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by James Soemijantoro Wilson I. INTRODUCTION In July 1991, while walking through the busy streets of Blok M in South Jakarta, a teenage boy pointed at the myriad banks that lined his way and stated, "In five years these will all come crashing down and leave my country in ruins." (1) This prediction actually came true in six years, but just one month after Dennis DeTray, then Program Director for the World Bank in Jakarta, held Indonesia up as a model for developing nations around the world. (2) The ensuing months of economic and political turmoil came to a head in May 1998, when that same city block produced the highest death toll in the riots that eventually toppled a president. (3) How could something so obvious six years earlier to someone who had not yet completed his high school education have succeeded in taking most of the financial and political world by surprise? (4) This Note examines this question through the paired phenomena of foreign aid and imprudent foreign investment. (5) Less a microscope than a pair of binoculars, the purpose of this examination is not to isolate Indonesia beneath a glass slide, but to reveal the place of primacy that recent events in Indonesia occupy within a larger landscape. Thus the more important underlying question this Note answers is: why does foreign aid fail? Part One reviews Indonesia's recent history, the role of foreign aid and investment in Indonesia in comparison to other emerging market economies, and the purpose of such aid and investment within the larger geopolitical perspective. Part Two examines Indonesia's political economy, the origins of that political economy, and its consequent predisposition toward foreign aid and imprudent foreign investment. Part Two also examines how common origins have yielded similar political economies throughout the developing world despite disparate cultural traditions. Part Three illustrates how foreign aid undermines its objectives by perpetuating externally imposed political economies that preference rent-seeking human behavior over native cultural norms more consistent with the goal of economic advancement. Part Three also suggests more appropriate legal and economic policy prescriptions for donor-nations in the new century. This Note asserts, specifically, that the imposition of values from foreign aid donor-nations is unnecessary, technical assistance premature, and financial aid detrimental to the goal of aiding Indonesian and other emerging market economies. Those nations seeking to aid emerging market economies should, instead, stop the flow of exogenous rent-seeking opportunities, whether they be the result of foreign aid or of imprudent foreign investment. Only then will indigenous cultural norms prevail over the more base traits of human nature common to all societies, and make technical assistance for reforming countries more feasible. This basic analysis of Indonesia's problems is what that teenage boy walking along Blok M, like many Indonesians, understood intuitively in 1991, and what most aid agencies continue to miss. Rather than readying themselves for rescue, aid agencies therefore should return to their initial question following their failure to foresee Indonesia's economic collapse: how can this be? Despite significant soul searching, this is a question that has not been adequately answered. Economic charts and graphs fail to find a forest when all one is prepared to encounter are trees. With eyes wide shut, aid agencies look for what they missed without ever considering the obvious: why foreign aid fails. II. INDONESIA AND THE FOREIGN AID ENVIRONMENT Home to the world's fourth largest population, (6) the Indonesia archipelago stretches "from Medan to Merauke," a distance roughly equal to that of Boston to San Francisco and then back to Chicago again. (7) It is the world's largest Islamic country in terms of population, (8) contains vast natural resources, (9) and has been considered the key to Southeast Asian security ever since its independence in 1949 that ended 350 years of Dutch colonial rule. (10) These unique characteristics have often placed Indonesia at the crossroads of world politics. However, Western nations have tended to downplay Indonesia's significance, perhaps because Indonesia has been territory traveled upon rather than itself venturing out into the wider fray. (11) Prior to 1997, most Americans' memories of Indonesia remained restricted to 1965, the year of Indonesia's only prior transfer of presidential power that is known as the "year of living dangerously." This transfer set the stage for Indonesia's introduction to the levels of foreign aid that persisted throughout the Cold War era. A. Synergy: The Suharto Regime, Foreign Aid in the Cold War Era, and Foreign Investment Indonesia's first President, Achmed Sukarno, carved out ever wider swaths of control for what was initially a weak Indonesian executive office by making himself the fulcrum of balance of power politics between the nation's two former independence forces--the conservative military and the Indonesian Communist Party (PKI). (12) Sukarno simultaneously sought to insulate himself from attacks by these groups by cloaking his plays for predominance in anti-colonialist, neo-colonialist, and imperialist (NEKOLIM) rhetoric that endeared him with the masses in a way that could not be publicly challenged. (13) When Sukarno took this stance out into a wider sphere by hosting the Asia-Africa Conference in 1955 that spearheaded a non-aligned movement among developing nations, U.S.-Indonesia relations began their steady decline. (14) This decline did not reverse until Sukarno's fall from power a decade later amid the military's bloody purge of its PKI rivals. (15) With the ascendance of fiercely anti-communist General Suharto to the presidency, U.S. rapprochement with Indonesia came quickly, and with it an influx of foreign aid and investment. (16) In 1965, many U.S. policy analysts viewed Vietnam as a prelude to what might happen in Indonesia on a much larger scale. By 1967, U.S. policy analysts viewed Vietnam as an example of what Indonesia had narrowly avoided. (17) These analysts considered cementing the Suharto presidency to be a critical counterweight to communist China, which was necessary in order to stop the spread of communism in Southeast Asia. (18) As was typical during the Cold War, the United States granted foreign aid with the goal of propping up a pro-U.S. regime and made that aid conditional upon that regime's continued pro-U.S. stance. (19) Based on principles of reciprocity, the loyalty of aid recipients was conditional upon the receipt of continued monetary and political support. The primary objective of the United States in providing foreign aid was to preserve pro-American sentiments abroad, and foreign aid's stated goals of poverty reduction, infrastructure development, and institution building were balanced against this primary objective. (20) To the degree that these secondary goals supported the main objective, they were encouraged; to the degree that they did not, such secondary goals were not made a priority. Thus, during the Cold War era, the United States provided foreign aid to developing economies with little accountability as to its use. (21) While it is arguable that foreign aid for friendship was a sound investment during the Cold War, this policy also had the consequence of divorcing private investment from market forces--primarily the proper consideration of risk. U.S. "friendships" abroad mitigated the costs of doing business for many American firms, such as the United Fruit Company in Guatemala (22) and Mobil Oil in Nigeria. (23) However, the benefits were not exclusive to American interests. When East Timor obtained its independence from Portugal in 1975, Australia joined the United States in accepting Indonesia's subsequent invasion of the former colony. (24) The United States' main interest was to preserve its rights of passage through the archipelago's only route available for nuclear submarines, which is a deep-sea trench off the East Timorese coast. (25) Australia chose to follow the United States' example for fear that an independent East Timor would expropriate Australian oil interests in the same region. (26) More subtle forms of non-economic risk reduction prove equally invidious. In Indonesia, Suharto allocated business to friends and family, which led to friends' and family's firms remaining flush with funds regardless of how those concerns were run. (27) Foreign companies entering the Indonesian business environment were not unwilling to be coerced into partnerships and joint ventures by Indonesian investment laws, as the right domestic partner could guarantee a venture's success under any circumstances. (28) Like foreign aid, a significant amount of foreign investment flowed into Indonesia with little accountability for how it was used.
B. Beyond the Cold War The discussion above describes a set of political circumstances that encouraged industrialized nations to donate and invest funds in the developing world with significantly fewer demands for accountability than would have been demanded had governments and firms invested those funds within their own nations. However, the end of the Cold War and the opening of China diminished the value of pro-U.S. dictatorial regimes' primary commodity--their allegiance--forcing a reevaluation of the costs and benefits of foreign aid. Rather than being used to prop up rickety regimes, donations are now given under the guise of aiding these governments' transition to free market democracies. (29) The problem with this scenario is that in granting such aid, donor-nations have implicitly assumed that these nations have already become what their gifts are allegedly funding to achieve--capitalist economies able to receive money and allocate it according to market principles, free from patronage and accountable to creditor expectations. Part Two will demonstrate that foreign aid donors err when they engage emerging market societies in this fashion by examining the political economy that characterizes these nations, its origins, and how it defines these nations' predisposition toward foreign aid and imprudent foreign investment. III. THE PERSISTENCE OF POST-COLONIAL POLITICAL ECONOMIES IN THE POST-COLD WAR ERA Foreign aid donors err when they engage emerging market societies as capitalist economies. (30) Pre-colonial sociopolitical and socioeconomic structures in these societies were not capitalist, but feudal, in nature. (31) Colonialism, or the internal re-organization required to repel its threat, (32) not only failed to create capitalism in these societies, but warped the preexisting feudal structures in ways that retarded economic development and divorced what became an entrenched feudal structure from its traditional functions. As illustrated above, Cold War international arrangements also failed to foster a functioning capitalist economy in these nations. To properly engage emerging market economies, foreign aid donors and investors, therefore, have to appreciate that the connection they seek to establish is less across countries or cultures than across time. In addressing emerging market economies, they are not dealing with historical contemporaries, but remnants of the colonial era. A. Indonesia's Colonial Legacy Despite the evolution of capitalism at home, colonialists did not attempt to instill its structures in conquered territory abroad. (33) Prior to the arrival of the Dutch at the start of the seventeenth century, Indonesia's most populous island of Java--and the seat of current political power--was comprised of coastal kingdoms converted by Muslim traders and a predominantly Hindu-Buddhist hinterland, home to the rising Mataram empire. (34) After unsuccessful attempts by the Mataram to expel the Dutch from their coastal outpost at Batavia and the Dutch to proceed inland against the Mataram, the Dutch decided to exploit indigenous coastal-interior rivalries to their own advantage. (35) By providing military aid to both sides of Indonesia's internecine wars, Dutch colonialists first established allies and then reduced them to vassals through taxation to cover war debts, a divide-and-conquer strategy common to colonial powers throughout Asia and Africa. Rather than replace subservient sultans, like the British, the Dutch incorporated local leaders into an administration of indirect rule. (36) Indirect rule preserved prior social stratification and organization of a feudal economy, but with the foreign colonial power replacing local leaders as the social order's highest rung. (37) Rather than reform patterns of patronage, colonialism preserved these patterns in perverse ways. Indigenous rulers no longer reaped their rewards directly from the prosperity of the people beneath them, but found their remuneration bestowed from above by the colonial government in order to purchase a leader's loyalty and to act as an incentive to control local populations. (38) Meanwhile, the colonialist's hegemony in the region simultaneously stripped away the peasant's need for feudalism's reciprocal benefit of protection from rival kingdoms. (39) These two factors, combined with the fact that feudal lords' remuneration typically exceeded previous notions of prosperity, weakened the perceived relationship between economic reward and productivity, skewing the feudal balance between a lord's duty of protection and rights of extortion. (40) In addition to the benefits afforded the colonizing power, colonialism also yielded a wealthy indigenous class that reaped its primary economic rewards from neither feudal nor market structures, but from transfer payments from a foreign government. (41) This rent-seeking class, an entrenched feudal structure divorced from its traditional functions, became the source of an unofficial tax, known as endemic corruption, on all legitimate economic activity within the colony. (42) Because the rents that could be achieved by any individual member of the class greatly exceeded the relative damage a single defector could have upon its institution, cultural prohibitions of such behavior proved insufficient to override