Author: Peter McCawley, ANU Indonesia Project

Stephen Grenville pushed a piece in the Australian Financial Review last week on one of the most difficult issues of current public policy in Indonesia – corruption. Stephen considered the possibility of tackling corruption with a “big bang” approach but decided that this was impractical.

Stephen notes that the judicial system (and, indeed, much of the rest of the public sector) is “market-based”.  And this, indeed, is surely part of the core problem – that the line between “non-market goods” on one hand, and “market goods” on the other, is blurred in Indonesia and in many other poor countries.  This is an enormously complex problem to which there is no easy answer.

One central difficulty is that the resources available to the Indonesian state are very scarce – much scarcer than is commonly realised.   In rich OECD countries, governments (on average) currently spend around $15,000 per person per year.  In Indonesia, the equivalent figure last year was around $400.

This leads to two main problems.  One is that the Indonesian government simply does not have enough money to pay ministers, judges, public servants, police, and so on, anything like a proper wage.  The inevitable result is that many of these people look for ways to increase their incomes by selling whatever they have to sell.  They take the opportunity to “marketise” goods which should be provided through non-market mechanisms.

The other problem that it costs money to run a legal system.  The harsh truth is that Indonesian state with its extremely meagre budget simply cannot muster the resources needed to run a strong legal system.  Part of the long-term answer is much stronger public finances.  But in the short-term, no easy solution is in sight.