Saturday, 2 May 2009

Corruption costs Bali / Indonesia $?

Corruption costs Bali / Indonesia $?
By Bali BS News
Aug 4, 2005, 07:06

It is a simple although often paid lip service fact; corruption costs a country such as Indonesia and its people money, period. Apart from the money going from the economy into individuals pockets, which directly affects the wealth / poverty divide in Indonesia, it also directly affects the size of the pot called Gross Domestic Product (“GDP”). There is also another tangent involved in that corruption affects the efficiency of the money the government of Indonesia spends on health, transport, education, etc. This in itself has a future affect on the economy as a whole. For example, a well respected charity in Bali, the East Bali Poverty Project, deals in part with iodine deficiency in many Balinese. Lack of iodine in a person’s diet can often equate to a dehabiltating physical deformation called "Goiter".

Corruption plays its part in even iodine deficiency, as a BBC report once illustrated. Table (food) salt makers are meant to add iodine into the salt in Indonesia to compensate for the lack of iodine elsewhere in Indonesian’s diets; hence the term on salt pots “Iodinized Salt”. The trouble is, iodine is more expensive than salt, so salt manufacturers often cheat and add less, or none at all. When inspectors visit and catch the companies out, corruption allows a few dollars to keep the inspectors quiet. People, human beings, Indonesians, Balinese, then do not get the vital iodine they need for healthy growth. Consequently, more people then grow up with these physical deformations, which both put a strain on the health care resources of the nation and prevent those people from adding to the GDP of Indonesia. A few dollars of corruption money thereby becomes a loss of thousands, perhaps more likely millions of dollars in communal wealth to the people of Indonesia, and that does not even account for the human suffering aspect.

It is not an easy matter to calculate exactly how much Bali / Indonesia loses in total wealth due to corruption, due to the nature of corruption making it impossible to conduct hard and fast calculations. But it is possible to estimate due to research conducted by Transparency International and the International Monetary Fund (“IMF”). The IMF calculated that the investment rate in a country (vital for growth, etc.) increased by 4% and GDP by 0.5% per annum for each 2 point improvement in the corruption index (0 being the most corrupt, 10 being the least corrupt). But where does Indonesia figure in the corruption index and by what measure could it improve? Of course, it is not possible to scientifically measure actual corruption, so it has to be measured according to corruption perception.

Transparency International calculated an index of nations vs. corruption perception in 2004, called the Corruption Perception Index (“CPI”). Indonesia came in as one of the lowest (most corrupt) nations in the world with a CPI of just 2.0. By comparison and to be used by us to calculate what corruption elimination could mean for Indonesia in hard dollars, neighbour Hong Kong’s CPI was 8.0; that is 6 points above Indonesia. If we then take this and use the formula for GDP improvement (as corruption is tackled) by the IMF, we can make a fair estimate of what corruption will cost the Indonesian economy over the next 10 years if it does not improve, by comparing forecasts.


The annual Indonesian GDP is approximately US$173,000,000,000 (source: NZ Ministry of Foreign Affairs). In 2004 and 2005 the % increase in GDP for Indonesia with corruption levels as they are right now, is around 5%. Because the increases are cumulative, the likely GDP for Indonesia in 10 years time is likely to be around US$281,798,770,432 if nothing changes. If Indonesia eradicates corruption to the extent that they rank alongside Hong Kong, the % increase in GDP would rise from 5% to 6.5%. If Indonesia achieved this, their likely GDP in 10 years would be US$324,744,781,491. That is, cumulative corruption, if it is allowed to continue at the present rate, will be costing Indonesia US$42,946,011,059 a year; that’s practically US$200 per year per person for each of Indonesia’s 214.8 million population. That may not sound much, but the current average minimum wage of a hotel worker in Bali is US$36 a month, that equates to virtually half a years salary. Also, bear in mind, the salary of a hotel worker in Bali probably seems like a fortune to a small holder in Aceh or Sulawesi, who does not have a job / wage per say. And one of the reasons the minimum salary of a hotel worker in Bali is so low is partly due to past corruption of course.

