Why Indonesia’s economy is rotting from the inside out

Bureaucracy is slowly strangling Indonesia’s opportunities for growth. The of red tape and paperwork is blocking foreign investment and causing widespread inequality.

By Oliver Ward, edited by Francesca Ross

Indonesia is the worst place in Southeast Asia to start a business, says the World Bank. Unnecessary and inefficient bureaucracy represents a major obstacle to foreign investors and explains the relative stagnation of direct investment into Indonesia from overseas.

Source: World Bank

The country was ranked at 109th in the compiled by World Bank analysts. The systems in the region’s largest economy scored appallingly on dealing with construction permits, registering property, paying taxes and enforcing contracts. The problem is the country’s inflated and rotten public system; there is no quick fix solution.

Indonesia received the worst scores possible in several categories

Companies in Indonesia spend 50% more on logistics than in neighbouring Thailand, and twice as much as their peers in Malaysia. This has contributed to stagnating foreign investment and a shrinking manufacturing sector. These two industries contributed 24% of the country’s total GDP in 2013, that is a drop from 29% in 2001.

Large infrastructure projects have also been hampered by bureaucratic infighting. The US$ 2 billion airport railway line suffered from long delays because of a lack of cooperation between ministries. Nearly half of the projects Widodo undertook between 2014 and 2015 were cursed with crippling delays.

It is not just big projects that suffer at the hands of Indonesian bureaucrats. A young Australian father and daughter have spent years stranded in Bali after her passport expired while on holiday in 2012.

Money buys you access to the system

The rich have preferential access to government bureaucracy and resources in the current rotten system.A combination of decentralisation and inflated numbers of officials have allowed elites and business owners to monopolise local bureaucracy and enterprise.

The inflated civil service also introduces opportunities for corruption to creep into government. Ten heads of regions and a local governor were arrested in 2016 by the Corruption Eradication Commission on charges of graft.

Jokowi’s economic policy package attempted to solve the growing bureaucratic problem

Jokowi’s 12th economic policy package, unveiled last year, was specifically designed to streamline bureaucratic administration. He to start a business by reducing the number of procedures involved from 13 to 7, reducing the average time taken from 47 days to 10. Construction permits were made simpler to obtain, requiring 14 procedures instead of 17.

He also unveiled plans to lay off 300,000 civil servants between 2017 and 2019. This was intended to bring the bloated administration structure under control. Leaving civil servants unemployed is a risk. It may harm Jokowi’s popularity in the short term but if it kills off the systematic bureaucratic disease it is worth it in the longer term.

Civil servants will have their job performance reviewed; some will lose their jobs

Administrative and Bureaucratic Reform minister, Yuddy Chrisnandi explained that Indonesia had as many as one million excess civil servants. This figure was to be reduced, “through rationalisation and redistribution policies,” he said. This includes assessing whether officials are qualified to hold their jobs and responsibilities.

The root of the problem is the unnecessarily large and complex government structure. The responsibilities of ministerial offices often overlap and may not match their primary functions. Administrative departments run independently of each other and lack cohesion. This means construction projects progress painfully slowly as permits can take 256 days to be granted.

Constructing a link between processes and results is vital for reforming the system. The civil service needs a culture of hard work that delivers tangible results and rewards.

The reform measures have proven largely ineffective

The country is still in the grip of a bureaucratic epidemic almost a year after the introduction of Jokowi’s reforms.Former Constitutional Court Chief Justice Mahfud said, “there has been no significant change in our bureaucracy.It is a rubbish bureaucracy.”

He blamed the problem on giving political appointees ministerial positions.“If bureaucrats want to further their careers, to become a director general, for example, they have to play along,” he said.

The rot goes deep and policy alone will not fix it

Many believe the Indonesian bureaucratic system has been hijacked to line the pockets of politicians and their parties. No amount of policy changes will prove effective until this underlying issue is addressed.

A performance-based salary system would make real headway in ending Indonesia’s bureaucratic nightmare by linking the administrative process to trackable results. Bureaucracy, like a disease, can be difficult to cure once taken root. In Indonesia, it has spread across the entire public office system.