human nature. (43) Furthermore, because the class was intertwined with governmental functions, each dependent upon the other for its continued existence, (44) legal proscriptions were not developed or implemented. (45) As a result, the class became a self-perpetuating institution. Even when external forces such as revolution, civil war or coup d'etat resulted in a large-scale turnover in its constituency, the class persisted, the only substantial effect being the transfer of benefits to the class's newest members. (46) B. Contradicting the Culture Myth Indonesia's post-colonial political economy better explains the country's corruption than the common cultural argument informally discussed among development workers, embassy personnel, and expatriate businesspeople. (47) Colonialism created a political economy in Indonesia in which local government was administered by a wealthy welfare class that was unaccustomed to accountability for income received primarily as a right of position--bribes for loyalty made by a foreign government at the expense of both the colonized society's labor and merchant classes. As discussed in Part One, the Cold War era administration of foreign aid and investment did not discourage this arrangement, but perpetuated the practice, yielding a post-colonial political economy characterized by rampant, systemic corruption by the end of the Suharto era. (48) Attempts to fault culture for Indonesia's corruption fail to find a similarly discrete cultural attribute or practice condoning the behavior, instead relying on indirect attribution to various cultural practices that do not withstand scrutiny. First, it is important to point out that the examples cited are characteristic of Indonesia's predominant ethnic group, the Javanese that constitute forty-five percent of the nation's population. (49) However, the Javanese are only one of Indonesia's 194 principal ethnic groups, each with its own distinct cultural traditions, while corruption is a national phenomenon common throughout the archipelago. (50) Furthermore, closer examination of the sources cited reveal that, while there are cultural traits that are permissive of the political economy described above, Indonesian culture cannot be a causative factor of corruption due to these same alleged sources' proscriptions against corrupt behavior. For example, a common criticism of Javanese society is its deference to hierarchical authority, whether in the form of family or feudal society. Unwillingness to challenge one's superiors can make the prosecution of corruption difficult; however, to assert that such deference creates corruption is to confuse permissive with causative factors. As proof of this, one need only look across the Sunda Strait to Singapore. Singapore is similarly comprised of cultures with a deference to hierarchy--Indonesians, Malaysians, Chinese, and Indians (51)--and is ruled by an undisputed autocrat who has defended the primacy of Asian cultural traditions, (52) yet Singapore is considered one of the least corrupt countries in the world. (53) Furthermore, the Javanese respect for authority and consequent conflict avoidance is characterized by an attempt to preserve social harmony, known as rukun. (54) Rukun requires setting aside personal interests and the seeking of social advantage that disfavors the community. (55) This attribute is antithetical to the promotion of corruption. On the contrary, rukun requires contentment with one's lot, as "ambition, competition, impoliteness, and personal wishes for material gain and power are sources of disruption, disharmony and contradiction" to the social order. (56) Thus, Javanese deference to hierarchy cannot be characterized as a cause of corruption. While such deference can hinder challenges to corruption by undermining its own proscriptions against the practice, the fact that such proscriptions exist suggest that the source of corruption must be found elsewhere. A commonly proffered prospect for this source of corruption is gotong-royong, the Javanese tradition of providing mutual assistance to friends, family, and neighbors, as well as establishing a cooperative effort on behalf of a village or community. (57) Whether gotong-royong interferes with the formation of contractual obligations is debatable. (58) However, to focus on this argument is to miss the point that gotong-royong is an expression of rukun--a cultural imperative for self-abnegating behavior, not self-aggrandizement. (59) President Suharto's misuse of gotong-royong to force payments to false charities, which were fronts for his family's graft-seeking activities, (60) does not denigrate the tradition so much as highlight its perversion under the predominant political economy. (61) Similarly, the accusation that the prevalence of Javanese mystic traditions creates a culture of deception conducive to corruption also fails to bear up under scrutiny. Such accusations emphasize the irrational form of these traditions to the neglect of their substantive content. To subscribe to this argument would also require one to condemn the scriptures of the Judeo-Christian tradition as fostering corruption because they contain descriptions of the miraculous. This same emphasis on form rather than substance causes adherents of this argument to cite the setting of Javanese shadow puppet plays as indicative of that society's moral relativism and pejorative preference to appearances over reality, again to the neglect of their theatrical content. (62) An examination of the stories told, however, reveal morality plays not unlike those found in the West, (63) stories that inform both Java's mystic traditions and commonly held sensibilities of right and wrong. (64) The result of these stories was that Indonesians with little or no contact with Western ways of doing business or governance were already critical of corruption in their society long before "crony capitalism" became a common catchphrase in the Western press. (65) In fact, Indonesia's reliance on mystic traditions is, like corruption itself, in part perpetuated by that nation's post-colonial political economy. Dutch rule taught Indonesians that they were culturally inferior, as an individual's upward social mobility depended upon that individual's successful adoption of Dutch language, dress, and custom to the neglect of what was characteristically Indonesian. (66) During the struggle for independence, a resurgence in myth-making and the belief in native supernatural powers occurred as a means by which Indonesians could instill pride in themselves and gain a sense of moral superiority over their oppressor. (67) This same penchant for myth-making has persisted in post-colonial Indonesia, particularly during periods or among social groups characterized by acute political and economic disenfranchisement, (68) which could be the empowerment psychiatrist Frantz Fanon also documented in Algeria and Martinique. (69) The fact that Indonesia, Algeria, and Martinique possess a common trait stemming from a shared colonial legacy points toward a third major flaw in the culturally-determined explanation for corruption: cultural explanations are contradicted by the prevalence of corruption in countries with similar post-colonial political economies, but disparate cultural and religious traditions. (70) This reasoning is the converse of the "Singapore argument" above, whereby cultures from countries struggling with corruption failed to be similarly afflicted when located in a different political economy. To concur, one need only compare the "kleptocracies" of Asia and Africa, (71) or the fashion with which bank bailout funds were absconded in both Russia and Indonesia, (72) and then contrast the similarity of these scenarios with the same countries' widely divergent ethnic, religious, and cultural backgrounds. Finally, the implied cultural superiority argument for corruption fails to explain why the institutions and personnel of developed nations frequently behave no differently than their foreign counterparts when operating in the same post-colonial political economy. Japan has gone so far as to provide training for expatriate industries on the proper protocol for the payment of bribes when conducting business abroad. (73) Prior to the 1998 OECD Convention on corruption, more than a dozen nations permitted tax deductions for bribes to foreign officials. (74) Despite the U.S. Foreign Corrupt Practices Act of 1977 (FCPA), U.S. firms also continue to contribute to graft abroad. In the summer of 2000, a software engineer at the Jakarta office of a U.S. company soliciting contracts with the Indonesian government reported that, to secure the contract, his company had used fifty percent of the project's research and development budget as a payoff to the Indonesian government. (75) Despite the fact that Indonesia is ranked the fourth most corrupt country in the world, (76) and U.S. firms approved U.S. $10.2 billion worth of investment into Indonesia during Suharto's corrupt reign, (77) at the time of this writing there has never been a case concerning U.S. investment in Indonesia under the FCPA. (78) To the contrary, actions by the U.S. government have directly discouraged the consideration of corruption claims affecting American business interests in Indonesia, even when filed within Indonesia itself. (79) Indeed, even organizations with the mission of aiding emerging markets' economic development are not immune. An Indonesian on staff with the Cultural Attache's office at the U.S. Embassy in Jakarta during the late 1980s reported that World Bank officials used to joke about "anonymous" gifts left in their hotel rooms during country visits as tokens of "Indonesian hospitality." (80) After the failure of the World Bank to foresee Indonesia's economic collapse, agency officials admitted to altering Bank documents to reflect the wishes of the Suharto government, though the only reason cited for this behavior was being caught up in the economic euphoria of the times. (81) However, a former country director for Indonesia alleges she was punished professionally by the Bank for blowing the whistle on corruption in the country. (82) In the aftermath of Indonesia's economic collapse and the discovery of the World Bank's misconduct, the Bank reached a private settlement with the former employee, agreeing to place her in a senior position at the institution, a position from which she later resigned. (83) The plight of this World Bank whistleblower lends more credence to the former Foreign Commercial Attache worker's allegations than the unqualified caught-up-in-the-enthusiasm explanation offered by Bank employees in Indonesia, especially in light of other recent discoveries of aid workers' corrupt behavior overseas. (84) For all of these reasons, an ambiguous attribution of corruption to culture cannot be considered credible. It is a critical insight that Indonesia's post-colonial political economy perpetuates corruption despite cultural prohibitions to the contrary. Without it we are left either with the misdiagnosis of cultural attribution or some other form of fatalistic predeterminism. A recurring refrain regarding Indonesia's economic recovery is the country's need for credible institutions such as an efficient and honest banking system, judiciary, and civil service. (85) While this analysis is true, it is not helpful. It tells us neither why these institutions fail to exist nor how they should arise, but only that they are crucial to Indonesia's economic recovery. This is like a physician telling his patient he needs a properly functioning pancreas--the statement is true, but hardly constitutes a complete diagnosis. Does the patient's pancreas produce too much insulin (hypoglycemia) or too little (diabetes)? Though both are diseases of the same organ, the diabetic's cure is the hypoglycemic patient's poison. Similarly, Part Three will demonstrate how physicians who fail to appreciate the post-colonial political economy's role in perpetuating corruption run the risk of administering poison to the patient in the form of foreign aid that only exacerbates the problem they set out to cure. V. WHY FOREIGN AID FAILS Foreign aid in the post-Cold War era, and particularly after the 1997 Asian Economic Crisis, has set for itself the laudable goal of institution-building in emerging economies through the creation of honest, efficient, and transparent banking sectors, judiciaries, and bureaucracies. (86) Its primary means have been by adding "values," technical assistance, and money to emerging market economies. The following subsections will demonstrate that each treatment fails to obtain its objective, because it either does not address or even encourages the perpetuation of post-colonial political economies at cross-purposes with the goal of economic development. A. The Imposition of Foreign Values Is Unnecessary Emerging market societies do not need new values. First, such assertions in the West are too fickle to be considered credible. In the 1980s, many commentators lauded Asian values as superior for attaining economic growth. After 1997, Western businesses began questioning whether Asians had any values at all. (87) In truth, Asian values were not pivotal in either scenario. In the 1980s, the post-colonial political economy seemed secure, but its continued stability in the region became questionable with the closing of the Cold War era. (88) Markets responded to these perceptions accordingly, first with greed, then with fear. (89) It is these perceptions that changed over a matter of months, not millennia worth of cultural values. Second, as emerging markets, Asia and Indonesia already possess values that proscribe the corruption characteristic of the post-colonial political economy. Meanwhile, all societies, including those of the West, suffer from the underlying human urge to rent-seek when the practice is more likely to receive a reward rather than retribution, despite cultural prohibitions to the contrary. (90) This tension between certain aspects of human nature and the values believed to benefit a society is why a culture creates institutions of law and government. (91) The imposition of post-colonial political economies by powers that