This paper describes and analyses the challenges encountered in attempting to reform public sector accounting in Indonesia, the main objective of which is to combat corruption and thus help improve ...governance. Our observations suggest that this reform has been seriously hindered by a lack of staff with adequate accounting skills — a problem exacerbated by the decision to continue to prepare old‐style cash‐based reports alongside the new accrual‐based reports. Our key contribution is to demonstrate the danger of rushing to copy public sector financial management techniques from quite different country contexts, especially when there are significant differences of opinion as to the appropriate design of these reforms among the influential policy‐making agencies.
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For roughly the past three years, Indonesia's growth has maintained its slight upward trend while inflation has been broadly on target. The budget deficit has been kept under control and government ...debt is low relative to that of many other countries. Nevertheless, this sound macroeconomic performance is now under threat because the government's aversion to depreciation of the currency has led it to introduce unnecessary contractionary fiscal measures-including cutbacks of spending on infrastructure on which output growth depends. Along with many other currencies, the rupiah has depreciated significantly throughout much of 2018-despite the attempts of Bank Indonesia, the central bank, to prevent this-partly because of rapidly growing imports, but also because of a reversal of portfolio capital inflow. This reversal reflects various factors, including Bank Indonesia's policy, until recently, of pushing interest rates down while global interest rates have been rising; fear that rapid depreciation in poorly managed economies such as Turkey and Argentina may prove contagious; market recognition that expansion of the current account deficit is likely to require depreciation beyond that desired by the central bank; and concern that the forthcoming presidential election creates conditions in which it will be difficult to pursue sound economic policies. This survey discusses the rather unexpected currency depreciation and associated selling pressure in the stock exchange in detail before going on to provide evaluations of, and suggestions in relation to, a range of microeconomic policies, including infrastructure development; the provision of subsidised loans to small businesses; the fiscal aspects of decentralisation; minimum wages; and management of the bureaucracy. To a large extent, most of these policies can be characterised as reflecting a distrust of market forces, including a reluctance to adopt market-mimicking processes in the public sector-specifically, in relation to the funding of local governments, and to the staffing of the bureaucracy. From another perspective, the adoption of a wide variety of objectives for economic policy reflects the absence of any consistent analytical framework, making it highly likely that policies will turn out to be mutually inconsistent and, in particular, that they will conflict with the ultimate economic objective of increasing living standards, especially those of the poor.
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Indonesia McLeod, Ross H; MacIntyre, Andrew
06/2007
eBook
The success or failure of democratic reform in Indonesia is a key question for Indonesia itself and for the surrounding region. Although Indonesia's transition to democracy holds out the promise of ...good governance, this cannot be taken for granted - as the recent military takeover in Thailand shows. This book is about the challenge of making democracy work in Asia's third-largest nation.
Soeharto era concern about corruption was deflected by the establishment of toothless anti-corruption committees, and by suppression of anti-corruption activism and media comment. With Soeharto's ...demise, activists began to publicise their concerns more openly - at first speaking in general terms, but later making increasingly specific allegations. The sporadic activism of the Soeharto years was consolidated, first through cooperative action among similarly motivated informal groups, and later through establishment of formal civil society organisations (CSOs) intent on rolling back corruption. The CSOs have played a key role in pushing for new laws and institutions to help eradicate corruption, and many corrupt officials have been imprisoned. This paper finds little evidence, however, that corruption has declined significantly. It argues that further progress depends on CSOs gaining a better understanding of the underlying causes of corruption, and that these are to be found in public sector personnel management practices.
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5.
Survey of recent developments McLeod, Ross H.
Bulletin of Indonesian economic studies,
04/2011, Volume:
47, Issue:
1
Journal Article
Peer reviewed
Open access
The Indonesian public is becoming increasingly concerned about the gap between policy rhetoric and action. A strong contributor to this has been a long-running corruption saga involving a tax ...official, Gayus Tambunan, whose activities have helped confirm the public's worst fears about the ineffectiveness of the anti-corruption campaign. Claims of progress in this and other fields, including the economy, are often overstated, and opinion polls suggest that people are increasingly unwilling to take them at face value.
