Mulyani needs whistle-blower hotlines for early warning

Vincent Lingga , The Jakarta Post , Jakarta Tue, 04/06/2010 9:28 AM Commentary

Had it not been for a whistle-blower, former National Police chief detective Comr.Gen Susno Duadji, junior tax auditor Gayus Tambunan, several police officers, state attorneys and judges would today be relishing their shares of the US$2.8 million that they allegedly stole from taxpayers.

The public, and notably Finance Minister Sri Mulyani Indrawati, was certainly burned by the painful fact that the sweeping reform at the Directorate General of Taxation, which has cost taxpayers hundreds of millions of dollars, seemed to have failed to set up an early warning system against corrupt officials.

Mulyani, who is locked in a battle against time to regain the public’s confidence in the reform she has led since mid-2007, has moved fast to replace all staff members in Gayus’ department and has ordered a re-examination of the annual tax returns of 15,000 tax officials for the past three years and a probe into their bank accounts.

The problem is simply this - how could Gayus, a junior tax official with a monthly paycheck of just Rp 12 million ($1,200), have had $2.8 million in his bank accounts and lived so ostentatiously — owning hundreds of thousands of dollars worth of property and cars — without raising any eyebrows among his supervisors and colleagues?

Worse, Gayus had never experienced any problems with his annual tax returns. So we must assume he always understated his true income.

Learning a lesson from the actions of “renegade” police general Susno, we think Mulyani should strengthen the internal control mechanism at the Directorate General of Taxation by setting up hotlines for whistle-blowers and members of the general public to report on suspicious behavior of public officials such as tax officers.

Most multinational companies or organizations with worldwide operations, despite operating independent internal control units, set up whistle-blower hotlines as part of an early warning system to keep tabs on their employees’ compliance with laws and ethical standards.

For example, one of the world’s largest oil companies, Royal Dutch Shell, established what it calls the Shell Global Helpline and included on its website manuals that inform stakeholders (suppliers, officials of host government, employees, shareholders and the general public) around the world how to file anonymous reports on the conduct of Shell employees.

Mulyani herself has often complained about the extreme difficulty in finding tax officials with completely clean records or without skeletons in their closets for supervisory roles because of the extreme tolerance for corruption prevalent during the pre-reform era.

But again, as Gayus’ case clearly shows, even in this reform era tax officials remain hesitant to report colleagues either because they too are involved in corruption or they have no faith in their senior officials to follow up on the report.

The most important thing that must be done to ensure the effectiveness of whistle-blower lines is to protect the identity of the tipsters and to act quickly and firmly to follow up on reports of wrongdoing, unethical behavior or the excessively luxurious lifestyles of tax officials.

These factors were outstandingly absent in similar hotlines introduced by several ministries in the past, even under Soeharto’s authoritarian rule that ended in 1998.

Tipsters should be protected from retaliation and any legal consequences even if their reports are not accurate or false as long as they have made their report in good faith and without malicious intent.

A whistle-blower system could consist of a telephone line or a secure website. Obviously, state-owned telecommunications company PT Telkom could easily come up with such IT solutions.

Of course, for the sake of credibility, a whistle-blower hotline should be operated by an independent party, although follow-ups would necessitate an inquiry or investigation carried out in cooperation with tax officials. And even in such investigations, the identity of the whistle-blower should be shared strictly on a need-to-know basis.

Shell, for example, outsourced the creation and maintenance of its global whistle-blower helpline to Global Compliance.

“I think for Indonesia, the President’s Judicial Anti-Corruption Taskforce could be the most qualified to operate such a whistle-blower line, given the integrity of its personnel [leaders],” PT Shell Indonesia’s chief executive officer Darwin Silalahi said.

Such hotlines, Darwin advised, should not be restricted to issues concerning the Directorate General of Taxation but should also envelope corruption in customs and excise tax and land-title registration as well as law enforcement, involving police, prosecutors and judges.

There is certainly a risk that such a hotline would initially be flooded by false reports or information called in to maliciously attack particular officials, but such a risk is still worth taking because the future of the drive to reform the country’s bureaucracy is now at stake.

