Day 4: Indonesia Rebounds

Reinventing IndonesiaReinventing IndonesiaReinventing IndonesiaReinventing Indonesia

Day 4Day 4Day 4Day 4

Indonesia ReboundsIndonesia Rebounds

G d t S h l f A i d P ifi St diGraduate School of Asia and Pacific StudiesWaseda University, 16 February 2007

Macroeconomic Update

Positive Growth TrajectoryPositive Growth TrajectoryPositive Growth TrajectoryPositive Growth Trajectory

E i t d

Sustained economic growth despite difficult environment

Economy is on a steady upward trend. Indonesia’s performance is very much

5 6 %

> 7%6 - 7 %

comparable in the region

Over the medium term, this acceleration process should 4 %

5.25 %5 - 6 %

acceleration process should continue assuming that all reform programs are i l t d

4 %

implemented.

2001-2003 2004-2005 2006 2007 - 2009 2010 -

GSAPS-2007-Day4 www.ginandjar.com 3Source: CBS .

2001-2003 2004-2005 2006 2007 - 2009 2010 beyond

Macroeconomic UpdateMacroeconomic Updatepp

Growth steadily recover2006: reached 5.6%; government

Indonesia: Economic Growth 1998-2006

006 a d 5 6%; goconsumption and expert driven; investment remains weak.Medium Term

2007 2009 : 6 7 % p a

0.9

4.9

3.84.4

4.9 5.15.6 5.6

1.2

5.1 4.9 5.25.7 6

6.5 6.5

0

5

1998 1999 2000 2001 2002 2003 2004 2005 2006

nt p

.a

– 2007-2009 : 6-7 % p.a– After 2010 : 7+% % p.a

Confidence has been restored after fuel price adjustment.13 815

-10

-5Perc

en

fuel price adjustment. Stock prices are historic highExchange rates are stableReserves stronger and still increasing

M arket confidence strengthen

11000 1800R p/U S$ 83=100

-13.8-14.1-15

GDP Non Oil and Gass

Ratings upgraded.

Macroeconomic Stability has been achieved

Y i fl ti d f 17% l t9500

10000

10500

1300

1400

1500

1600

1700stock index (R H S)

Y o y inflation down from 17% last year to 6% or less this yearOver Medium Term: 3-4% is the target

8000

8500

9000

800

900

1000

1100

1200

Exchange rates (LHS)

GSAPS-2007-Day4 www.ginandjar.com 4

8000Jan-05 M ay-05 Sep-05 Jan-06 M ay-06 Sep-06

800

Manufacturing Sector Manufacturing Sector Shows Signs of RecoveryShows Signs of Recovery

Non Oil/Gas Industrial Growth 2005-2006

15.0%

20.0%

5 0%

10.0%

0.0%

5.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3

-5.0%2005 2006

Non Oil/Gas Industries Food Textile Fertilizer Cement


Other Macroeconomic DevelopmentOther Macroeconomic DevelopmentFiscal sustainability has been reestablished.

Budget deficits has been contained around 1% of GDP

D eclin ing B udget D efic its(% of G D P)

-1%

0%

around 1% of GDPpublic debt ratio down to about 40% at the end of 2006 and will continue falling to below 30% of GDP in 2011.

-6%

-5%

-4%

-3%

-2%

B udget

R ealization

R evised budget

On spending side Public spending now back to the pre

-8%

-7%

FY98 FY99 FY00(9m )

FY 01 FY02 FY03 FY04 FY05 FY06 FY07

Public spending now back to the pre crisis level around 7-8% of GDP but with different composition.Sub-national gov’t control more than 50% of total

Public Investment(% of GDP)

6%

7%

8%

DistrictCentral gov't

50% of totalEducation spending on the rise and now comparable to the peer countries around 4-5% of GDPSpending on health and infrastructure a 3%

4%

5%

6% Province

Spending on health and infrastructure a also increasing.Commitment for PPP development.

0%

1%

2%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007


1996 1997 1998 1999 2000 2001 2002 2003 2004 2005(E)

2006(P)

2007(P)

Sustainable Macroeconomic StabilitySustainable Macroeconomic Stability

A positive outlook on macroeconomic stability should translate

17 %

A positive outlook on macroeconomic stability should translate into a reduction of cost of finance

Stabilization of rupiah at stronger level support declining inflation thus

7 %

3-4 %6.5 %

providing room for policy rates to decline. CPI inflation: 6.6%Inflation easing toward targeted level2005 2006 2007 2007-200912000 20 Inflation easing toward targeted level

Risks for destabilizing inflation still high: rice price has been increasing since last December.4000

6000

8000

10000

81012141618

Source: Bloomberg & BI

since last December.

0

2000

2001 2002 2003 2004 2005 Q106 Q206 Q306 Oct 06246

IDR/USD Inflation rate yoy SBI 1 month - BI Rate SBI 1 month - BI Rate


External Position Remains PromisingExternal Position Remains Promising

Current account position has

FX reserves (LHS)USDbn Months

Current account position has turned around Rise in FX reserves

USDbn

7.16 640

45

50

7 0

8.0

9.0

( )

Months of import and official debtrepayment (RHS)

30%

50%

2

3

5.04.5

5.5

6.6

5.9

25

30

35

5.0

6.0

7.0

10%

%

0

1

2832

36 36 35 43

10

15

20

25

2 0

3.0

4.0

30%

-10%2001 2002 2003 2004 2005 2006

-1

0

0

5

10

01 02 03 04 05 06* 0.0

1.0

2.0

-50%

-30%

-3

-2

Current Account (LHS) Export (RHS) Import (RHS)

Source: Bank Indonesia


20 20 20 20 20 200

Continued Improvement in External Debt Position

External Debt Key highlights

45 0 90 0Debt to GDP ratio decline from 81% in 2001 to 47% in 2005, and expected to reach 39% in 2006.7.

342.1

38.6

46 054.256.8

65.7

80.7

30.035.040.045.0

60.070.080.090.0

expected to reach 39% in 2006.

There was a significant drop of DSR in 2005 since there was Paris Club moratorium due to

21.326

.631.9

33.93 7

6

19.522

.2

22.828

.4

41.438.6

46.0

25.8

22 127.1

33.1

32.210.015.020.025.0

20.030.040.050.0

Paris Club moratorium due to tsunami disaster in Aceh. 14

.622.127.1

-5.0

2001 2002 2003 2004 2005 2006*0.010.0

Note : External debt consists of central government central bank and private debt

Govt Ext Debt / GDP (LHS) Private Ext Debt / GDP (LHS)

Total Ext Debt / GDP (RHS) DSR (LHS)


Note : External debt consists of central government, central bank and private debtSource: Bank Indonesia

Improving Ratio of Sh t T D bt t RShort Term Debt to Reserve

112.6%

250003000035000

100.00%

120.00%

20 74%

73.9% 62.0% 57.4% 59.3%

45.9%150002000025000

40 00%

60.00%

80.00%

11.29%20.74% 18.72%

6.42%4.70%

23.89%

05000

10000

0.00%

20.00%

40.00%

2001 2002 2003 2004 2005 Jul-06

Short term debt (OM) Short term debt (RM)Short term debt (OM) Short term debt (RM)Short term debt (OM) to Reserve Short term debt (RM) to reserve

Note : OM = Original MaturityRM = Remaining Maturity


RM = Remaining Maturity

Exchange RateModest Appreciation - Low Volatility

R i h t bili d d g h g

Average Exchange Rate Highlights

Rupiah stabilized and average exchange rate during Q3 2006 was Rp. 9,125. Relatively unchanged from Rp. 9,115 in the preceding quarterp g q

Average exchange rate in October depreciate 0.26% to Rp. 9174 from Rp 91539153

Volatility stable at 0.5%


Fiscal Consolidation Outcomes

100%

Sovereign Debt to GDP Ratio

70%

80%

90%

Domestic

Compare to Other Emerging Countries

63.1

59.060 0

70.0

40%

50%

60%

70%

External

46.5 46.5 47.3

40.9

45.3 45.1

37.5

45.4

54.4

42.4

30 0

40.0

50.0

60.0

dari

PDB 2005

2006

2007

10%

20%

30%

40%

10.0

20.0

30.0

% d 2007

0%

10%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0.0

Indonesia Malaysia Philippines Thailand

Source: IMF, World Economic Outlook, Sept 2006


Banking Indicators: Banks Maintaining Reasonable Performance

Main Banking Indicators Highlights

% %

NPL ratios decline during the course of 2006

B k ll it li d ith CAR t d

Main Banking Indicators Highlights

22.422.5

23 14.0Average CAR Gross NPL Net NPL

Banks well capitalized with CAR at around 21% as of August 2006, far above the required level of 8%

LDR1 relatively stable during 2006 at 21.0

21.7

8 79.48.3

12.1

21

21.5

22

10.0

12.0

LDR relatively stable during 2006 at around 64-65 %. In September 2006 LDR recorded at 65%.