did not have the best interest of their recipients at stake interrupted this process. (92) The answer is not the further imposition of foreign "values," which smacks of a cultural arrogance offensive to foreign aid recipients, even to the point of engendering sympathy for corrupt leaders by an otherwise discontented populace. (93) Instead, what is demanded is the removal of a post-colonial political economy whose rent-seeking opportunities overwhelm cultural norms. B. Technical Assistance Is Premature Technical assistance is not the appropriate tool for removing the cancer that is the post-colonial political economy. Technical assistance is a tool for rebuilding and an aid to recuperation. Its premature provision is like applying a bandage to the site of a tumor before the tumor has been excised; it hides the growth but does not remove it, and, by postponing necessary surgery, can even aid the progression of disease. The main question to ask with respect to technical assistance is to whom, and when, should it be provided? Non-governmental organizations (NGOs) by definition stand outside the halls of power where reform must take place, (94) while assistance inside those halls runs the risk of lending legitimacy to a government with no incentive to reform. (95) In neither situation does technical assistance achieve its goals of legal and economic reform, because, like cultural norms, technical assistance is overwhelmed by the rent-seeking opportunities of the prevailing post-colonial political and economic environment. A prime example of this is the use of Indonesia's failed new anti-corruption laws that themselves have been used to perpetrate extortion, (96) as have the bankruptcy laws passed at the IMF's insistence in the wake of Indonesia's widespread corporate failures. (97) One American commentator on Indonesia stated that "the history of Indonesia is one of successful rent-seeking," and that what is needed is to remove rent-seekers from power. (98) However, technical assistance fails at this task, because it asks successful rent-seekers to remove themselves. Specifically, the commentator was promoting Indonesia's new antitrust law as a means to achieving this goal. However, an examination of the practical issues surrounding the law illustrates the inadequacy of technical assistance for this task. First, in order to be successful, initiatives for legal and economic reform, like values, must come from within a country, not be imposed from outside. Technical assistance provided before such an initiative arises epitomizes the notion of prematurity. Indonesia was completely uninterested in establishing antitrust legislation, but did so at IMF insistence. (99) The result was a draconian law with loopholes that not only rendered the legislation useless, (100) but actually encouraged the same monopolistic practices and government collusion that existed under Suharto. (101) Furthermore, the resulting "technical assistance arrogance" (102) yielded a public perception in Indonesia that the Supervisory Commission for Business Competition (KPPU) created by the legislation was "in the pocket of the IMF, World Bank and the United States," (103) smacking of the backlash against the imposition of foreign values discussed previously. (104) Ironically, as if to dispel this perception, or perhaps itself a backlash against Western arrogance, two of the first three cases the KPPU chose to investigate were not against Suharto cronies, but Western multinational corporations. (105) Second, relying on legal reform to remove rent-seekers from power runs the risk of confusing legal window dressing with legal modernization--a "commodity fetishism" that has characterized donor agencies' involvement in developing countries in the past--to the detriment of their recipient nations. (106) Returning to the example of Indonesia's new antitrust law, the same month Indonesian President Gus Dur appointed the KPPU he also granted his new airline a number of exclusive government exemptions, allowing him to significantly outprice his competitors on the country's most lucrative domestic routes. (107) One might also question the benefit of providing technical assistance to the KPPU when several of its members continue to sit on the board of, or exact consulting fees from, the same conglomerates they have been appointed to regulate, including those of Suharto's closest cronies. (108) Indonesia's business community consequently considers the KPPU the "biggest boondoggle for illicit rent-seeking activity since [Suharto's] tax ministry," an appointment to the commission being "the country's quickest new route to become a millionaire." (109) Rather than remove rent-seekers from power, Indonesia's antitrust legislation instead promises merely to transfer those rents from one group of individuals to another, providing just another illustration of the self-perpetuating institution of the rent-seeking class created by the postcolonial political economy. (110) While the aforementioned commentator is correct in his assessment that "the history of Indonesia is one of successful rent-seeking," what is needed from abroad is not ill received technical assistance aimed at the Herculean task of removing rent-seekers from power, but the removal of exogenous rent-seeking opportunities. This brings us to the third reason why foreign aid fails: financial aid feeds the post-colonial political economy. C. Financial Aid Feeds the Post-Colonial Political Economy Because rent-seeking behavior is not an attribute of culture but the result of human nature and a permissive post-colonial political economy, the imposition of foreign values on emerging market economies serves the prescribing physician's need to feel productive in his practice more than the needs of his patient. Furthermore, in realizing that the potential for rent-seeking behavior lies embedded in human nature the way a focal infection resides asymptomatic within the human body until other factors--like colonialist policies--create the compromised immune system that is the post-colonial political economy, we have also discovered the source of technical assistance's frustration. Prescribed prematurely, technical assistance merely masks the progression of the pathogen; instead of removing rent-seekers from power, technical assistance simply swaps one set of symptoms for another while the virus lingers on unaddressed, its potential unabated. Technical assistance suffers from a tendency to place recuperation before remedy. Thus, a pre-condition to removing rent-seeking behavior from power is the removal of rent-seeking opportunities. The final reason why foreign aid fails is because rent-seeking opportunities are precisely what it provides through its primary purpose of financial assistance. Historically, foreign aid has fed the post-colonial political economy due to the parallel purposes it served as a purchase of loyalty during the Cold War and as bribes paid to the native elite for the control of local populaces during the colonial era. (111) Consequently, with the end of the Cold War, the direct provision of foreign aid by developed nations has fallen dramatically. (112) Foreign policy makers' recognition that economic instability abroad can have both economic and national security ramifications at home, (113) however, keeps the question of foreign aid's efficacy pertinent, as the indirect provision of financial assistance has increased through the means of emergency bailouts and massive amounts of debt forgiveness. (114) Unfortunately, while the motivation of donor-nations in providing financial assistance may be different from that during the Cold War--more benevolent, even if not entirely altruistic--the post-colonial political economy that prevails in recipient nations does not make such qualitative distinctions. Because the same incentives for illicit rent-seeking and disincentives to forgo such opportunities persist, a more important measure of future foreign aid's success than its donors' intent would be an economic and empirical analysis of past aid's ability to promote economic growth. (115) An analysis provided by the World Bank and IMF's own internal documents demonstrates that past foreign aid and debt forgiveness packages have done more to promote the post-colonial political economy than economic expansion. (116) The main reason for this finding is that international financial institutions (IFIs) fail to calculate the role the post-colonial political economy plays in retarding these countries' economic growth. As a result, IFIs engage emerging market economies as if they had already achieved what foreign aid is allegedly allocated to help them become: capitalist economies able to receive money and allocate it according to market principles, free from patronage and accountable to creditor expectations. (117) Specifically, the provision of foreign aid assumes that aid will go into investment on a one-to-one ratio, yielding a predictable rate of at least short-term economic growth. (118) Using a "financial gap" economic model, IFIs over the past half-century have provided aid by first calculating the amount of investment required to promote economic growth, then giving financial assistance based on the gap between required investment and the financing available from the sum of private financing and domestic saving. (119) However, a review of eighty-eight aid recipient countries from 1965 to 1995 showed no such correlation between aid and investment with regard to both degree and direction, as "60 percent of the countries [reviewed] show[ed] a negative relationship between foreign aid and investment." (120) Considering the possibility that the financial gap model was inappropriate as a short-term predictor of economic growth, but maintained potential as a long-term prognosticator, a regression of aid package provisions for 146 countries between 1950 and 1992 was performed, looking for lagged investment and economic growth four years out from foreign aid disbursements. These results were even less stunning, with only one country--Tunisia--fitting the projection for growth in gross domestic product (GDP) its foreign aid receipts should have provided. (121) The author of the study stated that he "would have been better off predicting growth in each country by just presuming it was constant at its historical average." (122) In conclusion, he insinuated that abandoning this prevailing foreign aid model would benefit everyone involved, except for those individuals at IFIs who would consequently find themselves out of a job. (123) Furthermore, this lack of credibility on the part of IFIs and their major lenders is also perceived in their recipient nations, (124) further eroding IFI efforts to promote economic growth in those countries and compromising their ability to impose and enforce conditional terms on loan agreements. The former director of Perusahan Listrik Negara (PLN), Indonesia's state-owned electric power company, reports that this type of hypocrisy on the part of the World Bank left many Indonesians feeling justified in siphoning funds off Bank projects in the country. (125) Without justifying such behavior, he stated that many Bank projects were ill-conceived and widely perceived as untenable from the outset. World Bank requirements that these projects hire highly paid foreign consultants, who frequently provided no service or were absent altogether, caused a local perception that these endeavors were themselves a Western form of rent-seeking behavior. (126) This perception is common throughout the developing world, even among expatriate development workers themselves. (127) This form of institutionalized, and technically legal, rent-seeking behavior was corroborated by another Indonesian businessman who managed a number of contracts under the World Bank prior to the country's economic crisis. (128) While stating that he knew of no instances of illegal behavior on the part of Bank officials in Jakarta, he did confirm that they turned a blind eye to such behavior by their local counterparts. This businessman asserted that during his tenure, all of which came after the end of the Cold War, no one from the Bank ever investigated the physical site of projects under his management to see if they actually existed according to specification. Instead, he claimed Bank officials were satisfied with guarantees submitted by the Indonesian government allowing them to "check off progress on paper." (129) Meanwhile, contracts to administrate these Bank funds had been awarded by the Indonesian government with overbids made to account for "pre-financing," a euphemism for bribes, most of which would be paid back to the government, and which would account for forty to seventy percent of a project's value. (130) Despite such stories, as late as July 1997, "the World Bank strenuously denied allegations of corruption," stating that "[w]e know exactly where our money is going.... We do not tolerate corruption in our programs." (131) But one month later, following the initial onset of Indonesia's economic collapse, the World Bank suddenly changed its tune, admitting internally that twenty to thirty percent of World Bank funds to Indonesia may have been "diverted," a figure that grew to fifty to eighty percent for "funds budgeted for project land acquisition and resettlement assistance." (132) The World Bank did not issue such admissions publicly for another year, and then did so only cautiously, calling the report "largely anecdotal" and claiming that the Bank was "ignorant of the problems until only recently." (133) It is incredible that officials in the World Bank's largest office outside of Washington, with 150 staff members, (134) including a country director suing the Bank for penalizing her professionally for reporting on World Bank-Indonesian corruption, (135) could be ignorant of facts about its programs many considered common knowledge and that were even published eight years earlier in a popular travel guide. (136) Therefore, donor-nations, through foreign aid, successfully have promoted rather than prevented the perpetuation of the post-colonial political economy by keeping it fed with rent-seeking opportunities. One need only look at their past