Indonesia grapples with graft

Spending public funds on information campaigns is routine for most state agencies. But the amount spent by Indonesia's central bank between 1999 and 2004 was surprisingly generous: about $500,000. More troubling was where the money allegedly went. The recipients, say anticorruption campaigners, were lawmakers on the oversight commission for Bank Indonesia.

Indonesia's Corruption Eradication Commission and the parliament's ethics council are now investigating the allegations that lawmakers extorted money to pass banking laws. Indonesian Corruption Watch, the group that obtained leaked documents from Bank Indonesia, says it has uncovered eight other similar cases of large bribes paid to parliament.

To a public weary of sleaze, the news that lawmakers were on the take barely made a ripple. Opinion polls suggest that parliament and political parties are held in low esteem by ordinary voters, who nevertheless have turned out in droves to vote since democracy was restored in 1999.

Behind the latest scandals is the thorny question of how political parties in Indonesia should be funded and whether political graft is undermining faith in democracy. Campaigners warn that if corruption goes unchecked, Indonesia – the world's largest Muslim-majority country and perhaps the most functional democracy in the Islamic world – may lose its democratic zeal.

It's a dilemma that goes beyond Indonesia, say analysts. In the absence of mass membership dues, many political parties rely on private donations or taxpayers' money to support their activities. Corporate giving is often dogged by accusations of influence-peddling. But making a case for public funding of Indonesian politicians to keep them honest isn't easy.

"It vexes people throughout the world, how to fund politics. What's difficult is that politics and democracy costs money, says Jeremy Gross, elections program manager at the Asia Foundation in Jakarta. "In a country where you have high levels of poverty, it's very difficult for politicians to say they're going to clean up politics by giving large amounts to political parties to function."

No help from higher salaries

Campaign financing is murky in Indonesia. While political parties oversee national campaigns, candidates are expected to raise their own money from private sources. Once elected to parliament, lawmakers sign over a percentage of their salary to the party and start looking for new sources of funding. Critics say those sources include kickbacks from lobbyists seeking favors and from state agencies like Bank Indonesia that grease palms to get legislation approved.

"Lawmakers use their position to raise money because that's what the parties ask them to do," says Ibrahim Fahmy Badoh, an investigator for Indonesian Corruption Watch. "Some of the money goes into their pockets, and some goes to the parties."

Raising salaries probably wouldn't stop the graft, though, as campaigns are getting more expensive, says Alvin Lie, a wealthy businessman turned outspoken lawmaker. He estimates that presidential candidates in the 2004 election, which went to two rounds, spent $900 million apiece.

Mr. Lie, who paid for his own parliamentary election campaign, wants to see stricter oversight of parliament and other branches of government to restore public faith in democratic institutions. "Eradication of corruption should start at the top and work downward. Not start at the bottom and work up, otherwise it will never end," he says.

Positive developments remain

Despite the whiff of corruption, Indonesian democracy is probably the most robust in Southeast Asia, says Mr. Gross. Since 2005, voters have begun to directly elect city mayors and district chiefs, as well as local councils and provincial assemblies. In local races, a reputation for honesty and efficiency counts much more than party affiliation. As a result, around 40 percent of executive incumbents lost their jobs.

Money-grubbing politicians are also starting to feel the heat. Marcus Mietzner, a German academic based in Jakarta, estimates that 10 percent of provincial lawmakers across Indonesia are under investigation for corruption, though efforts to investigate disgraced former President Suharto and his family have so far fallen flat.

Parliament is drafting a new law on party funding ahead of national elections in 2009. Among the proposals is raising the limit on private donations – currently $22,000 a year – says Ganjar Pranowo, an opposition lawmaker who chairs a subcommittee on party funding. Another, more controversial, suggestion is that parties should run private companies to raise campaign financing, something that the Indonesian military has done for decades to supplement its state-allocated budget.

Mr. Pranowo admits that the company model is problematic, given the potential conflicts of interest. He advocates greater transparency in party financing. "I think what we can do is publish the sources of our money and the names of the donor. They should have tax registration so you can trace that person," he says.

Until 2005, political parties received around $10 million annually in public subsidies, says Mr. Mietzner. That was cut by 90 percent after the 2004 elections. But the rising cost of election campaigns and other party activities means that most national lawmakers are either independently rich or in the pocket of business lobbyists, who have mushroomed in recent years in Jakarta.

"If you start from a system where political parties don't have access to public funding, you force them to go out and raise money however they can," Mr. Mietzner says.

But in a multiparty system, funding parties based on their strength in parliament might entrench the dominant players at the expense of dynamic newcomers, say analysts. Too-generous allowances for all parties could also backfire, warns Lie. "Unless you make it difficult for parties to form, our past experience tells us that people form parties just to get money," he says.