Net interest income (NII)2 in September

20.5

19.519.419.4

19.9

8.5

5 1

8.7

5.8

8.28.1

19 5

20

20.5

21

6.0

8.0

2006 was Rp 6.2 trillion, similar to December 2005 figure, despite slowing credit expansion

RoA stable at around 2 6% with significant

9 5.1 4.95.64.8

3.03.618.5

19

19.5

2.0

4.0

RoA stable at around 2.6% with significant rise in total assets.

1 Loan calculations include channeling loans2 Calculated as NII for the particular month divided by earning

1.72.1

17.5

18

2001

2002

2003

2004

2005

Qi'0

6

Q2'

06

ep 0

6

0.0

GSAPS-2007-Day4 www.ginandjar.com 13Source: Bank Indonesia

p y gassets for the corresponding period

Q

'S

Economic UpdateEconomic UpdateEconomic UpdateEconomic Update

In 2006 Indonesia settled the remaining debt to IMF amounting $ 7 billion, 4 years ahead.In January 2007, GOI announced the dissolution of CGI.


The ProblemsThe ProblemsThe ProblemsThe ProblemsM i d l t h t b f ll d bMacroeconomic development has not been followed by improvements in the microeconomic (real) sectors; major constraint for economic development.pLagging investment.Social Impact: increase of poverty from 16 % to 17.75 % p p y(equivalent to 19.1 million poor households in 2006) and 10.85 million unemployed.Tax PolicyTax Policy.


The ProblemsThe ProblemsThe Problems . . .The Problems . . .

Manpower:Manpower: labor law, low income, euphoria of freedom of expression (demonstrations and strikes).

Infrastructure: inadequate infrastructure constitute a major constraint toinadequate infrastructure constitute a major constraint to economy as well as social life.

Unstable and high oil prices in international markets had given impact to socioeconomic life of the peoplegiven impact to socioeconomic life of the people.Political and security instability impact on economic development, particularly to investment.


Outlook 2007Outlook 2007

Global economy2004 2005 2006 2007

W ld O t t 5 3 4 9 5 1 4 9

TabelProjected Economic Growth

Global economy slowing downDomestic demand

World Output 5,3 4,9 5,1 4,9Developed Countries 3,2 2,6 3,1 2,7 US 3,9 3,2 3,4 2,9 Jepang 2,3 2,6 2,7 2,1 Euro Area 2,1 1,3 2,4 2 Domestic demand

should be the driver for economic growth

Asia 8,8 9 8,7 10 China 8 8,5 8,3 7,3 India 5,8 5,1 5 5,6 Asean-4 5,5 5,7 5,8 5,4 g

Public investment and private investment

World Trade Volume 10,6 7,4 8,9 7,6Impor Developed Countries 9,1 6 7,5 6Expor Developed Countries 8,8 5,5 8 6 investment

Private consumption

p , ,

InflationDeveloped Countries 2 2,3 2,6 2,3Emerging and Developing Countries 5,6 5,3 5,2 5

LIBORon USD 1,8 3,9 5,4 5,5on Yen 0,1 0,1 0,5 1,1on Euro Deposit 2,1 2,2 3,1 3,7Source: IMF


Source: IMF

Outlook 2007Outlook 2007Outlook 2007 . . .Outlook 2007 . . .

Economic Growth: 6 – 6,5% (Budget: 6.3%; Consensus around 6 %)I fl ti 6 7%Inflation: 6-7%Policy Rate: 8-9,5% (Budget: 8,5% in current pace; policy rate to go down to becomes 7 5% at the end ofpolicy rate to go down to becomes 7,5% at the end of 2007); a stimulus for reducing bank’s lending rate.


Outlook 2007Outlook 2007Outlook 2007 . . .Outlook 2007 . . .

Th bl f h i bThe problem of purchasing power can be compensated in 2007 by:

increase of civil servant’s salaryincrease of civil servant s salary, minimum wage, consumption credits, good control of inflation and lending rate by Bank Indonesia.

The goal of economic development for 2007:The goal of economic development for 2007: reducing unemployment to 9.9 % and number of poor people to 16,4 %.p p


Three Policy PackagesThree Policy PackagesThree Policy PackagesThree Policy Packages1 Investment Law & Procedure

InvestmentClimate

1 Investment Law & Procedure

2 Tax & Custom Reform

3 L b & I i tiImprovement 3 Labor & Immigration

4 Trade Licenses

Infrastructure

5 Cross Sector Strategic Policy Reform

6 Sector Restructuring, Corporatisation and Policy ReformInfrastructure

7 Regulation on monopoly & investment protection

8 Clear separation on the role of policy maker, regulator, contracting agency and operator

Financial

9 Coordination Monetary & Fiscal Authority

10 Financial Institution (Banking & Non Banking)

contracting agency, and operator


Financial 10 Financial Institution (Banking & Non Banking)

11 Capital Market and SOE Privatization

New Reform Packages and Special ProgramsNew Reform Packages and Special Programs

SME Policy Reform PackageFocus on particularly four areas: − Access to FinanceAccess to Finance− Access to Market− Human Resource Development and

Entrepreneurship− Regulatory Reform and Deregulation

Poverty Reduction ProgramPoverty Reduction ProgramFocus 1: Mainstreaming Budget for PovertyFocus 2: Integration and expansion of KDP (Kecamatan Development Program) and P2KP (Urban Poor) into PNPM (National Program on Community Empowerment)Focus 3: Shifting Cash Transfer to Conditional CashFocus 3: Shifting Cash Transfer to Conditional Cash TransferFocus 4: Others like Biofuel, Housing and Rural Infrastructures

Crash Program for Electricity ExpansionCrash Program for Energy ConversionCrash Program for Energy Conversion

LPG for KeroseneGas for GasolineCoal and Gas for Power GenerationBioenergy

Note : KDP = Kecamatan Development ProgramP2KP = Program Penanganan Kemiskinan PerkotaanPNPM= Program Nasional Pemberdayaan masyarakat.


g y y

SocioSocio Political DevelopmentPolitical DevelopmentSocioSocio--Political DevelopmentPolitical DevelopmentI d i i i f l i d f th it iIndonesia is emerging from long period of authoritarian rule to consolidate its status as one of the world’s largest democratic country.yIndonesia’s political and economic development after the REFORMASI (1998) seems to be on the right track.Socio-political development: amendment of 1945 Constitution, improvement of checks and balances system direct presidential and regional executivessystem, direct presidential and regional executives elections, legal reform and decentralization, human rights, freedom of the press, bigger role of civil society. Peace in Aceh.