remedies and consider the opposite to understand what IFIs and donor-nations serious about aiding emerging market economies should do to change their future course of treatment. They gave money and technical assistance to corrupt governments without offering any incentive to change. (137) They failed to make credible demands on their own citizens and corporations to behave abroad as they are expected to behave at home. (138) They have converted investment into aid through bailouts and the downplaying of risks by outright deception, each enhancing the potential for imprudent investment. (139) They have alienated the people they are allegedly seeking to help by patronizing and preaching the superiority of their own foreign systems and values. A quick review of this list suggests that the post-colonial political economy persists because of the similarity the present foreign aid environment bears to the colonial past, the only difference being one of degree. (140) To their credit, many aid programs are trying to address these issues in the aftermath of Indonesia's collapse, but their response reflects a reactive, symptomatic approach that still fails to address the post-colonial political economy that is the root cause of these countries' economic illness. The etiology of the post-colonial political economy is when indirect rule attenuated the indigenous elite's perceived relationship between economic reward and productivity and thereby skewed the feudal balance between a lord's duty of protection and rights of extortion. This is the infection that triggered the cancer of an entrenched rent-seeking class--a vestigial feudal structure divorced from its original function. (141) Therefore, until the cessation of transfer payments from abroad restores the relationship of former "feudal lords" to their populace and forces their accountability to the marketplace, the post-colonial political economy cannot be transformed. Ironically, in a moment of monumental misdiagnosis, IFIs, donor-nations, and even some of their harshest critics have decided to engorge the rent-seeking tumor's life supply with fresh blood through debt relief and debt forgiveness programs. What is the wisdom of granting debt relief in light of what has already been revealed regarding the effect of financial assistance on the post-colonial political economy? Despite promises of conditionality, i.e., technical assistance, (142) the prognosis is not good. A World Bank staff member's review of the economic theory and empirical data resulting from the past two decades of escalating official debt relief for what have come to be termed "highly indebted poor countries" (HIPC) reveals the same pattern of abuse that occurred with the initial provision of foreign aid, when official lenders sought to "`fill[] the financing gap' in violation of prudential standards of creditworthiness." (143) In fact, the data indicates that "HIPCs got to be HIPCs in part by borrowing from the World Bank and IMF," (144) due to these institutions' willingness to go where private investors feared to tread on account of poor economic policies and rampant corruption. (145) The evidence also suggests that HIPCs have remained HIPCs because debt forgiveness has done more to reward, rather than to reform, such practices. Controlling for the HIPCs' poor baseline performance entering the official debt forgiveness period reviewed (1979-1997), HIPCs still continued to make worse policy decisions and engender higher levels of corruption and institutional weakness than other aid recipient nations according to the World Bank's own "Country Policy and Institutional Assessment" parameters. (146) Furthermore, despite the fact that HIPC countries showed no greater likelihood for terms of trade shocks, war or other adverse economic events than their non-HIPC developing nation counterparts, (147) debt "relief" saw debt-burden ratios increase for eighty-five percent of the countries studied. (148) This phenomenon can be explained by the "statistically significant association [found] between average debt relief as a percent of GDP and new net borrowing as a percent of GDP." (149) In fact, "total debt forgiveness for 34 HIPCs over 1989-97 totaled US$31.5 billion, while their new borrowing was US$30.6 billion." (150) This statistic alone would not be incriminating if this new borrowing went into fruitful investment, but as the failure of the financial gap model explained above would predict, aid did not equal investment. Even more disappointing, as debt relief increased, HIPCs' gross domestic investment (GDI) to GDP ratio actually decreased. (151) These countries' already low savings rate also dropped with debt relief. (152) While debt was accumulating and investment and saving were decreasing, these HIPCs also demonstrated strong asset decumulation, (153) confirming the economic hypothesis that, rather than institute reforms, HIPCs faced with lending conditions will run down the country's assets. (154) Eventually, this behavior could be assumed to bring a nation to the point where, even for the rent-seeking class, the benefits of reform would outweigh its costs. However, this hypothesis has never been tested, as asset decumulation appears only to have been taken on as a stopgap measure, the past 20 years of escalating debt relief having "create [d] incentives to delay policy reforms, [with borrowing nations] waiting for a progressively higher `price' at which to `sell'" their capitulation to IFI lending conditions. In other words, "if the rate at which the amount of relief is increasing exceeds the international market interest rate, then policy makers will wait to `sell' policy reforms." (155) Thus, the prospect of debt relief has created two moral hazard incentives for the post-colonial political economy, both shown to have occurred by the empirical data. The first moral hazard incentive is to borrow in the expectation that part of the debt will be forgiven. (156) The second is to keep poor economic policies and institutional weakness in place as long as possible to maximize the amount of relief offered. (157) Predictably, the result of HIPCs' debt forgiveness has been economic decline, (158) at a significant cost to the poorest segments of these countries' populations. (159) Rather than feeding the country, financial assistance has fattened the coffers of those who rob it blind. VI. CONCLUSION Financial assistance and debt forgiveness fail to engender economic growth. In fact, financial assistance and debt forgiveness inhibit growth by encouraging the rent-seeking behavior created by the post-colonial political economy, which saps the cultural strength inherent in these societies and undermines the technical assistance the West could legitimately offer. This Note began by asking how the world's premier financial institutions could have failed to predict an economic collapse obvious to a third-world public high school student. The answer lies in a sad combination of misdiagnosis, inappropriate treatment, and physician arrogance. It is fitting to have begun this analysis with Indonesia and ended with an examination of debt relief's negative effects on HIPCs. In July 1999, precisely two years after holding the country up as a poster-child for foreign aid, an IFI success story, and a model for economic development, the World Bank declared Indonesia a HIPC. (160) This rating was not precipitated by war, natural disaster or shocks to the nation's terms of trade. (161) The economic policies for which Indonesia had been heralded had not changed. (162) What had changed was that the facade had fallen, revealing what foreign aid donors had forgotten or never appropriately taken into consideration--the post-colonial political economy. Unfortunately, as exemplified by the World Bank and IMF's millennium-inspired debt-relief initiatives, they still ignore it as institutional inertia prevents the IFIs from abandoning their raison d'etre. Being declared a HIPC does not bode well for Indonesia's recovery. But if for all these years institutions such as the World Bank could claim Indonesia as a model of foreign aid's success, they must now accept it as the epitome of why foreign aid fails. (1.) Statement made by a high school student during a conversation with the author. (2.) See Marcus W. Brauchli, Speak No Evil: Why The World Bank Failed to Anticipate Indonesia's Deep Crisis, WALL ST. J., July 14, 1998, at A1, A10; Jay Solomon, World Bank Says it was Wrong on Indonesia, WALL ST. J., Feb. 5, 1998, at A17. (3.) See generally Mark Landler, Indonesian Capital Engulfed by Rioting: Death Toll Rises--Warning to Americans, N.Y. TIMES, May 15, 1998, at A1 (describing the May 1998 riots); Terry McCarthy, Indonesia Burning, TIME, May 25, 1998, at 44-45 (explaining the political and economic circumstances leading up to the May 1998 riots). (4.) See WORLD BANK, INDONESIA COUNTRY ASSISTANCE STRATEGY REPORT 6 (1999) [hereinafter CAS REPORT]; PAUL R. KRUGMAN & MAURICE OBSTFELD, INTERNATIONAL ECONOMICS: THEORY AND POLICY 104 (5th ed. 2000). (5.) The fine line between what is traditionally considered foreign aid and what is considered foreign investment is, for the purposes of this paper, blurred by the modifier "imprudent" added to the latter term, and, therefore, the terms require further definition. Foreign aid may come in any of its commonly considered forms from cash grants and export credits to below market interest rates, including rates that fail to adequately reflect the loan recipient's risk for default. See JOHN J. CAPELA & STEPHEN W. HARTMAN, DICTIONARY OF INTERNATIONAL BUSINESS TERMS 154, 180 (1996); Rachel Robboy, Remarks at Georgetown University Capital Markets Research Center Conference on Emerging Markets (Feb. 11, 2000). In this Note, foreign investment is considered imprudent when subsequent government bailouts and debt-restructuring are required that effectively convert that investment into foreign aid as defined above. See KRUGMAN & OBSTFELD, supra note 4, at 667, 694; A Survey of Global Finance, ECONOMIST, Jan. 30, 1999, at 8 [hereinafter Global Finance Survey]. (6.) See LIBRARY OF CONGRESS, INDONESIA: A COUNTRY STUDY 83 (William H. Frederick & Robert L. Warden eds., 5th ed. 1993). (7.) See id. at 73; Home Page for the United States-Indonesia Society, at http://www.usindo.org/ sub (last visited Jan. 9, 2001) (showing a map of Indonesia overlaid on map of the United States to provide a perspective on each country's relative proportions) [hereinafter USINDO]. The phrase "from Medan to Merauke" is a common Indonesian saying akin to "from sea to shining sea" in the United States. (8.) See LIBRARY OF CONGRESS, supra note 6, at 88. (9.) See id. at 188-94. (10.) See Ambassador J. Stapleton Roy, Address at Georgetown University School of Foreign Service (Nov. 8, 2000); see also Darren McDermott, Indonesia's Turmoil Worries Shipping Industry, WALL ST. J., May 19, 1998, at A19 (citing testimony by the commander of the U.S. Pacific Command at a U.S. Senate hearing). (11.) See USINDO, supra note 7 ("Indonesia, the world's fourth most populous nation, is the least known of any major country."); Indonesian Ambassador to the United States Dorodjatan Kuntjoro-Jakti, Address at Georgetown University Law Center's Conference on Indonesia's New Competition Law, Trade and Investment Climate (Oct. 17, 2000); Ambassador Roy, supra note 10. (12.) See J.D. LEGGE, SUKARNO: A POLITICAL BIOGRAPHY 378-79 (2d ed. 1984). (13.) See id. at 343. (14.) See INDONESIA: THE SUKARNO YEARS 103-04 (Hal Kosut ed., 1967). (15.) See Mark T. Berger, Old State and New Empire in Indonesia: Debating the Rise and Decline of Suharto's New Order, 18 THIRD WORLD Q. 321, 333 (1997) (describing the Indonesian army's killing of PKI members, facilitated by U.S. military aid and logistical support from the CIA). (16.) First, Paris Club members rescheduled the entire Sukarno era debt in an arrangement the World Bank characterizes as "unprecedented because of its unusually generous terms [and] exceptionally large volume." WORLD BANK, REPORT No. 20436-IND-INDONESIA 25 (2000) [hereinafter WORLD BANK REPORT NO. 20436-IND]. Then Indonesia joined the IMF in 1967, the year General Suharto officially replaced his predecessor as president. See Indonesia: Position in the Fund, available at http://www.imf.org (Dec. 18, 2000). The World Bank began its own operations in Indonesia the same year, lending over US $25 billion during the next three decades. See WORLD BANK, THE WORLD BANK AND INDONESIA: OUR DREAM IS A WORLD FREE FROM POVERTY 1 (1999) [hereinafter WORLD BANK AND INDONESIA]. Indonesia has since become home to the World Bank's largest office aside from its Washington, D.C. headquarters, boasting a staff of nearly 150 personnel even prior to that nation's 1997 economic meltdown. Brauchli, supra note 2, at A1; Luis Tineo, Remarks at Georgetown University Law Center Roundtable Discussion on Indonesian Competition Law (Mar. 31, 2000). (17.) See LEGGE, supra note 12, at 378-82. (18.) See LEGGE, supra note 12, at 378-82; THOMAS J. MCCORMICK, AMERICA'S HALF-CENTURY: UNITED STATES FOREIGN POLICY IN THE COLD WAR AND AFTER 115, 148-49 (2d ed. 1995); INDONESIA: THE SUKARNO YEARS, supra note 14, at 119-20; Burger, supra note 15, at 333. (19.) THOMAS L. FRIEDMAN, THE LEXUS AND THE OLIVE TREE 255-56 (2000). (20.) See Alan Tonelson, Jettison the Policy, FOREIGN POL'Y, Winter 1994-95, at 121, 129 (explaining the 1970s and 1980s position of "`balancing' human rights considerations with America's strategic and economic objectives"). The tension between economic objectives and human rights concerns can be found in the following excerpt from a memorandum written by George Kennan in his role as head of the Policy Planning Staff of the U.S. State Department: | |
We have about 50% of the world's wealth but only 6.3% of its population. In
this situation, we cannot fail to be the object of envy and resentment. Our
real test in the coming period is to devise a pattern of relationships
which will permit us to maintain this position of disparity. We need not
deceive ourselves that we can afford today the luxury of altruism and world
benefaction--unreal objectives such as human rights, the raising of living
standards, and democratization.
