Pakistan–where there have been numerous cases involving bribes and graft–must not be discounted. Such egregious acts not only pose an economic risk for Indonesia, they also pose a reputational risk for Jokowi–while the president’s diehard supporters often give him kudos for pushing hard on modernizing the country’s infrastructure, they will not turn a blind eye if corruption rears its ugly head.