Major ProblemsMajor ProblemsMajor ProblemsMajor Problems1 I tit ti1. Institutions:

ambiguity between presidential and parliamentary systems;systems; establishment of quasi-government institutions, and

f i f l d f ti i th j di i l b hconfusion of role and function in the judicial branch of government.

2. Political ethics and behavior:2. Political ethics and behavior: institutionalization of political acts versus personification of political figures;

litimoney politics, manipulation of masses.


Major ProblemsMajor ProblemsMajor Problems . . .Major Problems . . .3. Major problems in governance includes:

Reform of the bureaucracy. Quality of civil servants.Corruption.Inefficiency.Low salary.Impact of problems in bureaucracy on socio-economic domains.


Major Problems . . .Major Problems . . .Major Problems . . .Major Problems . . .

4. New phenomena in political life:Internalization of political issues by grass root. p y gpoliticians: weakening of government’s position in international forum.Ethno-nationalism: as negative impact of decentralization policy (euphoria: from special autonomy to independence).


Major Problems . . .Major Problems . . .Major Problems . . .Major Problems . . .

P liti l t t d i l t t bl i lPolitical trust and social trust: problem in law enforcement (frequently constrained by issues of human rights and freedom of expression).g p )Pluralism: negative impact of pluralism in the form of horizontal conflicts based on religious, ethnics, socio-

i d liti l i f li )economic, and political in-groupness feelings).Terrorism.


Major ProblemsMajor ProblemsMajor Problems . . .Major Problems . . .

5. Major ecological problems: Tsunami, earthquakes, volcanic eruptions, mud eruptions, deforestation, illegal logging, forest fires, floods and landslides.

6. Major health problems: avian flu and dengue fever.


JapanJapan--Indonesia RelationshipIndonesia Relationship

High expectation after the signing of Economic g p g gPartnerships Agreements during the visit of the President of Indonesia to Japan in November 2006.Remaining problems to investment.The trend of reduction in Japan’s ODA.


Japan Indonesia Relationship Japan-Indonesia Relationship . . .

Generally Japanese people and the Japanese Business y p p p pCommunity are “losing interests” in Indonesia, giving more attention to China and India.Japan is a traditional and natural economic partner and political ally of Indonesia. Good relation and mutual i t t b t th t t i h t binterest between the two countries have to be maintained.



Challenges AheadChallenges Ahead

IntroductionIntroductionIntroductionIntroduction

Although Indonesia has not been on “the road toAlthough Indonesia has not been on “the road to democracy,” for long, there is much that has been achieved for which many citizens may be proud. The constitutional amendment process having been completed, citizens may observe a “software upgrade” in the difficult system that is their government. y gAt the time of this writing, relative economic and social stability has been maintained and the country has completed general elections in 2004 the first under thecompleted general elections in 2004, the first under the amended constitution. Citizens have some reasons to be optimistic. However many problems remain.


IntroductionIntroductionIntroduction . . .Introduction . . .

In the post transition period the Indonesian polity has toIn the post-transition period the Indonesian polity has to grapple with two key issues in consolidating its nascent democracy:

how best to strengthen the political culture, deepen democracy, and enhance political institutionalizationho to impro e the performance of the ne lhow to improve the performance of the newly established democratic regime

The failure in meeting the challenges may result in theThe failure in meeting the challenges may result in the disenchantment and reversal in legitimacy of the democratic system of government, or at the least the nation struggling with the negative effects of a low qualitynation struggling with the negative effects of a low quality democracy.


IntroductionIntroductionIntroduction . . .Introduction . . .

With th tit ti l f d th l l tiWith the constitutional reform and the general election based on the reformed constitution, Indonesia has embarked in a second stage of its democratic process: g pConsolidation.The SBY government has been of to a good start, albeit th t h h ll it f d i it l d hthe tough challenges it faced in its early days, such as the tsunami in Aceh and the shock to the economy caused by the steep hike in the oil price. Both these caused by e s eep e e o p ce o esehurdles have been overcome, but democratic consolidation still faces enormous challenges that need to be overcome especially under the leadership of theto be overcome, especially under the leadership of the new democratically elected government.


Improving economic performanceImproving economic performanceImproving economic performanceImproving economic performance

Ad P ki t l h t d tit tiAdam Przeworski et al have presented some quantitative evidence from their observation of the survival and failure of political regimes in 135 countries between 1950 p gand 1990, as they researched the question, What makes democracy endure? Th f d i i l id th t t hThey found empirical evidence that once a country has a democratic regime, its level of economic development has a strong effect on the probability of the democracy to as a s o g e ec o e p obab y o e de oc acy osurvive; poor countries, however, particularly those with annual income per capita of less than $1,000, are extremely fragileextremely fragile.


Improving economic performanceImproving economic performanceImproving economic performance . . .Improving economic performance . . .

Przeworski et al hypothesized that the chances ofPrzeworski et al hypothesized that the chances of democracy to survive and be consolidated will increase when the country’s economy grows faster than 5%

ll d ith th th t l lannually compared with those that grow more slowly.The faster the economy grows, the more likely it is that democracy will be able to survive. yEconomic instability also threatens the survival of democratic regimes.



They concluded that democracies are more likely toThey concluded that democracies are more likely to survive when the annual inflation rate could be maintained at a level below 6%. They confirmed Albert Hirschman’s 1981 hypothesis thatThey confirmed Albert Hirschman s 1981 hypothesis that a moderate rate of inflation promotes democratic stability. They also found evidence that democracy is much more lik l t i i t i h i i lit ilikely to survive in countries where income inequality is declining over time. There is a virtuous circle in the correlation People expect p pdemocracy to reduce income inequality and democracies are more likely to survive when they do.



The economy is showing positive signs of recoveryThe economy is showing positive signs of recovery. However it is still on slippery ground. The biggest challenge is to restore growth to a level that gg g gcan bring the economy more rapidly to its pre-crisis level and to sustain it during the consolidation period. A minimum growth of 6% should be targeted To achieveA minimum growth of 6% should be targeted. To achieve that objective, there are certain pre-conditions that need to be established and objectives that need to be attained.



First and foremost is maintaining the hard won but stillFirst and foremost is maintaining the hard-won but still-fragile macro-economic stability. To strengthen macroeconomic stability, the reforms of g ythe financial sector should be accelerated. A healthy financial sector is a vital element for both stability and growth of the economystability and growth of the economy.



The banking sector is emerging from the crisis but theThe banking sector is emerging from the crisis, but the progress needs to be consolidated.



The government needs to work closely with the centralThe government needs to work closely with the central bank to address some basic issues in the reforms of the banking sector, such as developing an effective —and moral-hazard free— lender of last resort facility, themoral hazard free lender of last resort facility, the replacement of the blanket guarantee with a deposit insurance protection scheme and strengthening governance in the banking sector particularly in stategovernance in the banking sector, particularly in state owned banks. Those are among the most important aspects of a strong banking sector that would facilitate sustainable growthbanking sector that would facilitate sustainable growth and prevent recurrence of another banking crisis.



As the cost of bank restructuring constitutes a large itemAs the cost of bank restructuring constitutes a large item on the government budget to ensure fiscal sustainability, every effort should be made to maximize asset recovery y yand minimize the fiscal cost of banking restructuring. The economy has passed from the stage of fiscal stimulation to fiscal sustainability. Maintaining fiscal sustainability will be one of the biggest h ll t th I d i i thchallenges to the Indonesian economy in the years

ahead.



Long-term fiscal sustainability could only be ensured byLong term fiscal sustainability could only be ensured by continued fiscal consolidation and improvement in tax administration. The challenge is to increase tax revenue by 20 to 25%The challenge is to increase tax revenue by 20 to 25%, from 12% of GDP in year 2002, to 15 to 16% of GDP within five years. Th f h ld b th l t h fThe focus should be on the large taxpayers, who from past experience have proven to be the source of the greatest leakages in tax revenues.