| | JAMES W. LOEWEN, LIES MY TEACHER TOLD ME 216 (1995) (quoting Kurman memorandum). (21.) See FRIEDMAN, supra note 18, at 255-56. (22.) See Ralph Lee Woodward, Guatemala: The Ten Years of Spring 1944-1954, ENCARTA ENCYCLOPEDIA ONLINE, at http://www.encarta.com (last visited Apr. 7, 2001); see also Pablo Neruda, The United Fruit Co., in BRIDGES: LITERATURE ACROSS CULTURES (Gilbert H. Muller & John A. Williams eds., 1994). (23.) See David Bacon, Oil Politics Rule in Nigeria, EARTH ISLAND J. (Winter 95), at http://www.earthisland.org/journal/w95-24a.html (last visited Apr. 7, 2001). (24.) See JOHN G. TAYLOR, INDONESIA'S FORGOTTEN WAR: THE HIDDEN HISTORY OF EAST TIMOR 74-77 (1991). (25.) See id. at 74. (26.) See id. at 75. (27.) See ADAM SCHWARZ, A NATION IN WAITING: INDONESIA IN THE 1990s 27-28, 109-15, 133-61 (1994). (28.) For example, AT&T, NEC, and Fujitsu used Suharto's children as local agents for lucrative telecommunications contracts, agents without which "an overseas bidder would have no chance of winning." Id. at 144-45. Suharto's children are among the worst of Indonesia's crony businesspeople, with "blood ties to Suharto [being] the surest route to the top of the corporate ladder." Id. at 144. (29.) See FRIEDMAN, supra note 19, at 163-64; ROBERT GILPIN, THE CHALLENGE OF GLOBAL CAPITALISM: THE WORLD ECONOMY IN THE 21st CENTURY 331-334 (2000). (30.) See William Easterly, The Ghost of Financing Gap: Testing the Growth Model Used in the International Financial Institutions 3-5 (Jan. 13, 1997) (unpublished manuscript, on file with Law & Policy in International Business) [hereinafter Easterly, Ghost of Financing]. (31.) See PHILIP D. CURTIN, THE RISE AND FALL OF THE PLANTATION COMPLEX 47 (2d ed. 1998) ("One of the broader meanings of feudalism ... defines it as the exercise of political command or government power as a personal property right, rather than as a public function performed by the sovereign authority or one of his agents."); B.H.M. VLEKKE, NUSANTARA: A HISTORY OF INDONESIA 151 (Revised ed. 1959) (stating that the presence of these attributes in Java's Mataram empire, the last to rule before Dutch supremacy in the region, made "[t]he Mataram ... in every respect a feudal state"); KARL POLANYI, THE GREAT TRANSFORMATION 52, 183 (1944) (finding a lack of modern political organization characteristic of all colonized peoples, with economic evidence for feudalism in such far flung destinations as the ethnically stratified societies of Africa and agrarian Central and Eastern Europe); R. BIN WONG, CHINA TRANSFORMED: HISTORICAL CHANGE AND THE LIMITS OF EUROPEAN EXPERIENCE 14, 47 (1997) (stating that feudal societal structures also persisted in China during this era). (32.) For the purposes of this Note, "post-colonial political economy" describes an institution, not a condition precedent, and therefore characterizes any political economy that during the colonial era developed the entrenched feudal structures described in this section. Thus the term could be applied to both colonial territories and those nations that developed these qualities in resisting the colonial mantel. See POLANYI, supra note 31, at 183, 273 (noting that in Central and Eastern Europe feudalism survived because of the protections it afforded against colonialist objectives of land mobilization). Thus it is not only the successful implementation of colonialism in a country, but the threat of colonialism that matters. Where autocracies sprang up in response to the threat of colonial expansion and adopted existing feudal societal structures in organizing a command economy, an analogous attenuation between ruler and ruled, the upper stratum of society and the discipline of the marketplace occurred, as was witnessed under colonial regimes. (33.) See, e.g., CURTIN, supra note 31, at 12-13, 46-48 (noting the survival of feudal features in European colonies, including Brazil). (34.) See G. MOEDJANTO, THE CONCEPT OF POWER IN JAVANESE CULTURE 14-20 (1990). (35.) See LIBRARY OF CONGRESS, supra note 6, at 17-20; VLEKKE, supra note 31, at 121-43. (36.) Compare LIBRARY OF CONGRESS, supra note 6, at 17-23, with Philip Oldenburg, India: British Expansion, ENCARTA ENCYCLOPEDIA ONLINE, at http://www.encarta.com (last visited Dec. 19, 2000), and Robert Stock, Nigeria: Indirect Rule, ENCARTA ENCYCLOPEDIA ONLINE, at http://www.encarta.com (last visited Dec. 19, 2000). (37.) See SARTONO KARTODIRDJO, MODERN INDONESIA: TRADITION AND TRANSFORMATION 107-27 (1988) (describing how the Javanese aristocracy used language structures and creative mythology to justify Dutch occupation of the island as the return of long lost caucasian relatives of the ruling families); LIBRARY OF CONGRESS, supra note 6, at 23-24 (stating that, by the late eighteenth and early nineteenth century, Java's elite had ceased to rule on the island or even play a substantial role their own internal politics);JOHN PEMBERTON, ON THE SUBJECT OF "JAVA" 62-63 (1994) (stating that by 1820, the Susuhunan of Surakarta could not even leave his palace grounds without first seeking Dutch permission). (38.) See KARTODIRDJO, supra note 37, at 132-33, 157, 171-72 (explaining that the Dutch indirectly ruled Java, using "the top-level authority of the hierarchical structure in Javanese society" as a source of power). (39.) See LIBRARY OF CONGRESS, supra note 6, at 20 (noting that by the latter half of the eighteenth century the Dutch policy of "divide and rule [had] brought a measure of peace to Java"). (40.) See KARTODIRDJO, supra note 37, at 160 ("In precolonial times, corrupt practices took the form of heavy exactions and extortions of revenues ... with the strong back-up of colonial rule, a regent could easily expand the demand of the colonial government and his own.") (41.) The creation of an indigenous upper class during Indonesia's colonial era is often overshadowed by the examination of Dutch policies that facilitated ethnic Chinese economic success in the archipelago. See, e.g., SCHWARZ, supra note 27, at 99-109. However, to focus on the Chinese ethnicity of certain individuals' economic prosperity to the neglect of the Malay partnerships that permitted its phenomenal nature is to miss both the present perpetuation of the wealthy indigenous class the colonial era created and that class's essentially extortionate, rent-seeking nature. See id.; LEO SURYADINATA, PRIBUMI INDONESIANS, THE CHINESE MINORITY AND CHINA 14042 (3d ed. 1992). (42.) See generally KARTODIRDJO, supra note 37, at 152-153, 159-63, 175-177 (attributing corruption under indirect rule to the contradictory functions indigenous intermediaries had to perform in perpetuating a traditional society while promoting a "modern" colonial administration, the alienation those intermediaries experienced as a result of this dichotomy, and their consequent dependence on European colonial administration); LIBRARY OF CONGRESS, supra note 6, at 20 (stating that the European colonial administration on which these Indonesian intermediaries depended was itself "extraordinarily corrupt"). For a portrayal of Java's entrenched feudal aristocracy, that aristocracy's preference for the colonial system, and how the two forces together opposed both modernism and the Indonesian nationalist movement of the early twentieth-century, see PRAMOEDYA ANANTA TOER, THIS EARTH OF MANKIND (Max Lane trans., Avon Books 1975); PRAMOEDYA ANANTA TOER, CHILD OF ALL NATIONS (Max Lane trans., William Morrow and Co., Inc. 1979); PRAMOEDYA ANANTA TOER, FOOTSTEPS (Max Lane trans., Penguin Books 1985); PRAMOEDYA ANANTA TOER, HOUSE OF GLASS (Max Lane trans., William Morrow and Co., Inc. 1988) [hereinafter collectively PRAMOED, THE BURU QUARTET]. Together, these four books comprise a single narrative commonly referred to as "THE BURU QUARTET." (43.) See generally N. GREGORY MANRIW, PRINCIPLES OF MICROECONOMICS 345-54 (1998) (suggesting that absent a credible threat of punishment, any individual contemplating forgoing an illegal rent-seeking opportunity for the benefit of society as a whole faces the risk that someone else will capitalize on that opportunity anyway, so that society will not benefit from his self-denial); KENNETH N. WALTZ, MAN, THE STATE, AND WAR: A THEORETICAL ANALYSIS 167-71 (2d ed. 1959) (describing the barriers prohibiting the members of a society from taking cooperative action). (44.) For the illicit rent seeking