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Indonesia bribery cases weigh on Jokowi's reform plans

President enjoys reputation for incorruptibility, but graft imposes a heavy cost

Indonesian President Joko Widodo arrives for the inauguration of a power plant project in Ujung Negoro in 2015. Widodo's 35-gigawatt electricity procurement program is part of his signature 4,800 trillion rupiah ($338 billion) infrastructure drive.   © Reuters

JAKARTA -- Just weeks after an election he is projected to win and seal a second term, Indonesian President Joko "Jokowi" Widodo's economic plans for the next five years have been hit by one of the nation's oldest problems: endemic corruption.

The head of a state power utility and a senior politician in a party that supports Widodo are embroiled in a graft scandal over the awarding of a major public works contract. Coupled with several more recent cases, corruption looks set to drag on the president's reform and infrastructure-building agenda, as well as giving foreign investors reason to pause.

Indonesia's anti-graft agency, which goes by the Indonesian initials KPK, on April 23 said it suspected Perusahaan Listrik Negara (PLN) President Sofyan Basir agreed to award a contract to build a 600 megawatt coal-fired power plant in Riau Province to a private consortium in exchange for a kickback of 4.75 billion rupiah ($332,800) .

PLN is central to Widodo's 35 GW electricity procurement program, part of his signature 4,800 trillion rupiah ($338 billion) infrastructure drive. The president lauded the recent opening of Indonesia's first-ever metro network, and has overseen the opening of many air and sea ports. But progress has not been smooth -- one example being the stalling of a Chinese-led high speed rail line.

On the same day as KPK named Basir, Jakarta's anti-corruption court sentenced Golkar Party politician Idrus Marham to three years in prison over the same case. Marham served as a minister in Widodo's cabinet before being named as a suspect last year. Two others -- a politician and a businessman -- have also been convicted.

In another bribery case, the KPK last month arrested the head of another coalition member, the Islamic-leaning United Development Party, or PPP.

While the recent cases are a headache for Widodo, Indonesia's reputation with respect to graft has improved -- from a low base -- since he took office five years ago.

Indonesia rose to 89th place last year in Transparency International's corruption perceptions rankings from 107th in 2014. Widodo has also cut red tape to improve the business climate, drawing in investment to finance his ambitious infrastructure program.

Fauziah Zen, senior economist at the Economic Research Institute for ASEAN and East Asia, said it is not easy for young democracies like Indonesia to combat graft, noting that corruption in infrastructure projects has existed for decades.

"President Jokowi will focus his second term on the infrastructure development that is crucial for the Indonesian economy," Zen said. "The success of his development agenda in the second term will be influenced by his determination to build a clean government."

The PLN case, in particular, has revived fears that infrastructure projects are riddled with malfeasance.

While most of the power plant projects have been awarded through regular bidding processes, the energy ministry in 2017 issued a regulation that allowed PLN to directly appoint contractors for plants built near coal mines, making the electrification program even more prone to abuse.

In several speeches during his first term, Widodo said that fast disbursement of funds for infrastructure -- often hit by long delays -- should be not be hindered by anti-graft measures, according to Transparency International. The Berlin-based nongovernmental organization, citing a 2015 World Bank report, said corruption is widespread in public procurement in Southeast Asia's largest economy, with a third of companies having to pay bribes to get government contracts.

Joko Widodo raises his arms during a campaign rally in Jakarta on April 13. While final results have not yet been announced, early counts from last month's election give the president a comfortable lead over his opponent, former general Prabowo Subianto. (Photo by Kosaku Mimura)

Graft cases connected to infrastructure projects was estimated to cost the country 1.1 trillion rupiah in losses last year, according to Indonesia Corruption Watch, a watchdog. Other cases of corruption are said to have cost 4.5 trillion rupiah.

Peter Mumford of the Eurasia Group said the PLN corruption scandal has added to uncertainty over the 35 GW electrification program, which is already far behind schedule and was originally set for completion this year.

"The broader problem for foreign investors interested in infrastructure in Indonesia is that Jokowi prefers to use state-owned enterprises, as well as tied concessional loans from Japan and China," Mumford said. "That creates fewer opportunities for foreign private companies, although there are still some opportunities."

He added the recent graft cases involving politicians in the ruling coalition are unlikely to inflict significant political damage on Widodo because the president has "high approval ratings for trustworthiness and incorruptibility."

Rather, he said, they have hurt the reputations of the two coalition parties involved, Golkar and the PPP, which are forecast to win fewer votes in the recent legislative elections than they did in 2014.

Widodo's presidential election rival, Prabowo Subianto, who has yet to concede, is unlikely to let the corruption issue lie.

In campaign speeches ahead of the election, he repeatedly attacked Widodo over corruption problems -- although he himself stirred up controversy after suggesting ex-graft convicts should receive pension benefits.

"My fellow countrymen, Indonesian wealth is flowing abroad. There is too much corruption happening in this nation," Subianto said during an April 7 rally. "Corruption is already a disease."

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