Corporate Governance In Indonesia
Transition to Democracy Prompts Changes in Doing Business

In cooperation with the Indonesian Chamber of Commerce and Industry (KADIN), CIPE has been working to place corporate governance reform and business ethics high on the list of institutional changes taking place in the wake of Indonesia's transition to democracy.

Nowhere has this been more apparent than at a recent conference in Jakarta entitled "Improving Investors' Confidence Through the Implementation of Good Corporate Governance." That high-level meeting, organized by CIPE and KADIN with support from the National Endowment for Democracy, brought together more than 150 business leaders and policymakers from all walks of Indonesian life.

Dr. John Sullivan, CIPE's Executive Director, suggested that the "survival of Indonesia's new democracy over the long term will require the establishment of a fair and competitive governance system in which market forces and the rule of law - rather than political favoritism and monopolistic enterprises - determine economic success."

He continued, "This will entail strengthening transparency, disclosure and independent oversight of management of public and private enterprises, and dismantling destructive and opaque alliances among the government, corporations, and the financial sector."

Sullivan concluded, "By ensuring the adoption of sound corporate governance principles, Indonesia can create safeguards against corruption and mismanagement, while promoting democracy and transparency in economic life and fighting institutional resistance to privatization."

Aburizal Bakrie, President of KADIN, admitted that corporate governance principles would be greeted with skepticism by some in Indonesia. Nevertheless, he said, it was high time for Indonesia to "formalize a workable corporate governance concept."

With this in mind, KADIN will provide feedback to the Government of Indonesia to overhaul relevant company laws, capital market rules, regulations on State Owned Enterprises, and banking sector requirements. Bakrie also advocated working closely with the Association of Indonesian Accountants to improve accounting standards and to form an Institute of Directors responsible for corporate governance training and certification.

U.S. Ambassador Robert Gelbard summed up the importance of good corporate governance this way:

"Fundamental change, by both institutions and individuals, must take place if Indonesia is to resume rapid and sustainable economic growth. Better corporate governance is an important factor in that process. However, improved corporate governance procedures can only be effective within the context of an open, honest, and transparent national justice system."

At the close of the conference, as part of the Chamber's next steps, KADIN pledged to facilitate:

1. Establishment of an Institute of Corporate Directors;
2. Formation of certification and rating agencies;
3. Setting up of a corporate registration system; and
4. Corporate Governance incubator programs designed for Small and Medium-Sized Enterprises (SMEs).