But to put this in perspective, you have to realize the potential US$200 creation in 10 years from corruption reduction is per person; for every man, woman and child. That would mean a typical family of a man and wife with two children and supporting an aged parent, where only the head of the household works earning a mere US$432 per annum could well be US$1000 better off.

However, the above equation is simply about GDP, it is not about how much each Indonesian is actually cheated out of or otherwise loses through corruption; that figure is much higher. Why? Because it is simply based upon how much the nation produces revenue wise. It does not take into account revenues lost through tax and service charge fraud. It does not include how ineffectively actual taxes collected are applied, and how much is siphoned off by officials. Just to give you one example, a British arms manufacturer, Alvis paid around US$30,000,000 bribe / corruption money to one Indonesian politician to get an order for military tanks worth about US$290,000,000. As Indonesia imports approximately $45.07 billion (source: CIA), if the previous ratio of bribe amount to import value amount holds good across the board (10%), that would mean US$4.5 billion is overspent on imports because of back-handers each year.

With respect to domestic costs, it is common knowledge public expenditure items such as roads, buildings, etc. are riddled with corruption. A project for road resurfacing with bid specification which should mean the road lasts 20 years, actually is built under-specification so the road only lasts for 1 year. The matter is kept quiet as the contractor and their colluding government officials make a lot of money from the difference being paid for a high specification project, while they actually only provide low quality work at a much lower true cost. So the road falls into disrepair after just 1 year. And so on.

Finally, from Bali’s perspective, you have corrupt police officers siphoning off their share. Stopping tourist vehicles and demanding money from the Balinese driver; Money that comes out of the poor guys own pocket, money that he uses to put food on the table and clothes on the backs of his children. GDP only shows one part of the loss through corruption to the people of Indonesia. When you consider how rich Indonesia is in natural resources including petroleum, and how much money comes into Bali alone from tourism, a staggering US$1.4 billion per year (reported revenue of course), one can only wonder what the true cost of corruption is on the Balinese people and why they do not enjoy the same standard of living as some of their neighbours in SE Asia. It seems quite apparent that the above speculative US$1000 extra per family from GDP improvements would actually become US$2000 per family by the time you factor in internal expenditure tangibles. Plus their roads, schools and health care system would likely be giving them what they should be. Why, can you imagine, the Balinese should be enjoying the same standards as a westerner in just 10 years! But that seems unlikely to happen unless pressure is applied.

With too many government officials, especially the police, only interested in extortion, the people of Bali are being cheated out of a better standard of living, while guests to the island are put at risk because of the inefficiency associated with corrupt police officers, etc. That is why the true enemies of Bali are the businessmen and officials who routinely commit fraud, extortion, etc. And their unwitting accomplices, the people who go to Bali and spend money there. Because, until and only if corruption is brought under control will tourist dollars truly help the Balinese people, not fuel the corruption fire which cheats them.

Well intentioned tourists who still travel to Bali to support the people have a noble cause, but the effect is probably the reverse. Tourists who simply go because Bali is a cheap holiday should look their Balinese hosts in the eyes and understand they can never have the same standard of living as they do unless corruption at the present levels stop. And that unfortunately, defending and justifying the right to having a cheap holiday in Bali irrespective of the true effect is repressing the Balinese in the long term; stopping them and their children from having the same opportunities in life as the visitors to their island do.

But perhaps many western tourists are happy the Balinese get short changed because they in turn think they get more bang for their buck? If so, let us all just hope these people can at least be honest about it, not insult the rest of us with the fane "We are helping the Balinese by going to Bali". If you want to help the Balinese, may we suggest you go elsewhere on holiday and sponsor a needy Balinese family (arrange a bank account for them and send them a little money)?

If you want to tell the Indonesian Government you are boycotting Bali until corruption is brought to heal, we suggest you email the Indonesian Corruption Reduction Commission here: Because only by letting them know will the reason for your absence from Bali be clearly understood. And only when it is understood and in numbers will there likely be made any changes.

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