Growth should not only be rapid to regain momentumGrowth should not only be rapid to regain momentum and cover ground lost during the crisis, but should also be sustainable for the long term. The nascent growth of recent years was produced byThe nascent growth of recent years was produced by increased consumption. But investment is still lagging.


Investment ClimateInvestment ClimateInvestment ClimateInvestment Climate

Among the biggest challenges faced by the SBY government is to restore Indonesia’s climate for investment.Although there are some indications of renewed FDI interest in Indonesia, new investment has been lagging far behind compared with coming to Indonesia’sfar behind compared with coming to Indonesia s neighboring countries.


InfrastructureInfrastructureInfrastructureInfrastructureFuture investment is also constrained by major bottlenecks in infrastructure particularly powerbottlenecks in infrastructure, particularly power.There is now already a power scarcity in some regions in which a rotating power supply has become necessary.g p pp y yGrowth in power continues to outpace supply, and building power generating plants and the related distribution networks requires timedistribution networks requires time. Other infrastructure needs also have to be addressed, like roads and bridges, which were neglected during the crisis as well as harbors water supply infrastructure andcrisis, as well as harbors, water supply infrastructure and telecommunication.


EducationEducationEducationEducationThe development of skills that are needed in the newThe development of skills that are needed in the new economy, with its heightened competition due to globalization and opening of markets, and the arrival of new entrants in low skilled manufacturing industry, are anew entrants in low skilled manufacturing industry, are a challenge to Indonesia’s education and skill training programs.


EquityEquityEquityEquity

Growth is not an end in itself. Through growth, new jobs will be created, the country’s debt would be better serviced macroeconomic stability would beserviced, macroeconomic stability would be strengthened and most importantly, poverty would decline. It is important to ensure that growth will not result inIt is important to ensure that growth will not result in increases in inequality, as often occurs in many developing countries.


EquityEquityEquity . . .Equity . . .During the New Order growth was pursued religiously.During the New Order growth was pursued religiously. Although the results were remarkable in transforming the economy, there was a strong feeling of injustice at the pattern of development.pattern of development. There was the perception of a widening gap between the rich and poor, among income groups, ethnic groups and regionsregions. Populist rhetoric aside, it is important to ensure that the positive lessons should be taken from the experience of th N O d t th i t kthe New Order, not the mistakes.


EquityEquityEquity . . .Equity . . .The pattern of growth is just as important as the rate ofThe pattern of growth is just as important as the rate of growth. Growth should not only aim for a vertical trickle down effect but should allow for the horizontal flows of benefiteffect, but should allow for the horizontal flows of benefit, i.e. broad-based, employment intensive and non-compartmentalized growth.


Interaction between politics and economicsInteraction between politics and economicsInteraction between politics and economicsInteraction between politics and economics

One of the key issues in democratic consolidation is howOne of the key issues in democratic consolidation is how to improve the performance of the newly established democratic regime. Regime performance can be seen as b th liti l t t d th h t f th iboth political outputs and the character of the regime as well as the material conditions it generates; in short political as well as economic performance (see di i d ti lid ti i Di ddiscussion on democratic consolidation in Diamond, 1999; 64-116).There is a dilemma. On the one hand, to build a viable e e s a d e a O e o e a d, o bu d a ab edemocracy with all its essential elements—basic security, rule of law, responsible political parties, a well informed citizenry, a professional bureaucracy and so on – willcitizenry, a professional bureaucracy and so on will take a long time. On the other hand, people expect improvements in their living standards now.


Interaction between politics and economicsInteraction between politics and economicsInteraction between politics and economics . . .Interaction between politics and economics . . .

Experience in the developing economies suggests thatExperience in the developing economies suggests that democracy may constrain good economic policy in at least three ways.

First, the political process in a democracy tends to have an inherent bias toward the short term. Politicians put a premium on policies that deliverPoliticians put a premium on policies that deliver results now and postpone costs until later.Second, too much politics can result in distortion of

i li th h th d i fl feconomic policy through the undue influence of sectional and narrow interests. Pressure from political parties, business and other trade lobbies, loud noises i th t t ft hi i th id t’in the streets or soft whispers in the president’s or a minister’s ear, and other devious forms of pressure can and do have distorting effects on economic policy.


Interaction between politics and economicsInteraction between politics and economicsInteraction between politics and economics . . .Interaction between politics and economics . . .

Third democracy as we see it in practice seldom goesThird, democracy as we see it in practice seldom goes together with decisive, swift action when such action is required. One could find several examples of this in I d i d th t i lth h iIndonesia and other countries, although in some cases lack of leadership and bureaucratic inertia may also have contributed to the problem.


Strengthening the political institutionsStrengthening the political institutionsStrengthening the political institutionsStrengthening the political institutions

Indonesia’s march on “the road to democracy” has only started and many problems remain. F t i th ti f h b t t t th thForemost, is the question of how best to strengthen the political culture, deepen democracy, and enhance political institutionalizationpolitical institutionalization. A strong political culture supports adherence to democratic procedures, making democracy the “only de oc a c p ocedu es, a g de oc acy e o ygame in town.”



Deepening democracy demands:greater executive accountability to the law, to other g y ,branches of government, and to the public; a reduction in the barriers to political participation and mobilization by marginal groups; decentralization of power to facilitate broader political access and accountability; vigorous independent action by civil society; and

ff ti t ti f th liti l d i ilmore effective protection for the political and civil rights of citizens.



Political institutionalization calls for the strengthening of the three areas of political institutions:

the institutions of democratic representation and pgovernance (political parties, legislatures, and the electoral system), horizontal accountability, constitutionalism and the rule of law, and the State administrative apparatus (the bureaucracy).


Strengthening the political institutionsStrengthening the political institutionsStrengthening the political institutions . . .Strengthening the political institutions . . .

Diamond surmises that democracy will not becomeDiamond surmises that democracy will not become broadly valued, and thus consolidated, unless it also becomes more liberal, transparent and institutionalized.Because of the disappointment at the performance of the democratic governments, there is a movement to return to the original 1945 Constitution.g



A 2006 d t d b G ll I t ti lA 2006 survey conducted by Gallup International on behalf of Transparency International showed how big is the challenge to improve the image of the political g p g pinstitutions in democratic Indonesia.With the sharp swing of power from the executive to the l i l ti b h f t th i l ilegislative branch of government, there is also a growing disillusion among the people toward the parliament.The survey discovered that Indonesians regarded theThe survey discovered that Indonesians regarded the parliament as the most corrupt institution in the country.



Diamond describes the role of political elites in postDiamond describes the role of political elites in post democratic transition succinctly, saying that “In many of the third-wave democracies, competitive elections do not ensure liberty, responsiveness, and a rule of law.”ensure liberty, responsiveness, and a rule of law. The wide spread impression among the polity that short-term political ends were more dominant than the long-term interest of the country and the quality of itsterm interest of the country and the quality of its democracy.It does not speak well of the quality of the political elites t th iti l t f fti d t lat the very critical moment of crafting a new and truly

democratic political system.



Indeed one very serious issue that had to be addressedIndeed, one very serious issue that had to be addressed is corruption. While corruption is not peculiar to Indonesia, variousWhile corruption is not peculiar to Indonesia, various reports suggested that corruption in Indonesia was a serious problem that led to a waste of resources and inhibited the economic impact of many government programs.



Diamond suggest that in such circumstances, “of entrenched corruption and repression, the elites who come to govern have a stake in the existing system andcome to govern have a stake in the existing system, and those who favor real reform are too weak to accomplish it by themselves. yOnly the mass public can generate the political pressure and power necessary to bring about reform.”