class, government position provides an obvious opportunity for extortionate behavior. See SCHWARZ, supra note 27, at 135-39, 149 (citing examples of rent seeking by government officials from the president to the police precinct). For the government, illicit rent seeking could ironically prove a source of revenue as well as a budget drain. See LIBRARY OF CONGRESS, supra note 6, at 298; SCHWARZ, supra note 27, at 107, 112. (45.) See SCHWARZ, supra note 27, at 136 (noting that corruption increased, rather than decreased, following Indonesia's deregulation and economic reform campaign of the 1980's); Confidential Telephone Interview with Jakarta Financial Advisor (November 10, 2000) (stating that Indonesia's new anti-corruption legislation has been used as a tool for extortion); Interview with Paul Brietzke, Legal Advisor under Partnership for Economic Growth, Indonesian Ministry of Justice, in Jakarta, Indonesia (July 19, 2000) [hereinafter Interview with Paul Brietzke] (stating that despite the passage of anti-corruption legislation in the aftermath of the Suharto regime, corruption in Indonesia has increased since the dictator's fall from power). (46.) Compare MULTATULI, MAX HAVELAAR OR THE COFFEE AUCTIONS OF THE DUTCH TRADING COMPANY, (Roy Edwards, trans., Penguin 2d ed. 1987) (1860) (chronicling corruption under the East Indies' Dutch colonial administration), with SCHWARZ, supra note 27, at 107-161 (chronicling corruption under independence over a century later). In the former case the rent-seeking class was the traditional aristocracy; in the latter, the aristocracy has been supplanted with the heroes of the revolution and military who had risen to prominence in the coup of 1965. The incentives, however, remain the same. In fact, Suharto's New Order has been considered a direct descendant of, if not a return to, the Dutch colonial state. See LIBRARY OF CONGRESS, supra note 6, at 20 (citing Benedict Anderson); Berger, supra note 15, at 329-30, 334. This transfer of rents continues in the post-Suharto era. See supra note 45. (47.) See Interview with Paul Brietzke, supra note 45 (stating that Westerners blaming Javanese culture for Indonesia's economic problems is both common and "a bit overdone"). A former Indonesian staff member at the U.S. Embassy in Jakarta reports that her American counterparts--assuming her Western education made her no longer Indonesian--both confided in and complained to her that Indonesia will never become a developed country because its people are stupid, lazy and inherently deceitful. Confidential Interview in Jakarta, Indonesia (Jul. 11, 2000) [hereinafter Confidential Interview I]. A recent article concerning ethics in the work place poses the dilemma of an investment banker confronted with a demand for a bribe in an anonymous Asian country, stating that in Asia corruption is an accepted part of the culture. See Hal Lancaster, Will You Survive An Ethical Dilemma?, CAREER J. FROM THE WALL ST. J., at http://www.careerjournal. com/columnists/careercorner/20010109-careercorner.html (Jan. 9, 2001). (48.) See BILL DALTON, INDONESIA HANDBOOK 32 (1989) (stating that by the final decade of Suharto rule, even by Indonesian government figures, 50% of the country's GNP was lost to corruption); supra note 46. (49.) See LIBRARY OF CONGRESS, supra note 6, at xxx. (50.) See id. at 354-56; Gary Goodpaster & David Ray, Competition Policy and Decentralization 4-6 (2000) (unpublished manuscript prepared for Partnership for Economic Growth, a joint project of USAID and the Government of Indonesia) (discussing the problems posed by decentralization to competition policy in the archipelago, including the already prevalent practice of informal levies against trade and transport in Indonesia's outer regions). (51.) See CENTRAL INTELLIGENCE AGENCY, WORLD FACTBOOK, available at http://www.cia.gov/cia/ publications/factbook/geo/sn.html (Dec. 27, 2000). (52.) See William McGurn, In Defense of Asian Values, and Singapore Too, WALL ST. J., Nov. 2, 2000; Walter Russell Mead, Asia Devalued, N.Y. TIMES MAG., May 31, 1998, at 38-39. (53.) See Press Release, Transparency International, Transparency International Releases the Year 2000 Corruption Perceptions Index, available at http://www.transparency.de/documents/ cpi/2000/cpi2000.htm (Sept. 13, 2000) [hereinafter Transparency International]. (54.) See FRANZ MAGNIS-SUSENO, JAVANESE ETHICS AND WORLD-VIEW: THE JAVANESE IDEA OF THE GOLD LIFE 62-64 (1997). (55.) See id. at 64. (56.) Id. at 63. (57.) See id. at 53-54 (internal citations omitted). (58.) See id. at 20, 60 (noting that despite the practice of gotong-royong, conventional labor contracts and normal payment for services still occur and community members continue to make careful calculations of debt and repay their debts). (59.) See id. at 53. (60.) See James Clad, Address at Georgetown University Law Center Conference on Indonesia's New Competition Law, Trade and Investment Climate (Oct. 17, 2000). (61.) See Interview with Ibnu Soebroto, Former Director of Indonesian State-Owned Electric Power Company Perusahan Listrik Negara (PLN), in Jakarta, Indonesia (July 7, 2000) (responding to the question whether any Javanese cultural practices could be used to combat corruption, Mr. Soebroto stated that ideas integral to Javanese tradition were inherently anti-corruption, but that Suharto had so manipulated these traditions to his own purposes as to ruin them). (62.) See James Wilson, Chasing the Magic: Mysticism and Martial Arts on the Island of Java, J. ASIAN MARTIAL ARTS, No. 2 1993, at 40 n.20 (discussing the Javanese Shadow Puppet Play). (63.) See HAZIM AMIR, NILAI-NILAI ETIS DALAM WAYANG 97-195 (1991) (enumerating twenty ethical principles taken from the Javanese Shadow Puppet play and the stories and characters that elucidate these principles); see also SUNARDJO HADITJAROKO, RAMAYANA: INDONESIAN WAYANG SHOW (1988) (outlining one of the most popular of the Shadow Puppet plays, whose characters promote principles of loyalty, humility, honesty, self-denial, and courage). (64.) See Wilson, supra note 62, at 22-23 (observing that Shadow Puppet plays continue to draw large local crowds, and that the art's form and substance was eagerly discussed at all levels of society and noting that, particularly among the poor, male children were frequently named after heroes of the shadow puppet plays in the hope that they would grow up to bear similar attributes). (65.) See SCHWARZ, supra note 27, at 137 ("It is important to stress that `corruption' is not an alien concept to Indonesians ... government and business leaders do not enjoy some kind of cultural carte blanche to do anything they want. On the contrary, the activities of Indonesia's top crony businessmen and their partners in government are a source of deep resentment and disillusionment for many Indonesians."). (66.) See Wilson, supra note 62, at 37; see also LIBRARY OF CONGRESS, supra note 6, at 30, 33 (discussing the Colonial Indies' racial policies and environment); see generally PRAMOEDYA, THE BURU QUARTET, supra note 42 (chronicling the tribulations of an early 20th century Indonesian nationalist who found both his success under Dutch colonial society and his inspiration to overthrow that society a factor of his foreign education). (67.) See Wilson, supra note 62, at 38. (68.) See id. at 42 n. 41; Interview with Susuhunan (Sultan) Paku Buwana, in Solo, Indonesia (July 10, 1992) (noting that the practice of praying over sacred royal heirlooms and marching them though the streets of the city for the Javanese New Year was not an ancient rite, but a tradition created in 1973 at the request of President Suharto in order to lure the local populace with into a sense of empowerment through connection to the old ruling class and thereby avoid unrest that could arise from that populace's actual disenfranchisement and estrangement from the government in Jakarta). The Sultan's son summarized this phenomenon in the following fashion: | |
Every nation is known for one thing, one export. France is fashion.
America, democracy. Japan is technology, like cars and cameras. Indonesia
is a poor nation, but we are rich. We have not yet found our export, but
here we can heal a man without any medicine. We can turn invisible, defeat
an opponent without touching him, and travel great distances with merely
the power of our minds.
