ONE of the many ironies in Indonesia is the way some of the most economically developed regions in the country also have some of the most difficult bureaucratic environments. Nothing illustrates this better than the province of North Sumatra.
A survey of 243 regencies and cities in 15 provinces carried out by Regional Autonomy Watch (KPPOD) in 2007 and early 2008 concluded that North Sumatra had some of the worst-governed districts in the country. Seven of the country’s 10 worst-performing districts in terms of economic governance were located in the province.
In reaching its conclusions, KPPOD considered factors such as business licensing, local taxes and regulations, and the perceived integrity of the local mayor or regent as reported by local businesses. The final results of KPPOD’s more recent surveys are not yet available, but early results are not encouraging. Said KPPOD executive director Agung Pambudhi when I met him in Jakarta late last year: “There has been no significant improvement.”
The organisation’s study of 23 regencies in Aceh and North Sumatra in 2009, for example, revealed that relatively undeveloped Aceh continues to be better governed. Yet North Sumatra is also one of the country’s most economically advanced regions. The province produces more than 30 per cent of Indonesia’s export commodities. It is especially known for its tobacco, palm oil, coffee and rubber.
And Medan, the provincial capital with a two million-strong population, is an important manufacturing base, particularly in the production of parts and accessories for motor vehicles. Batak tribal people represent the largest ethnic group, followed by immigrant Javanese, ethnic Chinese and native Malays.
Given North Sumatra’s close proximity to Singapore and Kuala Lumpur – not to mention the international airport in Medan and a container terminal in Belawan – it seems surprising that its economy has not done better than it has. Lake Toba, an immense volcanic lake in the central highlands, remains relatively undeveloped as a tourist destination, as are the cool mountain areas surrounding it.
Provincial officials may argue that all this will change in the coming years, especially after Medan’s new international airport opens this year. Even so, it is difficult to avoid the conclusion that the province’s political leaders seem more concerned with enriching themselves than finding ways to promote their province.
In January 2008, former Medan mayor Abdillah was sentenced to five years in prison after being found guilty of embezzling 12 billion rupiah (S$1.72 million) from city coffers in a fire engine procurement scam. Former deputy mayor Ramli Lubis was also jailed. The case is just one of several linking North Sumatran officials to corruption.
In October last year, Governor Syamsul Arifin was charged by Indonesia’s Anti-Corruption Commission with misappropriating 102 billion rupiah from the Langkat district budget during his term as district head from 2000 to 2007.
KPPOD surveys have yet to uncover anything quite so sensational. But they have revealed a disturbing pattern, in which local districts impose potentially crippling revenue-raising measures.
Take Asahan regency, a district with a population of over one million on North Sumatra’s western coast. Not long after KPPOD’s first survey in 2001, the local authorities announced a tax on the distribution of goods such as palm oil, rubber and other agricultural products. The tax, which severely depressed economic activity, was subsequently revoked by the country’s Ministry of Home Affairs.
Soon afterwards, regency officials tried to do it again. This time they announced new regulations on construction permits that potentially increased the cost of obtaining such documents by 16 times.
Dissatisfied with the old regulations, which calculated a fee based on land area, they added a location index (buildings in prime locations are to pay more) and a nuisance index (referring to the potential of the development to disturb neighbours or produce increased traffic). These highly subjective measures, noted Mr Pambudhi, effectively allowed corrupt officials maximum leeway in determining the actual fee that developers paid.
The apparent lack of any direct correlation between good governance and economic growth in Indonesia certainly requires further study. One explanation could be that provinces with large natural resources tend to encourage rent-seeking by powerful local groups. Another is that poor, underdeveloped regions may place more emphasis on improving their bureaucracies in the hope of attracting investment. In Aceh, the heavy presence of international agencies involved in post-tsunami reconstruction probably plays a role as well.
Unfortunately, none of this bodes well for North Sumatra. Local residents may be better off than many of their counterparts in more economically depressed areas. But if its citizens want better governance, they are going to have to start demanding it from their politicians. Perhaps then North Sumatra’s full potential will be realised.
Copyright © 2011 Singapore Press Holdings Ltd