Civil SocietyCivil SocietyCivil SocietyCivil SocietyThe question is, Who are the public? “The public” likeThe question is, Who are the public? The public like “the people” is the term often used by politicians for their own ends, and demagogues manipulate it in attempts to grab power.grab power. Thus without organization, structure, and principles, the public may not matter for democracy or its impact may be negativebe negative. Democracy requires a public that is organized for democracy, socialized to its values and norms, and

itt d t j t t it d i dcommitted not just to its owned myriad narrow interests—although they are important and are the raison d’etre for their existence—but to a larger, common gset of civic ends. And such a public is only possible with a vibrant “civil society ”


society.

Civil SocietyCivil SocietyCivil Society . . .Civil Society . . .

Indonesia’s civil society has grown in recent years andIndonesia’s civil society has grown in recent years and has played a role in the political change. However, as a real countervailing force to the state, it is gstill weak. Not only is it a relatively new concept in Indonesia’s polity and thus yet to mature the quality of the peoplepolity, and thus yet to mature, the quality of the people who are attracted to join it does civil society little good. Only recently has civil society attracted better-qualified people from among the graduates of top universities andpeople from among the graduates of top universities and among the top ranks. In the past, this class of young people was more p y g p pattracted to the bureaucracy, the academia, business and even the military.


Civil Society . . .Civil Society . . .The existence of such a civil society is particularly important to Indonesia at the present stage of democratic consolidation, as clean, open, transparent , , p , pand accountable governance has yet to be established. The general opinion of the public, as reflected in various polls and the media is that democracy has not producedpolls and the media, is that democracy has not produced better governance. The efforts to uphold the principles of democracy and

l f l t b l ft t th liti i l f th irule of law cannot be left to the politicians alone, for their visions may be overshadowed by short-term political interests. The country needs an active, informed, selflessly motivated civil society to strengthen the institutions of governance, for checking, monitoring and restraining the g , g, g gexercise of power of the state, its institutions and office holders and holding them accountable to the law and public expectations of responsible government.


public expectations of responsible government.

Political LeadershipPolitical LeadershipIt i id t th t tl th i l d hi d fi it li k d tIt is evident that currently there is a leadership deficit linked to the persistence of so many of the problems faced by the country. Th d b t t th t i l d id l d hiftiThe debate at the centre is played amid complex and shifting power relations—factionalism even within the main parties, some along ideological lines and others just based on political opportunismopportunism. To explain the disunity and fragmentary nature of its current politics, one might hypothesize that Indonesia lacks individual leaders with the right combination of vision character andleaders with the right combination of vision, character, and political savvy. There may be positive effects to this lack of charismatic leadership beca se as Haggard and Ka fman asserts o er theleadership because, as Haggard and Kaufman asserts, over the long term “executive authority must eventually be depersonalized”. H th i f I d i t th t fHowever, the experience of Indonesia at the past few years show that inept leadership have led to more failures of policy than successes, more instability and “wasted” energy in political conflict than peaceful progress and coherence


conflict than peaceful progress and coherence.

Political Leadership. . .Political Leadership. . .As such, not only should reforms install an effective and transparent set of rules-based institutions, they should l l l b d h i b hi h th b talso evolve rules-based mechanisms by which the best

of each generation are brought into the political leadership. Put in simplistic terms: a good system is nothing without good people to run it. It is not to say that the system is less important than theIt is not to say that the system is less important than the persons who run it, on the contrary democratization entails first and foremost establishing the system—the institutions the processes and proceduresinstitutions, the processes and procedures. However, at the end of the day, a system is as good as the people who run it. It may help to recall Huntington’s aphorism, that economic development makes democracy possible, but it is “political leadership” that makes it real.


it is political leadership that makes it real.

Keeping the country togetherKeeping the country togetherKeeping the country togetherKeeping the country together

O f th h ll f i I d i i k i thOne of the challenges facing Indonesia is keeping the country united.The threat of separation has always plagued the countryThe threat of separation has always plagued the country since the first days of independence.One of the main grievance is income and regional g gdisparity. It is a complex problem and would take time and effort to resolve, but at the heart of the problem was the overly centralized government structure and decisionthe overly centralized government structure and decision making process. Devolvement of central authority should be the first step y ptoward addressing the problem.


Keeping the country togetherKeeping the country togetherKeeping the country together . . .Keeping the country together . . .

As discussed above decentralization constitutes one ofAs discussed above, decentralization constitutes one of the most important aspect of “reformasi” in Indonesia.Decentralization enhances the efficacy, quality and y q ylegitimacy of democracy; hence decentralization is a necessity for democracy. It is even more so for large—and particularly multiethnicIt is even more so for large and particularly multiethnic and multicultural— countries such as Indonesia, as decentralization will close the distance between the citizens the stakeholder and the power and the processcitizens, the stakeholder, and the power and the process of policy making.


DecentralizationDecentralizationDecentralizationDecentralization

D t li ti i t l liti l di tDecentralization is not merely political expedience to deal with rebellious regions. It has more basic value to democracy and democratic consolidation. yMany scholars have presented argument that decentralization enhances the legitimacy and hence t bilit f dstability of democracy.

Decentralization is not just a political necessity to keep the country from falling apart or to foster democracy; ifthe country from falling apart or to foster democracy; if managed well decentralization can bring important benefits to the communities and the economy as a whole. H if d b dl it ld h th l dHowever if managed badly it could harm the people and squander resources and bring instability instead.


DecentralizationDecentralizationDecentralization . . .Decentralization . . .

M b h d i d b t th ff t f fi lMany observers had worried about the effect of fiscal decentralization on the still fledgling economy. With decentralization some rich regions are doing fineWith decentralization, some rich regions are doing fine, in fact they have more money that they can spend; there is a danger, and there are already some indications of th t b i d ff ti l d ffi i tlthe revenues not being used effectively and efficiently. On the other hand, poor regions are chafing under the new responsibility that comes with autonomy. e espo s b y a co es au o o yAnd as pointed by the World Bank (2001) the risks of an increase in corruption following decentralization are high. It h b id l b d th t f th t t lIt has been widely observed that so far that not only power and revenue that have been decentralized but also corruption.


also corruption.

DecentralizationDecentralizationDecentralization . . .Decentralization . . .It seems that Indonesia is not the only country faced withIt seems that Indonesia is not the only country faced with this problem when it attempted to decentralize. On the basis of their observation of experience of some pLatin American countries, some analysts comment that decentralization has strengthened the position of the local elites and their clientelistic networks (Huber, ( ,Rueschemeyer and Stephens, 1999: 182). Furthermore, many regions had increased local taxes and imposed new levies that have become a significantand imposed new levies that have become a significant concern for investors.


DecentralizationDecentralizationDecentralization . . .Decentralization . . .There is a need to clarify the rules and regulationThere is a need to clarify the rules and regulation regarding decentralization that would affect the investors. There have to be clear guidelines on the authority and responsibility of the central government the provincialresponsibility of the central government, the provincial government and the district or city government with regard to investment. It i i t t t l if th t t t hi h thIt is important to clarify the extent to which the government has the right to intervene in the conduct of private business.


DecentralizationDecentralizationDecentralization . . .Decentralization . . .

Both regional autonomy and direct regional elections areBoth regional autonomy and direct regional elections are also expected to put an end to the unbalanced relationship between the central and local governments, p gas well as to promote political equality among all citizens, regardless of their background, giving them a sense that th t b i l ft t f th t h i ththey are not being left out of a process that has in the past been dominated by the elite in Jakarta. In most parts of the country the elections went smoothlyIn most parts of the country, the elections went smoothly and peacefully, in some parts local elections did not go as well as could have been hoped.as well as could have been hoped.


Decentralization . . .Decentralization . . .

