INDONESIA GETS RATINGS BOOST

By Eric Bellman and Natasha Brereton-Fukui 

Indonesia is basking in the glory of being raised to investment grade  , a likely enticement to investors, yet the country still struggles with corruption issues, both perceived and real.

Indeed, in its ratings note announcing the upgrade, Moody’s Investors Service said "relatively weak governance" is among the topline challenges the country faces. The Moody’s rating moved Indonesia to investment grade for the first time since 1997.

On the corruption front, despite evidence of progress, some experts say graft remains widespread, a perception supported by public opinion.

There is evidence of significant progress in policing. In a seven-year time span, the nation’s national anti-corruption agency known as the Corruption Eradication Commission, or KPK, has achieved a 100% conviction rate in 86 cases of bribery relating to public procurement and budgets, according to a 2011 Emory International Law Review paper <http://www.law.emory.edu/fileadmin/journals/eilr/25/25.1/MacMillan.pdf> (pdf) by Joanna MacMillan, an associate at McCormick Barstow LLP.

But much of the work done by the KPK is for publicity’s sake, MacMillan said in an interview. She said the agency cherry-picks its cases to get high-profile convictions, but doesn’t dismantle the broader corruption networks plaguing the country.

MacMillan also recounted an experience she had coming home from her first semester at college in the U.S in 2000. Her passport was due to expire, and it’s a common policy in Asian countries to prevent entry if that is the case. Agents took MacMillan to a back office, she said, where they threatened her with jail or deportation — but said they would let her in freely if she paid $200. She negotiated them down to $100 and went on her way.

"You can do whatever you want so long as you have the money to do it, and in the public sector is even worse," she said.

Indonesia ranked 100th out of 183 countries in the 2011 Transparency International Corruption Perceptions Index, a weighted survey of surveys. It scored a 3.0 on a 10 scale, an improvement over the last two years, when it scored a 2.8.

The Berlin-based anti-corruption group cautions against comparing countries year-over-year, because the weights and number of surveys used may change.

Fitch Ratings said in a December rating that any improvement in governance over the previous decade largely reflects the country’s transition to democracy. But ??President Susilo Bambang Yudhoyono’s ability to tackle governance reform appears to be waning, Fitch said, as the country builds up to a 2014 election.

"Despite this, Fitch believes the populace remains strongly in favour of cleaner governance at all levels of government, which should ensure that reform momentum does not disappear entirely," it said in the December rating report.

No matter the effort taken by the Yudhoyono government, Indonesians still feel corruption is widespread throughout government and business, an October 2011 Abu Dhabi Gallup Center poll found.

In fact, the percentage of Indonesians saying government corruption is widespread has grown over the past five years to 91%, from 84% in 2006. The perception of business has deteriorated more: 86% of Indonesians say graft is widespread in business in 2011, up from 75% in 2006. On both measures, Indonesia scores worse than the median of the region.

"Only in 2009 — the year of Yudhoyono’s re-election — were Indonesians less likely than now to say that corruption is widespread throughout the country’s leadership and businesses," the report on the poll said.