| | Wilson, supra note 62, at 38. (69.) See EUGENE C. BIANCHI, THE RELIGIOUS EXPERIENCE OF REVOLUTIONARIES 170-73 (1972); Wilson, supra note 62, at 37-38; Ian Johnson, China's Blind-Eye Policies Helped, Then Hurt, Falun Dafa Movement, WALL ST. J., Dec. 13, 2000, at A1 (mentioning a similar phenomenon observed with the Falun Dafa in China). (70.) See Transparency International, supra note 53. (71.) See FRIEDMAN, supra note 19, at 146-51. (72.) Compare Bob Davis, International Monetary Fund Says It Doesn't Watch Fund Disbursement, WALL ST. J., Aug. 25, 1999, with Grainne McCarthy, World Bank May Halt Indonesia Support Unless Jakarta Resolves Bank Bali Scandal, WALL ST. J., Aug. 25, 1999. (73.) See WALTER HATCH & KOZO YAMAMURA, ASIA IN JAPAN'S EMBRACE 122 (1994). (74.) See RALPH H. FOLSOM ET AL., INTERNATIONAL BUSINESS TRANSACTIONS: A PROBLEM-ORIENTED COURSEBOOK 718-19 (1999). (75.) Confidential Interview in Jakarta, Indonesia (July 7, 2000) [hereinafter Confidential Interview II]. (76.) See Transparency International, supra note 53; Confidential Interview in Jakarta, Indonesia (July 9, 2000) [hereinafter Confidential Interview III] (according to this Indonesian businessman with high level professional and family connections at Bank Indonesia, the country's central bank, "there is no clean business in Indonesia," including foreign owned firms); 103 Bankir Tak Lulus "Fit and Proper Test", KOMPAS, July 22, 2000, at 13 (stating that two weeks after the above interview, a major Jakarta newspaper revealed that 103 Indonesian bank directors and commissioners had failed a newly instituted "Fit and Proper" test, and an unspecified percentage of those that did pass did so on a conditional basis); Interview with Thomas A. Timberg, Small Scale Credit Adviser to Bank Indonesia, in Jakarta, Indonesia (July 10, 2000) (explaining that no bank commissioner or director in the country met the requirements of the above mentioned test due to their personal involvement with (now) bankrupt businesses and corruption); John Bresnan, Remarks at Roundtable Discussion on Competition Policy at Columbia University (Oct. 18, 2000) (stating that "virtually every banker in Indonesia has broken the banking laws of the country"); Timberg, supra note 76 (stating that the conditional permission to continue working in the financial sector cited in the Kompas article was provided to avoid creating a banking industry with no experience at its senior level). (77.) See U.S. STATE DEPARTMENT, FY 2000 COUNTRY COMMERCIAL GUIDE: INDONESIA 116-17 (1999). (78.) Searches were performed on LEXIS and WESTLAW, Dec. 1, 2000. This is not surprising, however, considering that the FCPA "as enacted in 1977 was very brief" and criticized as "poorly drafted," and 1988 amendments to the act created loopholes "big enough to fly a Lockheed through." FOLSOM, supra note 74, at 688. (79.) New reports outline a chronology of how this occurred. See Raphael Pura, Indonesian Utility Sues to Cancel `Corrupt' Power-Supply Contract, WALL ST. J., Oct. 8, 1999 (outlining how General Electric and Edison Mission Energy forged strong financial links with Suharto friends and family members while obtaining contracts to build and operate Indonesian power plants; Indonesian allegations that the contracts were extortionate, approved by the former government because of the substantial equity in the project given to Suharto friends and family members; and U.S. government pressure for Indonesia to honor those contracts after the fall of the Suharto government); Jay Solomon, Paiton's Hashim Denies Indonesia Graft Allegation, ASIAN WALL ST. J., Jan. 11, 2000 (outlining US $24 million in questionable development costs turned up in an audit of General Electric and Edison's Paiton power plant in Indonesia as evidence that US $22 million in bribes were paid to a Suharto son-in-law, who also received an exclusive contract to supply coal to the facility); Grainne McCarthy, US Dismayed At Indonesia OPIC Statement, DOW JONES NEWSWIRES, Mar. 8, 2000, available at http://www.wsj.com (outlining the U.S. government's frustration with Indonesia's persistence in pursuing corruption charges concerning a similar power plant arrangement with Calenergy; diplomatic response that pursuing the dispute could jeopardize Indonesia's receipt of IMF and World Bank funds; and the U.S. government's threat to seize Indonesian assets abroad if Indonesia continued not to pay as a result of its allegations of corruption regarding the power contract); Jay Solomon, Jakarta And Paiton Reach Interim Deal, ASIAN WALL ST. J., Mar. 8, 2000 (noting that Indonesia dropped its lawsuit alleging corruption in the General Electric and Edison power contracts in favor of a commercial settlement); Jay Solomon, Indonesian Audit Uncovers Inflated Cost of Power Plant, WALL ST. J., Dec. 26, 2000 (noting that an audit of General Electric and Edison's power plant in Indonesia by a Canadian engineering and construction company revealed that the plant's engineering, procurement and construction costs were inflated by as much as 72%, but that the audit was never publicly disclosed as a result of the Indonesian government's decision to drop its lawsuit against the companies alleging corruption). (80.) Confidential Interview I, supra note 47. (81.) See Brauchli, supra note 2, at A1, A10 (claiming that falsified and altered statements ignored Indonesian corruption and halved the country's poverty rate through the use of a controversial definition of poverty and, in part, lies by government officials); Confidential Interview I, supra note 47 (positing that Indonesian government officials more than once fabricated employment, inflation, and other economic data requested by the U.S. Embassy and then asked embassy staffwhether those numbers were believable). (82.) See Glenn R. Simpson, World Bank, Under Attack, Concedes Staff Problems, WALL ST. J., Mar. 19, 1999, at A20. (83.) See id. (84.) See, e.g., Steve Liesman & Carla Anne Robbins, Forum Financial Sues Harvard, Two Ex-Advisers, WALL ST. J., Oct, 25, 2000, at B10; Carla Anne Robbins et al., U.S. Plans to File Suit Against Harvard Over Its Russia Foreign-Aid Program, WALL ST. J., Sept. 26, 2000, at A4 (stating that Harvard University, one of its prominent economics professors, and a former Harvard legal expert are currently on trial for fraud and misappropriation of funds regarding development contracts given by the U.S. government for facilitating the growth of capitalism in the former Soviet Union); Brauchli, supra note 2, at A10 (stating that foreign investment into both Russia and Indonesia is believed to have been misguided on account of these development workers' deceptive or allegedly deceptive practices in these countries); Steve Levine & Gary Fields, Probe Begun of U.S. Fund in Central Asia: The FBI Investigates Official's Allegations of Missing $10 Million, WALL ST. J., Dec. 27, 2000, at A8 (mentioning an investigation of American development workers' corrupt behavior overseas that was opened within the past year). (85.) See WORLD BANK AND INDONESIA, supra note 16, at 3; Paul H. Brietzke & Thomas A. Timberg, An Economic Reform Agenda for Indonesia?, 31 LAW & POL'Y INT'L BUS. 1, 18-23 (1999); Solomon, supra note 2, at A17 (discussing the need for political reform as a means of achieving economic recovery). (86.) See WORLD BANK, FACTSHEET ON LENDING FOR INDONESIA: WORLD BANK FINANCIAL SUPPORT TO INDONESIA SINCE JULY 1997, available at http://www.worldbank.org (Nov. 14, 2000); IMF Letter of Intent with Indonesia, Sept. 7, 2000, available at http://www.imf.org/external/np/loi/2000/ idn/04/index.htm. (87.) Compare STEVEN SCHLOSSTEIN, ASIA'S NEW LITTLE DRAGONS: THE DYNAMIC EMERGANCE OF INDONESIA, THAILAND AND MALAYSIA 17 (1991) (stating that Asia's emphasis on "heirarchy, social order, and proper behavior ... have reinforced the principles of thrift, discipline, and hard work--values associated with American society in an earlier, more puritanical stage of its development"), with Mead, supra note 52, at 38 ("The financial crisis has exposed the `Asian values' of hard work, thrift and family for what they always were: bunk."). (88.) See FRIEDMAN, supranote 19, at 115-17, 137, 257 (citing the end of the Cold War, the lifting of capital controls and the democratizations of finance, technology and information as significant factors contributing to economic instability). (89.) See Global Finance Survey, supra note 5, at 4. (90.) See, e.g., E.S. Browning, Why This Decade's Spate of Fraud Recalls Patterns and Players of Other Golden Ages, WALL ST. J., Oct. 14, 1999, at A1 (recalling the Canadian mining firm Bre-X's perpetration of fraud concerning its operations in Indonesia in order to pump up its stock price at home); Timothy Mapes & Simon Montlake, Indonesian Firm May Have Tried to Hide Assets, WALL ST. J., Dec. 7, 2000, at A23 (noting CSFB's involvement in transactions that enabled Texmaco, Indonesia's largest corporate debtor and a firm with a long history of alleged illegal activity, to hide assets from the country's bank restructuring agency); Ambassador Roy, supra note 10 (stating that all of these (and other) examples of corruption are "not quaint Asian practices--we're talking about human behavior."). (91.) See THE OXFORD COMPANION TO PHILOSOPHY 163-64 (Ted Honderich ed., 1995); see also WALTZ, supra note 43, at 167-71. (92.) See supra notes 40-50 and accompanying text. (93.) Interview with Paul Brietzke, supra note 45 (referring to the Indonesian public's sympathetic response towards Suharto when photos were published of Michel Camdessus with arms crossed looming over a hunched President Suharto as he signed his acquiescence to IMF demands); David E. Sanger & Richard W. Stevenson, Second Guessing the Economic Doctor: IMF's Bitter Medicine Under Siege on Many Fronts, N.Y. TIMES, Feb. 1, 1998, [section] 3 at 1 (displaying the Camdessus-Suharto photograph). (94.) See Interview with Paul Brietzke, supra note 45. Mr. Brietzke stated that only 25% of NGOs are "worth their salt" and the majority of that 25% are subsequently corrupted, inadvertently diverted from their purpose by the prospect or provision of financial assistance from foreign aid organizations. He concluded his observation with the comment that, in Kenya, it was a widespread joke among university professors that to supplement their income and rip off the American government, all they had to do was form an NGO. These observations were echoed by other commentators. See Comments of World Bank Representatives and USAID Grantees, Georgetown University Law Center Roundtable Discussion on Indonesian Competition Law (Mar. 31, 2000) (advising roundtable participants to cut their expectations by 75% for work performed in the field by Indonesian NGOs because the few qualified grantees in Indonesia were working for a variety of aid organizations and were under pressure to rehash old reports for new customers rather than perform original research); Interview with David Ray, Domestic Trade Advisor under Partnership for Economic Growth, Indonesian Ministry of Industry and Trade, in Jakarta, Indonesia (July 10, 2000) (stating that the few professors in Indonesia who had the appropriate credentials to receive foreign aid grants were in such demand from aid organizations around the world that they were too busy applying for and collecting grant money to actually do the work). (95.) See supra notes 44-46 and accompanying text. (96.) See Interview with Hikmahanto Juwana, Legal Advisor to Kwik Kian Gie, Coordinating Minister for Economy, Finance, & Industry, in Jakarta, Indonesia (July 10, 2000) (according to Juwana Indonesia's Attorney General, Marzuki Darusman, charged with heading the country's anti-corruption efforts, reputedly only trusts two individuals in his entire office because even his own staff members continue to demand bribes); supra note 45. (97.) See Hikmahanto Juwana, supra note 96; Jakarta Task Force Aiding 284 Companies In Debt Restructuring, Dow JONES NEWSWIRES, Oct. 8, 1999, available at www.wsj.com (characterizing Indonesia's bankruptcy courts as non-functioning). (98.) Monty Graham, Address at Georgetown Law