Business Corruption

According to Presidential Decree No.80/2003, companies that are found guilty of violating procurement regulations are prohibited from future bidding. However, in practice, it is alleged that companies have circumvented this by changing their names, as reported by Global Integrity 2009. Moreover, in many tenders, especially at the regional level, fair competition is often limited due to wining companies having paid bribes to competing companies in order to make them withdraw their bids. The same source also reports that public officials often turn a blind eye to this despite their knowledge of such practices. Furthermore, according to the Heritage Foundation 2011, companies cite that the awarding of government contracts and concessions in Indonesia are often based on personal relationships with procurement officials and politicians. Companies should also be aware that gifts are often expected in order to secure a government contract, as stated by a large number of the surveyed companies in the World Bank & IFC Enterprise Surveys 2009.

In a June 2009 news article by Jakarta Globe, a business woman received a 30-month prison sentence for her role in a 2004 graft scandal. She was convicted for having inflated a training and development project by almost USD 2 million in collaboration with two formal officials from the Manpower and Transmigration Ministry and executives from four other companies. The two former government officials were each sentenced to four years in prison.

Companies are recommended to use a specialised public procurement due diligence tool in order to help mitigate the corruption risks associated with public procurement in Indonesia. For further information on public procurement, see 'Public Anti-corruption Initiatives' in the Initiatives section.

Political Corruption

In order to increase the transparency of the public procurement processes at the national level, the Indonesian government has implemented some measures, such as eliminating licensing requirements on bidders. However, according to Freedom House 2010, the country is lacking an effective mechanism to oversee procurement officials’ assets and to investigate alleged bribery cases. Therefore the public procurement sector still remains one of the most corrupt sectors in Indonesia. 

According to a January 2010 news article in The Jakarta Post, the former high-ranking government official, Oentarto Sindung Mawardi, was sentenced to three years in prison for bribery and abuse of power. He was charged with causing a loss of USD 8.7 million, by sending a memo telling regional administrators to buy fire engines provided by a specific company, without going through any tender process.

For further information on public procurement, see 'Public Anti-corruption Initiatives' in the Initiatives section.

Frequency

World Economic Forum: The Global Competitiveness Report 2010-2011:
- Business executives give the diversion of public funds to companies, individuals, or groups due to corruption a score of 3.5 on a 7-point scale (1 being 'very common' and 7 'never occurs').

- Business executives give the favouritism of government officials towards well-connected companies and individuals when deciding upon policies and contracts a score of 3.9 on a 7-point scale (1 being 'always show favouritism' and 7 'never show favouritism'), constituting a competitive business advantage for the country.

The World Bank & IFC: Enterprise Surveys 2009:
- 38% of the companies surveyed expected to give gifts to secure a government contract.

- The average value of a gift expected to secure a government contract is 1.8% of the contract value.