Reports of vote buying power plays poll fraud andReports of vote buying, power plays, poll fraud and problems with voter registration, combined with a lack of accountability and credibility showed by some local y y yelections commissions, surfaced in media, tarnishing the legitimacy of the long-awaited regional elections. The limited time allowed for campaigning --making it difficult for voters to truly measure the quality and platforms of the candidates as well as a lack ofplatforms of the candidates-- as well as a lack of available media outlets to educate the public about substantive campaign issues, were among the factorssubstantive campaign issues, were among the factors blamed for the elections' shortcomings.


Decentralization . . .Decentralization . . .Physical clashes occurred in some areas, including in Kaur regency in Bengkulu province where some 10 000Kaur regency in Bengkulu province, where some 10,000 people went on the rampage and set fire to government offices and houses in July to express theiroffices and houses in July to express their disappointment with the regency election results. In North Sumatra province, a mob attacked the General p ,Elections Commission office in Central Tapanuli regency in October after the commission refused to allow a

did t f t t t th l ti b fcandidate for regent contest the election because of questions over the legitimacy of her high school diploma. In the city of Sibolga the election was delayed at the lastIn the city of Sibolga, the election was delayed at the last minute for three days because voter cards had not been distributed.


Decentralization . . .Decentralization . . .

Another example of the troubles faced by elections wasAnother example of the troubles faced by elections was a high profile case involving a long legal battle in Depok city, near the capital Jakarta, where one of the political y p pparties that came out on the losing end of the election challenged the results in court. In its lawsuit, the losing

t l i d th l l l ti i i h dparty claimed the local elections commission had committed violations in implementing the election processprocess.In Papua there are dispute between the two provinces (Papua and Irian Jaya Barat) about the validity of(Papua and Irian Jaya Barat) about the validity of general elections in the two provinces, in relation to the special status given to the provinces.


DecentralizationDecentralizationDecentralization . . .Decentralization . . .Therefore it is a challenge for the Indonesian democracyTherefore it is a challenge for the Indonesian democracy to take hold in the grass level that the nation is able to undertake elections in the regions peacefully, cleanly, and democratically.and democratically.


Keeping the country togetherKeeping the country togetherKeeping the country together . . .Keeping the country together . . .The threat to the unity and integrity of country has

frecently been perceived as not only to come from ethnic or regional separatism but also from fundamental and political Islam. pMany authors have speculated about the political implication of the rise of the social standing of Islam in IndonesiaIndonesia.


Keeping the country togetherKeeping the country togetherKeeping the country together . . .Keeping the country together . . .In actuality, however, Indonesian Islam is embedded in a

fculture of tolerance that can be traced back to the history of Islamization of the archipelago.


Keeping the country togetherKeeping the country togetherKeeping the country together . . .Keeping the country together . . .Islam originally came to Indonesia and religiously “ ”“conquered” the people not through war, but through trade, marriage and education. Hence the absorption of Islam by the societies in thisHence the absorption of Islam by the societies in this vast archipelago was generally peaceful and involved little coercion. In fact in the propagation of Islam there was a tendencyIn fact, in the propagation of Islam there was a tendency to adjust the new religion to older beliefs that resulted in moderate and tolerant—some may say syncretic—attitudes among the majority of Indonesian Muslimsattitudes among the majority of Indonesian Muslims.


The Role of IslamThe Role of IslamThe Role of IslamThe Role of Islam

It is true that fundamentalist Islamic groups some ofIt is true that fundamentalist Islamic groups, some of them militant, do exist in Indonesia, but they are marginal and have little popular support. Despite the recurrence of incidents involving some Islamic extremists, for many years, Indonesia, the country with the largest Muslim population in the world, y g p p ,has been well known as a pluralistic society characterized by religious moderation and tolerance.


The Role of IslamThe Role of IslamThe Role of Islam. . .The Role of Islam. . .With the constitutional amendments completed, the

f Cdebate on the inclusion of the Jakarta Charter into the constitution has been more or less been concluded. The votes against it were overwhelming, cutting acrossThe votes against it were overwhelming, cutting across political fault lines. Although the possibility of future attempts to reintroduce the Jakarta Charter is ever present the political supportthe Jakarta Charter is ever present, the political support for such a move would be confined to a small minority. Not only are the secular nationalist parties against it,

ti ith I l i d ti l l tmany parties with Islamic credentials are also not supporting it.


The Role of Islam. . .The Role of Islam. . .

Even if the Jakarta Charter does not pose an immediate threat to the unity of the country, adjusting to and coping with a deepening religious awareness and religious piety within the Muslim population is still a challenge for IndonesiaMuslim population is still a challenge for Indonesia.Although Indonesia is a predominantly Muslim Country, Islamic political parties in Indonesia has never been able to attain more than 40% of the votes, since the election of 1955 up to the last election in 2004. Therefore, most Indonesian Muslim voted for parties not based in religionMuslim voted for parties not based in religion.The different from one election to another is the composition of the votes garnered by the Islamic parties, which constantly g y p ychanges reflecting the political mood and environment of the time.


The Role of IslamThe Role of IslamThe Role of Islam. . .The Role of Islam. . .In the short run, however, the revival of Islamic values in

fthe minds and lives of the population, most importantly among the intelligentsia and the political elite, and the young, may affect attitudes or responses to political y g y p pissues that involve Islam such as international terrorism. The September 11 act of terrorism against the US was almost unanimously condemned by organized Muslimsalmost unanimously condemned by organized Muslims and by the public in general. Except for a few very vocal fanatics, Indonesia’s Muslims were outraged by with happened in New Yorkwere outraged by with happened in New York.


The Role of IslamThe Role of IslamThe Role of Islam. . .The Role of Islam. . .The feeling of outrage against terrorism that had taken

fthe lives of innocent people was heightened when Indonesia also became a victim of international terrorism with the bombing in Bali on 12 October 2002, the more grecent Marriot bombing in Jakarta on 5 August 2002, and the second Bali Bombing in 2005. For many Indonesian Muslims terrorism had onlyFor many Indonesian Muslims, terrorism had only succeeded in creating the wrong image of Islam and Islamic values.


The Role of the MilitaryThe Role of the MilitaryThe Role of the MilitaryThe Role of the MilitaryObservers of Indonesia have paid much attention to the

f Orole of the military in post-New Order politics and how the military perceive its role in democracy. Events surrounding the fall of Suharto showed that theEvents surrounding the fall of Suharto showed that the military had been supportive of political change. Its role was crucial in the peaceful transition from an authoritarian regime to real democracyauthoritarian regime to real democracy.


The Role of the MilitaryThe Role of the MilitaryThe Role of the Military . . .The Role of the Military . . .In the transition during the Habibie period, the military

flent its political weight to the institutionalization of democracy by supporting the creation of laws and rules that dismantled the old authoritarian structures and replaced it with a democratic system. The military has shown its commitment to democracy when it accepted the consensus of the polity that itwhen it accepted the consensus of the polity that it should no longer take an active role in politics and therefore no longer hold seats in the elective political institutionsinstitutions. Under Wahid, the military had been steadfast in refusing to be used as an instrument to subvert the constitution and resisted the pressure to reverse to authoritarianismand resisted the pressure to reverse to authoritarianism.


The Role of the MilitaryThe Role of the MilitaryThe Role of the Military . . .The Role of the Military . . .Although many retired senior officers were against changing the constitution, the serving military establishment fully supported the amendments that have become the foundation for a stronger and more stable gdemocracy. Therefore it is safe to say that the military is not a threat but an asset to Indonesia’s democracybut an asset to Indonesia s democracy.


Political ReconciliationPolitical ReconciliationPolitical Reconciliation . . .Political Reconciliation . . .More needs to be done in order for the country to be

fable to live with and be proud of its past and not be burdened by it.Efforts to reconcile the past should transcend ideologyEfforts to reconcile the past should transcend ideology and politics.


ConclusionConclusionConclusion Conclusion Much has been achieved but even more remains to beMuch has been achieved, but even more remains to be done. The past few years have been extremely eventful for p y yIndonesia. Following the maelstrom of political, economic and social crises economic stability has now returned though thecrises, economic stability has now returned though the economy has not returned to the heady levels of the boom years.