Besides, the whistle-blower taskforce surely would not be so easily fooled by such false reports or slander.

Look at how even the Corruption Eradication Commission owes many of its high-profile catches to tips from members of the general public.

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Big infrastructure deficit the highest barrier to investment

Vincent Lingga , The Jakarta Post , Jakarta Tue, 03/30/2010 9:00 AM News Analysis

President Susilo Bambang Yudhoyono made the right decision in going ahead with convening an infrastructure summit in mid-January 2005, less than three months after being sworn in, despite suggestions of postponing the meeting due to the devastating earthquake and tsunami that devastated Aceh and Nias, North Sumatra, on Dec. 26, 2004.

Roads and port infrastructure in most provinces had by then begun to crumble due to an acute lack of maintenance funds under severe fiscal restraints caused by the 1998 economic crisis.

Power shortages and rotating blackouts then began to hit many provinces in Java, Sumatra, Sulawesi and Kalimantan and several outer islands.

Five years on and after the second infrastructutre summit in 2006, investors still see infrastructure as one of the biggest hurdles when investing in Indonesia and a primary cause of economic inefficiency and uncompetitiveness.

Business leaders attending the Indonesia Summit here Thursday, which was organized by the London-based Economist media group, publisher of The Economist weekly, even ranked the country’s poor infrastructure as the biggest barrier to new investment.

The rationale is that investors favor to plow their capital in countries that have become an effective and efficient part of the global supply chain. The problem, though, is that an acute lack of electricity, poor and inadequate road networks, grossly inefficient seaports and airports have made the costs of logistics in Indonesia among the highest in Asia.

Panelists and business leaders at the conference blamed the snail-paced development of infrastructure on the government’s inability to take bold reform measures to make the investment climate in that sector conducive for private investors.

Tanri Abeng, one of the panelists at the meeting, put the blame squarely on the government’s inability to reform state companies, pointing out how almost all basic infrastructure, such as power, roads, seaports, airports and telecommunications are controlled by state companies.

“But most of the 158 state firms are quite inefficient. Their combined profits last year were only US$7 billion. In Malaysia, state-owned oil company Petronas alone booked an income of $20 billion,” added Tanri, who in 1998 became the first state-owned-enterprises minister.

Inadequate infrastructure not only impairs the economy’s competitiveness, as production and distribution costs are made much higher than those in other countries, it also hinders access to public services such as health, education and market facilities, thereby hampering poverty alleviation.

President of heavy equipment company Caterpillar Asia Kevin Thieneman agreed, pointing out that the biggest barrier to private investment in infrastructure was land acquisition.
“The problem is land and land,” Thieneman said, adding that the arduous, complex procedures for land acquisition make it the biggest factor of uncertainty regarding project costs.

Yet more discouraging is that the government is still in the process of drafting a law on land acquisition for public interests, such as infrastructure, which, given the current adverse relationship between the government and parliament, may only be completed later this year.

As the new law has to be supported with a series of government regulations stipulating the technical details for their enforcement, we can expect a more investor-friendly land acquisition legislation only next year.

The government has set up several supporting facilities to help expedite infrastructure financing such as an infrastructure finance company in a joint venture with the World Bank and Asian Development Bank and a land revolving fund and a land price-capping instrument.

However, their financing capability is quite small, compared to the hundreds of billions of dollars needed for infrastructure spending within the next five to 10 years. They will serve more as a catalyst for project creditworthiness.

So pessimistic were many businesspeople about the policy direction in infrastructure that they dismissed an announcement of $140 billion in infrastructure spending over the next five years made by Gita Wirjawan, chief of the Investment Coordinating Board, as wishful thinking.

Being a “salesman,” Gita, also speaking at The Economist conference, tried to hype the outlook of Indonesia’s economic prospects by pointing to the programs of building tens of thousands of kilometers of toll roads, and tens of thousands of megawatts of power generation within the next few years.

However, most business leaders at the conference seemed skeptical, taking into account the poor record over the last five years.

The government built only about 120 kilometers of toll roads over the past five years and completed less than 50 percent of the 10,000 megawatts in new power generation capacity launched under a crash program to cope with the power crisis in early 2006.

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