Center Conference on Indonesia's New Competition Law, Trade and Investment Climate (Oct. 17, 2000). (99.) See Syamsul Maarif, Remarks at Columbia University Roundtable Discussion on Competition Policy (Oct. 18, 2000) [hereinafter Maarif, Remarks at Columbia University]. (100.) See David Ray, supra note 94 (stating that the Indonesian Competition Law was so flawed as to be "useless"). (101.) See Undang-Undang Republik Indonesia Nomor 5 Tahun 1999, Tentang Larangan Praktek Monopoli Dan Persaingan Usaha Tidak Sehat [Republic of Indonesia Law No. 5 of 1999, Concerning the Prohibition of Monopolistic Practices and Unhealthy Business Competition]; James Wilson & Prima Wilson, The New Indonesian Competition Law: Questions & Concerns at a Glance 2 (Mar. 15, 2000) (unpublished manuscript prepared for Georgetown Law Center Program on International Business and Economic Law, on file with author). The main problems with the law are that the Supervisory Commission for Business Competition (KPPU) it established for the purpose of investigating and adjudicating claims of anticompetitive practices has no independence from the executive, who also retains the right to exempt from the law state owned enterprises or enterprises deemed integral to the functioning of the nation, which includes enterprises "affecting the life of a lot of people." See Indonesia Law No. 5 Pasal 31:1 (stating that only the President of Indonesia may appoint and fire KPPU members), Pasal 34:1 (stating that the President of Indonesia alone decides the KPPU's organization, tasks and functions), Pasal 33:f (effectively stating that KPPU members can be fired without cause or explanation), Pasal 51 (stating the possibility of exemptions from the law as stipulated above); Keputusan Presiden Republik Indonesia Nomor 75 Tahun 1999, Tentang Komisi Pengawas Persaingan Usaha [Decision of the President of the Republic of Indonesia No. 75 of 1999, Concerning the Commission of Supervisors of Business Competition] (stating that the President of Indonesia only needs the approval of two members of Indonesia's 500 member parliament to satisfy the congressional approval requirement for a KPPU appointment); Wilson & Wilson, supra at 1-2. The effect of these deficiencies is that monopolies are legal at the President's discretion and dispensation, the exercise of which characterized the state of Indonesian business practice under Suharto. See infra note 108. (102.) Mari Pangestu, Remarks at Georgetown Law Center Roundtable Discussion on Indonesian Competition Law (Mar. 31, 2000) (warning promoters of Indonesia's new competition law what they had to be careful of not allowing to recur). (103.) See Maarif, Remarks at Columbia University, supra note 99. (104.) See supra note 93 and accompanying text. (105.) See Maarif, Remarks at Columbia University, supra note 99. (106.) See Brietzke & Timberg, supra note 85 at 2 n.6 (noting that going through the motions of reform has not been a problem for Indonesia, but actual reform has been elusive, and that "when the World Bank checks off a country's new laws and regulations, it [therefore] constitutes a `commodity fetishism' that does not measure legal modernization"). (107.) See Dwi Setyo et al., Potong Harga Bukan Potong Leher, TEMPO, July 16, 2000, at 107. While the current weakness of the Indonesian presidency would allow Gus Dur to be challenged politically for this behavior, there would be little hope for a successful legal challenge against the President considering the effect of the anti-competition law that international pressure and technical assistance was able to achieve in Indonesia. See supra note 101. (108.) Interview with Syamsul Maarif, Vice-Chair of KPPU, in Washington, D.C. (Oct. 15, 2000) [hereinafter Interview with Syamsul Maarif]. One such tie cited by Mr. Syamsul was to Indofood, the world's largest manufacturer of instant noodles, owned by Liem Soie Liong. Id. Mr. Liem's relationship with the Suharto family dates back nearly half a century, during which time the former President granted Mr. Liem monopolies in steel, flour and cement, and the two families colluded in corrupt business practices across a variety of industries, including banking and even charitable giving. See SCHWARZ, supra note 27, at 27-28, 109-115, 139. Mr. Syamsul stated that the reason KPPU members cited for not relinquishing their conflicts of interest was insufficient pay. Interview with Syamsul Maarif, supra. These issues were not raised during technical assistance meetings Mr. Syamsul had with the U.S. Federal Trade Commission or the U.S. Department of Justice Antitrust Division, which meetings the author attended. (109.) Interview with William Sandler, Former General Counsel for Lippo Group, in New York, N.Y. (Oct. 18, 2000). (110.) In this scenario the Chinese conglomerates will remain in place, only instead of the military exacting unofficial taxes, it will be professionals from the Indonesian middle class. See supra notes 108-09 (noting that in addition to ad hoc taxation, the anti-competition law is perceived as providing leverage for extortionate behavior, both by the Indonesian business community that would be paying the bribes, and the KPPU members appointed to uphold the law who would be in the best position to exact them). (111.) Compare supra notes 20-32 and accompanying text with supra notes 35-46 and accompanying text. (112.) See DONALD R. WRIGHT, THE WORLD AND A VERY SMALL PLACE IN AFRICA 224 (1997). (113.) See KRUGMAN & OBSTFELD, supra note 4, at 712); David E. Sanger, U.S. Economic Ills Spell Risk Abroad, N.Y. TIMES, Jan. 7, 2001, at A1 (citing the lessons the Clinton administration learned--and the Bush administration will have to remember--about economic crisis abroad, its impact at home, and its ramifications on national security issues). (114.) See GILPIN, supra note 29, at 158-59 (discussing criticism of Clinton administration and IMF bailouts of struggling Latin American and Asian economies); Press Release, World Bank, Debt Relief for the Poorest Countries: Milestone Achieved, A Joint Statement by James D. Wolfensohn and Horst Kohler (Dec. 22, 2000), available at http://wbln0018.worldbank.org/News/ pressrelease.nsf [hereinafter World Bank, Debt Relief Statement]. Johns Hopkins economist Stephen Hanke has stated that debt forgiveness is foreign aid in disguise, and consequently suffers from all the same problems of misappropriation and moral hazard. See The News Hour with Jim Lehrer (PBS television broadcast, Apr. 11, 2000). (115.) See supra notes 4346 and accompanying text. (116.) See Easterly, Ghost of Financing, supra note 30, at 1; see also William Easterly, How Did Highly Indebted Poor Countries Become Highly Indebted?: Reviewing Two Decades of Debt Relief 1, (July 1999) (unpublished manuscript, on file with Law & Policy International Business) [hereinafter Highly Indebted Poor Countries]. (117.) See Easterly, Ghost of Financing, supra note 30, at 3-5. (118.) See id. at 2. (119.) See id. (120.) Id. at 12. (121.) See id. at 14-17. (122.) Id. at 16. (123.) See id. at 21 (stating that "[c]hanging or discarding the model would have high social returns but low (or negative) private returns for the individual country desk economist in IFIs"). (124.) See DAVID BORNSTEIN, THE PRICE OF A DREAM 233-49 (1996) (illustrating development workers' behavior abroad, both generally and specific to Bangladesh, and the consequent distrust and lack of respect they engender); Easterly, Ghost of Financing, supra note 30, at 9 (observing that "[d]onor conditionality has indeed turned out to be ineffective in changing recipient behavior," speculating that the conditions are not credible when recipients perceive the donors as "soft-hearted"); Indonesia Trades Promises for Money, ECONOMIST, Oct. 21, 2000, at 48 (providing Indonesia as a case in point). (125.) See Ibnu Soebroto, supra note 61. (126.) Id. Note the similarity between this behavior on behalf of Western aid workers and the policy of an Indonesian general behind every Chinese businessman alluded to above. See supra note 41. (127.) See BORNSTEIN, supra note 124, at 233-49. (128.) See Confidential Interview III, supra note 76. (129.) Id. A former staff member at the U.S. Embassy in Jakarta in the late 1980s states that World Bank officials in Indonesia were notorious for turning down Embassy invitations to visit Bank projects in the field, away from the capital. See Confidential Interview I, supra note 47. (130.) Confidential Interview III, supra note 76. (131.) Glenn R. Simpson, World Bank Memo Depicts Diverted Funds, Corruption in Jakarta, WALL ST. J., Aug. 19, 1998, at A14. (132.) Id. (133.) Id. (134.) See Brauchli, supra note 2, at A1; Tineo, supra note 16. (135.) See Simpson, supra note 82, at A20. (136.) See DALTON, supra note 48, at 32; Bob Davis, International Monetary Fund Says It Doesn't Watch Fund Disbursement, WALL ST. J., Aug. 24, 1999, at A2 (discussing possible diversion of funds by private Russian banks from the IMF). (137.) See supra notes 108-16, 129-33 and accompanying text. (138.) See supra notes 74-79 and accompanying text (discussing the weakness of current attempts to inhibit corrupt practices by domestic actors abroad); see generally KRUGMAN & OBSTFELD, supra note 4, at 659-67 (suggesting that equally important is the failure of governments of developed countries to regulate their domestic banks' business abroad, with often detrimental consequences for both emerging market populations and their constituents back home). (139.) See supra footnotes 5, 80-84 and accompanying text. (140.) Compare MULTATULI, supra note 46 (portraying the interactions between colonial administrators and native populations in the East Indies), with BORNSTEIN, supra note 130, at 233-49, and supra notes 144-47 and accompanying text (describing the relationship between development agencies and the populations they "serve"). (141.) See supra pp. 11-13. (142.) See World Bank, Debt Relief Statement, supra note 114, at 1 (stating that the World Bank and IMF's largest debt relief initiative to date requires that "beneficiary countries must continue with their economic, social, and governance reforms"); Easterly, Highly Indebted Poor Countries, supra note 116, at 1-5 (showing such requirements are not new to debt relief efforts); Easterly, Ghost of Financing, supra note 30, at 9 (observing that "donor conditionality has indeed turned out to be ineffective in changing recipient behavior" and speculating that the conditions may not have been credible because recipients perceived the donors as "soft-hearted"). Perhaps forgiving debt incurred as the result of corruption and poor economic policies is the very definition of "soft-hearted." (143.) Easterly, Highly Indebted Poor Countries, supra note 116, at 31. (144.) Id. at 24. (145.) Id. at 23. (146.) See id. (147.) See id. at 24 (148.) Id. at 21 (149.) Easterly, Highly Indebted Poor Countries, supra note 116, at 20 (150.) Id. (151.) See id. at 17 (152.) See id. at 19 (153.) See id. at 15, 18 (154.) See id. at 11 (155.) Easterly, Highly Indebted Poor Countries, supra note 116, at 15. (156.) See id. at 15. (157.) See id. at 15; supra note 155 and accompanying text. (158.) Easterly, Highly Indebted Poor Countries, supra note 116, at 18 (159.) See id. at 31-32. (160.) See id. at 16 n.27. (161.) See CAS REPORT, supra note 4, at 6; Brauchli, supra note 2, at A1, A10; Solomon, supra note 2, at A17. (162.) See CAS REPORT, supra note 4, at 6; Brauchli, supra note 2, at A1, A10; Solomon, supra note 2, at A17. JAMES SOEMIJANTORO WILSON, J.D. Candidate, 2003, Georgetown University Law Center; M.S.F.S. Candidate, 2003, Georgetown University School of Foreign Service. The author thanks his wife, Prima, for testing every idea; friends, family and colleagues in Indonesia for having been so giving of their time and opinions; Barry Carter and Meredith Dalton of Georgetown's Program on International Business and Economic Law for a wealth of opportunities; Luis Tined of the World Bank; Faruk Tabak for a semester's worth of provocation; and his parents, who don't get thanked enough. |
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