ConclusionConclusionConclusionConclusion . . .. . .To overcome the challenges ahead whether fromTo overcome the challenges ahead, whether from political corruption, violent communal strife and terrorism in the name of God or external economic shocks, the

t l f t d d ti illnew tools of government and democratic governance will face their definitive test.



GovernanceGovernance

GovernanceGovernanceGovernanceGovernance

Questions: Do governments know what they are doing? Why should we trust them?Why should we trust them?

The demand for good governance has a long history. But seldom have the forms of governance been under ggreater challenge. Dissatisfaction and disillusionment about political

l ti ifsolutions are rife.


GovernanceGovernanceGovernance . . .Governance . . .

Problem of modern governance is not so much an insufficiency of instruments relative to the changing on y g gobjectives, but rather the degree of incompatibility between objectives .Wh d t l t?Why governance, and not merely government? Governance is a broader and more fundamental concept than that of government aloneconcept than that of government alone.The concern is with the links between parts of the political system as with the institutions themselves.



Th t f i b d th tThe concept of governance is broader than government, covering non-state actors (Rhodes 1997).It accepts that the management of the nation's affairsIt accepts that the management of the nation s affairs might need more than government to ensure effectiveness; it sees parties, courts and interest groups

t bl th t t t b tnot as problems that governments must overcome but as part of the broader process. Governance is the exercise of political power to manageGovernance is the exercise of political power to manage a nation's affairs (The World Bank, 1992).



The current Public Governance debate places a new emphasis on ‘what matters is not what we do, but how people feel about what we do’ and that ‘processespeople feel about what we do and that processes matter’ or put differently, ‘the ends do not justify the means’.



Whereas the governance discussions in the public sectors is relatively recent, the term governance is much more common in the private sector where a debate about Corporate Governance has been going on for quite some timequite some time.Corporate Governance refers to issues of control and decision-making powers within the private (corporate) organizations.



'Corporate Governance’ is the watchword of those who wish to improve the accountability and transparency of the actions of management, but without fundamentally altering the basic structure of firms.

(Roe, 1994)



Another development is the globalization of the economy and the growing importance of transnational political institutions like the European Union (EU) World Tradeinstitutions like the European Union (EU), World Trade Organization (WTO), Association of South East Asian Nations (ASEAN), and North American Free Trade ( ),Agreement (NAFTA).



The deregulations of capital in the 1980s set in train a massive restructuring of both domestic economies and the international economic system.the international economic system.What seems to be the main consequence of globalization in the present context is the erosion of t diti l d ti liti l th ittraditional, domestic political authority.International forces appear to override the ability of national governments to solve their own problem.national governments to solve their own problem.



New demands of accountability to international markets and standards may clash with the traditional lines of accountabilitylines of accountability.Some commentators (Rhodes 1994, 1997; Davis 1997) have characterized these trends as a 'hollowing1997) have characterized these trends as a hollowing out of the state', in which the combined effects of globalization, international obligations, privatization

d d d l ti d l t th it fand reduced regulation deplete the capacity of government to shape and organize society.


GovernanceGovernanceGovernance . . .Governance . . .Pessimist suggest that globalization means that

t h h b l dgovernment everywhere have become powerless and that managing globalization is impossible, since globalization is shaped by markets, not by government.globalization is shaped by markets, not by government.Some have suggested that this powerlessness is reinforced by the coming of the internet age –that there is no governance against the electronic herd (Friedman, 2000).Gl b l G h th b t i lGlobal Governance has then become very topical.In a nutshell, global governance is about how to cope with problems which transcend the borders (such as airwith problems which transcend the borders (such as air pollution, narcotics, terrorism or the exploitation of child workers) given the lack of a world government.


Public Administration in A DemocracyPublic Administration in A DemocracyPublic Administration in A DemocracyPublic Administration in A Democracy

EXECUTIVE STAFF AGENCIES

SOCIOCULTURAL

Chief Executive

AGENCIES

LEGISLATUREOUTSIDE

AUDITORS

NORMS

LEGISLATIVE STAFF AGENCIESMEDIA

PUBLIC ADMINISTRATORS:

DEPARTMENT AND AGENCY HEAD

OTHER AGENCIES, POLITICAL PARTIES

COURTS

OTHER AGENCIES, SAME LEVEL

INTEREST GROUPS

(Rosenbloom, Kravchuck, 2005)

OTHER AGENCIES, DIFFERENT

LEVELS

SAME LEVEL


( )

Public Administration in A Democratic Public Administration in A Democratic Political System: The Conversion ProcessPolitical System: The Conversion Process

ENVIRONMENT• CULTURAL CHANGES

AND EVENTS• ECONOMIC CHANGES

INPUTS

• DEMANDS FOR PROGRAMS AND SERVICES

ADMINISTRATIVE LINE AGENCIES

“WITHIN-PUTS”

OUTPUTS

• GOODS

• SERVICE• ECONOMIC CHANGES AND EVENTS

• POLITICAL CHANGES AND EVENTS

• SOCIETAL CHANGES AND EVENTS

SERVICES

SUPPORT

• MONEY

• STAF

ROLES PLAYED BY

• RULES

• PROCEDURES

• GOALS

• STRUCTURE

• POLICIES

• PROGRAMME

• INFORMATION

ROLES PLAYED BY

• PARTY

• INTEREST GROUP

• STAFF AGENCIES

• PERSONAL

• EXPERIENCE LEAD TO




Above figure presents a conceptual framework that seesAbove figure presents a conceptual framework that sees public administration taking the central role or stage in a broader political system (the conversion process in the systems model). The model emphasizes the interrelated nature of the parts and how change in an external environmentparts and how change in an external environment (cultural, economic, political, social) causes change in the structures and internal processes of public p padministration. These changes, in turn, influence the outputs of the b th t i h t d i libureaucracy; that is, what goods, services, policy programs, rules, and regulations are implemented by bureaucracy


bureaucracy.


As in any system, a feedback loop develops in which the outputs affect the environment, which causes further change and often new demands from the environment to continue, increase or decrease, modify, or occasionally even cease a public policy or programeven cease a public policy or program.


Good GovernanceGood GovernanceGood GovernanceGood Governance

In Indonesia Good Governance is very much a current topic, as part of the agenda of the reform movement.It is concerned with such issues as corruption, human rights violation, rule of law.


Good GovernanceGood GovernanceGood Governance . . .Good Governance . . .

The characteristics ‘Good Governance‘:The characteristics Good Governance :1) An efficient public service; 2) An independent judicial system and legal framework to2) An independent judicial system and legal framework to

enforce contracts; 3) The accountable administration of public funds; 4) An independent public auditor, responsible to a

representative legislature; 5) Respect for law and human rights at all levels of

government; 6) A pluralistic institutional structure; and6) A pluralistic institutional structure; and 7) A free press

(Rhodes 1997)GSAPS-2007-Day4 www.ginandjar.com 107

(Rhodes 1997).


Universally ‘Good Governance’ raises such issues as:

Stakeholders engagement;Transparency;The equalities agenda (gender, ethnic group, age, religion, etc);Ethical and honest behavioral;Accountability;Sustainability.



Accountability and EthicsAccountability is the degree to which a person must y g panswer to some higher authority for actions in the larger society or in the agency. El t d bli ffi i l t bl t t P bliElected public officials are accountable to voters. Public agency managers are accountable to elected executives and legislatures. Agency leaders are held accountable to the political culture of society, which holds general values and ideas of democracy and public moralityof democracy and public morality.


