[Kabar-indonesia] Analysis - Indonesia's corruption fight boomerangs on economy [+Factbox]

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also: Factbox-Graft cases and graft fighters in Indonesia

Analysis - Indonesia's corruption fight boomerangs on economy

By Gde Anugrah Arka

JAKARTA, June 29 (Reuters) - When President Susilo Bambang 
Yudhoyono came to power in Indonesia vowing to stamp out corruption, 
sceptics scoffed it was an impossible task in a country where bribes 
are demanded from the cradle to the grave.

Nearly two years down the road, Yudhoyono has demonstrated his resolve
with a high-profile anti-graft campaign that has sent a host of
officials from a former religious affairs minister to the governor of
Aceh province to prison on corruption charges.

But, if his efforts are winning laurels overseas, at home the campaign
is causing more economic problems than it solves, paralysing
decision-making at the national and provincial level.

Stringent new laws on transparency in bidding for infrastructure
projects, procurement of machinery and spending of state funds have
backfired, impeding reconstruction in the earthquake-hit Java Island
and strife-torn Aceh.

"Fighting graft is important. I think this determination to do
something does matter," said Ramya Suryanarayanan, an economist with
financial analysis firm IDEAglobal in Singapore.

"(But) something has to be done about this fear factor -- fear of
getting involved, finding yourself behind bars -- and all that's doing
to projects," she said.

Anti-corruption watchdog Transparency International ranks Indonesia
among the world's most corrupt states -- equal 137th out of 159
countries, alongside Liberia, Iraq and others.

Indonesians are used to shelling out for everything from getting a
birth certificate to ensuring the site of their future grave isn't
given to someone else.

But fighting the scourge is having unforeseen consequences.

Not least, the paralysis in decision-making is being blamed for a big
shortfall in public spending in 2005.

The government had a budget deficit of 14 trillion rupiah ($1.5
billion), much lower than the forecast 25 trillion because of low
spending. Not much has been invested in the first quarter of 2006,
either.

There are clear economic risks from the failure to spend.

"It has meant that government spending at both the central and
regional levels has failed to provide support to domestic demand,
which would be appropriate given the current softness of activity,"
the International Monetary Fund said in mid-June.

Annual economic growth slowed to 4.6 percent in the first quarter of
2006 from 4.9 percent the previous quarter after a sharp rise in fuel
prices in October and a jump in official interest rates, now among
Asia's highest at 12.5 percent.

DO NOTHING

Bambang Prijambodo, a director at the state planning agency
(Bappenas), blamed underspending on the fact that officials were
frightened actions taken in good faith might contravene the new rules
in some way.

"If they do nothing, they won't face any risk of prosecution, so it's
better not to make any decisions," he said.

Higher fiscal spending is badly needed to support the economy as
household consumption has been hit by the fuel price rises and high
interest rates while foreign investment remains weak.

Total investment accounted for less than a fifth of gross domestic
product in Asia's fifth-largest economy last year and officials were
hoping for better this year.

Household consumption accounted for 60 percent of GDP in 2005 but
inflation, led by fuel prices, could cut that and weigh on growth this
year.

Foreign companies need to be persuaded Indonesia is changing before
they will step up investment in its oil sector and roads. Foreign
direct investment in the first quarter of 2006 was just $2.6 billion,
roughly half of what China gets every month.

Economists see another risk -- that of government spending being
bunched up and pushed to the end of the year.

"If they do that, it will push up inflation and make it harder for
Bank Indonesia to cut interest rates," said Andy Rahmat, member of a
parliamentary committee for economic affairs.

The economic pain has prompted a debate on whether the government
should put economic growth first, since prosperity should make it
easier to curb corruption, or fight graft first to cut the cost of
doing business and thus boost economic growth.

President Yudhoyono has no misgivings.

"There have often been suggestions that this graft fight be put to an
end. But I say no," he told government officials in the South Sumatran
city of Palembang this month.

His stand is applauded by many Indonesians, who see corruption as a
big factor behind poverty, religious radicalism, separatism and
political instability in the world's most populous Muslim nation.

"This graft fight is a bitter choice but it has to be done. It is
critical for the country's long-term stability," said Syafii Ma'arif,
respected moderate Muslim scholar and former head of Indonesia's
second largest Muslim group, Muhammadiyah.

(Additional reporting by Muhamad Ari)

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Factbox - Graft cases and graft fighters in Indonesia

June 29 (Reuters) - Indonesia's battle to eradicate corruption is
causing short-term economic pain but is seen as critical for long-term
stability.

Following are details of some recent major corruption cases, and
people and organisations involved:

MAJOR GRAFT CASES

** Said Agil Munawar, Indonesian minister of religion from 1999-2004,
was jailed for five years in February this year over a scandal
involving the government's Haj pilgrimage programme to Saudi Arabia. A
higher court raised the sentence to seven years in May. The former
professor of Islamic studies has said the funds involved were
legitimate expenditure. He has appealed to the Supreme Court, his
lawyer said.

** In April last year Indonesia's special anti-corruption court handed
down its first verdict, jailing Abdullah Puteh, the governor of Aceh
province, for 10 years on corruption charges involving the purchase
several years ago of a Russian-made helicopter. The Supreme Court has
upheld the jail sentence.

** Commissioner General Suyitno Landung, formerly national police
chief detective, has been detained since last December in connection
with a graft case at state-run PT Bank Negara Indonesia Tbk, the
country's third largest bank, in 2003.

Previously a court handed down a life sentence to a financial
consultant, Adrian Waworuntu, found guilty of defrauding the state
bank in that same case, one of the harshest recent punishments for
corruption.

** Investigators have detained the government's former investment
chief, Theo Toemion, in a graft probe since last December. His lawyer
has said his client was detained over an investigation into funds used
by the Investment Coordinating Board, known as BKPM, to promote
Indonesia to foreign businessmen. Toemion has denied any wrongdoing.

** In the middle of last year an Indonesian court in the Sumatran city
of Padang sentenced 40 former city councillors -- most of the
municipal authority from 1999-2004 -- to four years in jail for
corruption. Most have appealed.

** Last December Indonesia's former election chief, Nazaruddin
Sjamsuddin, was sentenced to seven years in jail for corruption. The
prosecution said the once-respected political scientist had received
kickbacks from an insurance firm that won a contract related to
holding elections. He has said he would appeal. THE GRAFT FIGHTERS

** The Anti-Corruption Commission -- Known as the KPK, this
independent body was set up around three years ago but only really
started to make an impact when President Susilo Bambang Yudhoyono took
office in October 2004. It has the power to name suspects and make
arrests, and works in tandem with an anti-corruption court established
to handle sensitive cases quickly. It has won in most corruption
cases.

** Yudhoyono's inter-agency team -- Lack of coordination had been one
reason for slow graft probes. The president's response was to appoint
a team drawing from the Attorney General's office, the state audit
agency, police and the tax department. The team is led by Hendarman
Supandji, a soft-spoken, low-profile assistant attorney general for
special crimes.

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Joyo Indonesia News Service
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