Indonesia’s e-KTP Scandal and Implications for Investment

Source: Tempo

The Indonesian bureaucracy has long been haunted graft scandals, and the latest to make the headlines is the one surrounding the e-KTP. Back in 2009, the government under then-president Susilo Bambang Yudhoyono had sought to modernise the process of acquiring and updating citizens’ Kartu Tanda Penduduk (KTP), a national identification card issued to all Indonesians above the age of 17. Placing the KTP system online via the e-KTP was a bid to revamp the residential IDs and make it harder for fraudsters to duplicate them.

What was to be an improvement on the existing KTP procurement system has spiralled into one of the country’s largest theft of public funds, with numerous high-profile bureaucrats being tied to the corruption scandal. According to Indonesia’s Corruption Eradication Commission (KPK), of the IDR 6 trillion (US$450m) that was budgeted by the government for the roll-out of the project, some IDR 2.3 trillion (US$172m) had been misappropriated. Current and former cabinet ministers and the speaker of parliament have also been named as suspects who allegedly obtained kickbacks from the project.

This might not be the biggest corruption scandal Indonesia has seen in terms of monetary value, but the scale is staggeringly wide-ranging, affecting every Indonesian resident, many of whom to date only have a government-issued letter promising a new KTP at an undetermined time in the future.

For investors looking to enter the country, this is but another example of the challenges that working in the jurisdiction might present. Here are two key take-aways for those looking to venture in the market:

  1. Golkar Party changes

One of the biggest names implicated in the e-KTP scandal is Setya Novanto, speaker of Indonesia People’s Representative Council and Golkar Party chair. This is not the first time Novanto has been linked to corruption cases — he was previously also embroiled in the “Papa Minta Saham” scandal involving shares in mining giant Freeport Indonesia. However, this latest case has also seen calls for replacing Novanto as the chairman of the Golkar Party, as the party gears up for the coming elections in 2019.

While he has not been replaced, infighting has ensued as a result, with a movement called “Golkar Bersih” (Clean Golkar) having been started by younger party members who sought to save the party from the negative fallout of Novanto’s alleged involvement in the case. One of the 17 politicians of the Golkar Bersih movement, Airlangga Hartanto, was also speculated to be Novanto’s potential successor if he was to be replaced.

As the country’s political party, any changes to the Golkar Party leadership will impact coalitions and regulations moving forward. Investors would be wise to keep an eye on these political changes, as it would shape business politics in the future.

2. KPK’s capabilities put to the test

The scale of the e-KTP case has tested the KPK and its capabilities. In April 2017, a parliamentary inquiry (pansus) was called to look into KPK’s practices, an alleged retaliation by lawmakers against KPK for their unwillingness to disclose details of its investigations with key witnesses. According to Tempo, the pansus was deemed a bid to undermine the KPK and ultimately dissolve the agency.

The House of Representatives are not KPK’s only hurdles in the case. While the corruption watchdog has the support of the president, it is also going up against the police, who have formed their own anti-graft division that could stand to replace it. (Truth be told, efforts by the police to weaken the KPK had begun far prior to the e-KTP scandal, when the KPK accused police ally Budi Gunawan, President Jokowi’s nominee for police chief, of being corrupt.)

If investors and businesses are looking to the KPK to resolve issues of corruption in the country, this case could put their trust to the test. It remains to be seen if the KPK can emerge from this scandal as the victors, or be incessantly dragged through the mud.

Written by Datarama Analyst Syafiqah.

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