Good GovernanceGood GovernanceGood Governance . . .Good Governance . . .Accountability is determined both externally (by codes f hi l l d i d i i i dof ethics, legal mandates contained in a constitution and

authorization laws, and professional codes or standards) and internally (by agency rules and regulations orand internally (by agency rules and regulations or personally internalized norms of behavior and moral ethics).

fDemocracy requires a system of accountability: checks and balances on government structures, the security of regular audits, and the inquisitive eye of community andregular audits, and the inquisitive eye of community and media watchdogs.




Ethics concern with what is right and what is wrong.(F d i k 1994)(Frederickson, 1994)

Ethics can be considered a form of self-accountability orEthics can be considered a form of self accountability, or an “inner check” on public administrators conduct.




Ethics are imbedded in the values and norms of society, and in an organization in its organizational culture.g gValues are any object or qualities desirable as means or ends themselves, such as life, justice, equality, honesty, efficiency, freedom. Values are beliefs, points of view, attitudes.



Standards and norms are defined as principles of right action binding upon the members of a group and serving to guide, control, or regulate proper and acceptable behavior. Standards and norms are the codification of groupStandards and norms are the codification of group, organizational, community, or governmental values. Laws, regulations, codes of ethics. , g ,Rules are typical of standards and norms.

(Frederickson, 1994)



A i ti ' lt i d f th " b iAn organization's culture is composed of the ". . . basic assumptions and beliefs that are shared by members of the organization, that operate unconsciously, and that g , p y,define in a basic taken-for-granted' fashion an organization's view of itself and its environment" O i ti l lt i i l f th t t lOrganizational culture is a social force that controls patterns of organizational behavior by shaping members' cognitions and perceptions of meanings and realities, cog o s a d pe cep o s o ea gs a d ea es,providing effective energy for mobilization and identifying who belongs and who does not.



Ethics is not only the heart of organizational culture, it is also the fulcrum for producing change. p g gSince ethics is the fulcrum for changing culture, changing culture without ethics is akin to changing a ti ith t j k“tire without a jack“

(Pastin,1986)



The Ethical Dimensions of Decision MakingThe Ethical Dimensions of Decision MakingWhen making decisions, public administrators inevitably pursue certain goals whetherinevitably pursue certain goals, whether personal, organizational, or some mixture of both. The pursuit of goals involves strategic and tactical choices to achieve them (means and ends)ends). Such decisions raise questions about the propriety of the means used in implementing apropriety of the means used in implementing a course of action to deal with a public problem.



Institutional EthicsInstitutional Ethics

When an institution of government pursues i ti l l d t f tiorganizational goals and sets on a course of action

toward reaching those goals, the end itself may be seen as so compelling as to seemingly justify any meansas so compelling as to seemingly justify any means.Organizations have often striven to clarify such dilemmas in decision making by articulating codes ofdilemmas in decision making by articulating codes of ethics to guide the behavior of their members.



Personal EthicsOften at issue in decision making are personal ethics.Often at issue in decision making are personal ethics. The temptation to divert some of public funds or resources to personal use can be great and the risk of

ft llexposure often small.The main reason for the worldwide presence of public administrative corruption is that public administratorsadministrative corruption is that public administrators have something to allocate that other people want.



The problem of corruption is endemic to politics and to government simply because its decisions involve so much power and wealthmuch power and wealth. It becomes commonplace at all levels of government--in the ways contracts are awarded jobs are created andthe ways contracts are awarded, jobs are created and filled, people are hired, offices are sold, favored political allies are rewarded, power is exerted, and the needs or plight of others are ignored.


Good Governance . . .Good Governance . . .The demand for government's rewards frequently exceeds the supply, and routine decision-making processes are lengthy costly and uncertain in theirprocesses are lengthy, costly, and uncertain in their outcome. For these reasons, legally sanctioned decision-making processes constitute a "bottleneck" between what people want and what they get. The temptation to get around the bottleneck—to speedThe temptation to get around the bottleneck to speed things up and make favorable decisions more probable—is built into this relationship between government and societygovernment and society. To get around the bottleneck, one must use political influence—and corruption, which by definition cuts across established and legitimate processes is a mostacross established and legitimate processes, is a most effective form of influence.

(Michael Johnston, 1982)


( )


Corruption, is a form of privilege indulged in by those in It t t i th h d f f hpower. It concentrates power in the hands of a few who

can make decisions based not on the good of the whole but on the interests of the fewwhole but on the interests of the few. Power tends to corrupt, and absolute power corrupts absolutely.absolutely.


Administrative ReformAdministrative ReformAdministrative ReformAdministrative Reform

A useful working definition of administrative reform is the induced permanent improvementreform is the induced, permanent improvement in administration.

(Wallis, 1993)


Administrative ReformAdministrative ReformAdministrative Reform . . .Administrative Reform . . .

The word ‘induced’ indicates a form of administrative change which is deliberately brought about, not one which just happens by accident or without the making of any conscious effort.The word ‘permanent’ carries the connotation that theThe word permanent carries the connotation that the changes introduced will be long-term, not just temporary.Simply put to improve means ‘to make better’.



Th f i th ti l d i i t ti t thThe focus is on the national administrative system as the unit of analysis and it tends to concentrate on bureaucracy as a national institution as well as the ybureaucracy’s relations with the environment, particularly the political authority.



The meaning of ‘reform’ is quite distinct from the idea of ‘revolution’, which implies the total overthrow of old t t d t d th i l t bstructures and system, and their replacement by new

ones.



The DifficultiesLack of awareness of how bad the administration’s

f i h i t i ht bperformances is, or how improvements might be undertaken.The change involved in administrative reform may meetThe change involved in administrative reform may meet considerable resistance. Bureaucracies themselves tend to dislike change, especially when their own interest are o d s e c a ge, espec a y e e o e es a eat stake.Proposals for change may be too vague or confused to p g y gbe easily put into practice.



Those who are responsible for implementation may have very little understanding of what is supposed to be happening or of what has been proposedhappening or of what has been proposed.What may work in one situation may be quite unworkable in anotherunworkable in another.



R f A dReform Agendas:Institutional building.Institutional empowermentInstitutional empowerment.Skill and professional development --> capacity building.DecentralizationDecentralization.Debureaucratization.PrivatizationPrivatization.


DebureaucratizationDebureaucratizationDebureaucratizationDebureaucratization

In a climate of social values that stress participation and democracy bureaucracies with their centralizedand democracy, bureaucracies with their centralized structures of authority and control are anachronistic.

(Pfeffer and Salancik, 1978)

Political democracy, societal transformations, and technological progress have modified the structures and values of public administration.


DebureaucratizationDebureaucratizationDebureaucratization . . .Debureaucratization . . .

A complex process of functional and social differentiation has gradually eroded the rigidities ofdifferentiation has gradually eroded the rigidities of hierarchical authority structures and further mitigated the old perceived antinomy between structure and change. In many ways, debureaucratization is the many-sided outcome of this cumulative process.


DebureaucratizationDebureaucratizationDebureaucratization . . .Debureaucratization . . .

The strains on modern government caused by the growing complexity and scale of operation have b ht i t h f th bl f it hbrought into sharp focus the problem of capacity: how much, a human organization can comprehend, absorb, process and accomplish effectively.process and accomplish effectively.Debureaucratization responds to a growing sense that several core values of public administration no longer correspond, sufficiently to the values and the needs of society at large.


DebureaucratizationDebureaucratizationDebureaucratization . . .Debureaucratization . . .Throughout the world today there is a mountingThroughout the world today, there is a mounting challenge to centralized, hierarchical, control-oriented structures. Debureaucratization calls for greater devolution, decentralization, more freedom for differentiation, and experimentation and greater participation of interestedexperimentation, and greater participation of interested groups in public policy making.Debureaucratization describe a complex trend of pchange, —disaggregation and differentiation— in the process of conversion of administrative systems from closed to open systemsclosed to open systems.


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Technology

Day 4: Indonesia Rebounds