Corruption Remains Threat to Multinational Companies in Indonesia: Hogan Lovells

A protester at an anti-corruption rally during World Anti-Corruption Day in Bogor, West Java, last year. (Antara Photo/Julius Satria Wijaya)

By : Tabita Diela | on 5:14 PM February 24, 2017
Category : Business, Economy

Jakarta. Corruption remains a threat to multinational companies seeking to tap into Indonesia's lucrative market in spite of improving ease of doing business in the country, a recent report by international law firm Hogan Lovells suggests.

The report, published on Jan. 18, is meant as a guide for businesses on anti-bribery and anti-corruption regulations and their enforcement in a number of countries.

In Indonesia's case, corruption remains a challenge as current or ex-government officials tend to get involved in big businesses deals.

"Most public sector corruption involves employees of a government body or a state-owned enterprise, and that has been President Joko Widodo's focus to stamp out," the report said.

Corruption involving the judiciary also remains problematic as it leads to inconsistencies when it comes to prosecuting corruption cases, the report said.

There have been many notable bribery and corruption cases involving public officers in Indonesia, including one during the construction of the Hambalang sports complex in Bogor, West Java, which brought down former sports minister Andi Alfian Mallarangeng.

Multinationals are "lulled" into a false sense of security due to lucrative commercial opportunities despite overlapping regulations and inconsistencies in their implementation, the report said.

"Indonesia’s economy has grown quickly over the last decade, and this has at times overwhelmed its ambitious but relatively immature regulatory framework," it said.

Indonesia's economy grew 5 percent last year compared to 4.8 percent a year earlier. The country's average growth in the last decade since 2006 reached 5.6 percent, higher compared to the world's average growth of 2.65 percent.

According to the non-governmental organization Transparency International, Indonesia now ranks 90th out of 176 countries in the 2016 Corruption Perceptions Index (CPI). That compared to 130th out of 163 countries in 2006.

The country's score has shown steady improvement since the first CPI report in 1995 in which Indonesia was ranked last out of 41 countries.

In ease of doing business, Indonesia is currently ranked 91st out of 190 countries assessed in the World Bank's 2017 report, up 15 places from the previous year on the back of the government's effort to simplify the once labyrinthine process to invest in the country.

The report suggested businesses should be proactive in strictly implementing policies with local government officials as the cost of corruption "outweighs" the cost of compliance in the long term.

"It makes sense, then, to do everything you can to minimize the risk of bribery and corruption, even if it calls for reducing short-term profits by investing in compliance or in extreme cases walking away from a profitable business," the report said.

Show More