Communiqué: Corruption – Just Another Cost of Doing Business in Indonesia?

April 2, 2012
Communiqué: Corruption – Just Another Cost of Doing Business in Indonesia?
Donny Eryastha, HKS MPA/ID 2012

HKS Indonesia Program Fellow Donny Eryastha Researches Better Solutions for Private Sector Growth

By Kate Hoagland – Communiqué: Spring 2012, Volume 10

It is a typical day in Indonesia. A businessman from a small construction company meets with a district official to apply for an electricity permit. In addition to the cost of the permit, he is asked to pay a ‘gift‘ for the service.

“Most definitely corruption can be a major obstacle to doing business,” said Donny Eryastha, HKS MPA/ID 2012 and a native of Indonesia. “Firms often have to allocate a portion of their costs to paying bribes as just another cost of doing business.”

Through a grant from the Ash Center’s HKS Indonesia Program, Eryastha explored collective action solutions to curbing corruption in Indonesia including small- and medium-sized (SME) businesses with less than 100 employees. Such January-term research promises to inform his forthcoming HKS Second Year Policy Analysis on the intersection of corruption and private-sector development in Indonesia.

While in Indonesia, Eryastha met with a host of Indonesian business associations made up of SMEs from all economic sectors, along with members of the government’s Corruption Eradication Commission (Komisi Pemberantasan Korupsi or KPK), and other anti-corruption world experts. He supplemented his research with a data analysis of 1,444 Indonesian firms surveyed in the World Bank’s 2009 Enterprise Analysis Survey and a literature review of cases where the private sector had success in halting corrupt practices.

Through his research, Eryastha assessed the effectiveness of four different types of collective action that could be adapted by the private sector. Both an anti-corruption declaration and a more long-term principle-based initiative are not enforced by an outside party, but serve as pledges that firms will not take part in bribery and extortion for a particular business project or for a larger engagement with a client. Eryastha cited Germany’s written anti-corruption pledge among contractors of AVA GmbH, a waste incinerator project, as an example of a short-term anti-corruption declaration.

For Eryastha, collective action has huge implications for the democratic governance practices of Indonesia. “Collective action gives different members of society a larger role to play,” he said. “They are able to voice their aspirations and strengthen the checks and balances among a range of different actors. All of this has the potential to improve the democratic atmosphere of our country.”

Donny Eryastha is a HKS Indonesia Program Fellow at the Ash Center.