Nevertheless, the most recent data reveal a surprising surge of GDP growth, driven mainly by investment spending. Inflation has been quite steady for the last six months, albeit a little above the target range; this is disappointing, but not a major problem. In response to surging food prices the government has temporarily removed tariffs on rice, wheat and soybeans, and ordered increased rice imports. Energy subsidies continue to weigh heavily on the budget; the plan to remove the subsidy from petrol used in private cars but not from that used in motor cycles makes good political - if not economic - sense, since motor cycle owners greatly outnumber car owners. The 2011 budget is unlikely to have a stimulatory impact.
The composition of exports has altered quite dramatically over the last two decades, albeit in unexpected directions. The pattern of export destinations has also undergone significant change, reflecting the growing relative importance of Asia to the global economy.
The president's proposal for a new capital as the solution to the congestion problem in Jakarta is questionable. If policy makers fail to understand why existing cities perform their diverse functions poorly, the creation of a new capital is more likely to replicate than to solve problems. Cities are crucial to the modernisation of the economy, and are important vehicles for poverty reduction. City governments could greatly improve their performance by adopting a strategy of financial self-reliance.
The decision to establish a single authority to supervise the entire financial sector has now been delayed for almost 11 years. The draft law currently under discussion suggests that the central bank has no intention of giving up its role as supervisor of the banks. This means there would be wasteful and confusing duplication of that function in the new authority. In any case, it remains unclear exactly what purpose the authority's establishment is intended to achieve.
There have been several reminders recently of Indonesia's vulnerability to natural disasters, including multiple eruptions of Mount Merapi in central Java, which caused almost 400 fatalities and considerable damage to the local economy and infrastructure. Evacuation of residents of the area worst affected seems to have been handled well. An important policy decision needs to be made about whether those who lost their houses, crops and livestock should be permitted to return permanently to their villages.
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With Soeharto's demise, Indonesia gained democracy but lost effective government. A return to sustained, rapid economic growth will require an overhaul of Indonesia's bureaucracy and judiciary which, ...along with the legislatures, the military and the state-owned enterprises, had been co-opted by the former president into his economy-wide 'franchise'-a system of government designed to redistribute income and wealth from the weak to the strong while maintaining rapid growth. This franchise has disintegrated, its various component parts now working at cross-purposes rather than in mutually reinforcing fashion. The result has been a significant decline in the security of property rights and, in turn, the continued postponement of a sustained economic rebound. To reform the civil service it will be necessary to undertake a radical overhaul of its personnel management practices and salary structures, so as to provide strong incentives for officials to work in the public interest.
* Much of this paper was written while the author was a visitor at the School of Advanced International Studies, Johns Hopkins University.
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This volume is based on "Indonesia Update 1994", the latest in the series of anual conferences on Indonesia held at the Australian National University. It presents overviews of economic and political ...developments, together with a collection of papers on the role of the finance sector. Indonesia Assesment 1994 contains the Keynote Address to the conference by Professor Dr Ali Wardhana, Special Adviser to the President, former Minister of Finance, and former Coordinating Minister for Economics, Finance and Industry. Three present or former directors of the central bank joint Professor Wardhana to contribute wide-ranging discussions of the process of financial policy reform as seen from the inside. They are joined by a range of other contributors drawn mainly from academic circle in Indonesia, Australia and elsewhere, and some from the private sector. Indonesia Assesment 1994 provides the most complete available coverage of the current state of the financial sector in Indonesia and the policies which affect it. This volume will be an invaluable reference for policy-makers, academics, and all those interested in the finance sector and in economic and political developments in Indonesia. The editor is a Fellow at the ANU's Indonesia Project, with many years of research and consulting experience in the Indonesian financial system.
Soeharto used the Indonesian bureaucracy to generate rents that could be harvested by 'insider' firms, while also encouraging it to extort money from 'outsider firms and individuals. This ...necessitated incentives that would ensure strong loyalty and minimize internal opposition. Government entities were provided with insufficient budget funding to cover their costs, and their officials were expected to generate cash from illegal activities, making public sector employees financially dependent on corruption. Any employee who opposed this system could expect to be restricted to earning no more than the pitifully low formal salary entitlement. The system therefore became strongly self-reinforcing.
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