FREEDOM OF ECONOMIC INFORMATION

FCJ<R :E:FFECT~ ~CJVERNANCE,

HOTEt SENAYAN, JAKARTA, [NDONESIA APRIL 24,·26,1 2000

LP3ES

i.embagtl PemJlftian. Pendidikal1 dan Pemm:mgan Ekonomi (km Swiar !mli{Uu for socta; and Economic Research. Educasion & inJormation

A CONFERENCE

FREEDOM OF ECONOMIC INFORMATION

HOTEL SENAYAN, JAKARTA, INDONESIA APRIL 24- 26, 2000

]]

CoJJ)lfight e 2000

by Ute Cerliter f'Or Media Freedom and R_esporlsH)Hity, Philippines,

Al] rights reserved, No part of this re,por:l! ma-¥ be ~~:cedill aO)1 fiJnn or:by ciectronic or mechanical means, induding ~]lrorrrulition gI:~ and rebiM,systems, l,\~lihout permisslol'!in 'Mitl~glhJm fue puhtHsher. except by a reviewer lNtl.O may quote brief ~ im a review:.

DOOJmenoor:E\le!yru. O. Ka'ligbak

lruioors: Melinda Qui1l:ltm de,IDesm and luis V. 'Thodoro Cover and IJ~ desi,W!; Roselle B,Miranda

Pholns: CMFR Ubrnl)'

iii

TABLE OF CoNTENTS

Introduction . . 1

Program Schedule , .. _ . . . . . . . . . . . . . . . 6,

Session 1: Transparency in Corporate Governance ... , _ .... _. 7

The lack of transparency in public affaors and corporate g.ove.mance ]s a major issue in global dlscu sslon. The Asian financial crisis. showed how secrecy in fin and a] and banking affairs allowed such a degree of mismanagement and abuse, making national economies vulnerable to collapse, Transparencyand inform ation access promotes good corporate governance, the principles of which should be seen as a. matter not just of compliance but OF enhanced business performance The recovery OF the Indonesian economy mllst be based on universal standards of good governance in business and finance:.

Session 2: .Media Ethics and Self-Regulation

24

Press freedom is important in strengthening emerging democracies. A free press ptayed. a critical role in the politi cal change th at ended thelong ru Ie of Soeh arto, But tension between the values. of freedom and responsihilitv characterizes democratic change. Freedom of the press should be practiced within the framework of responsibility. The Phillppine experience demonstrates attempt s to uphold the princlples of credibility, fairness, integrity and honesty in journalism.

Session 3: Freedom of Information Legislation. __ ... __ . __ .. __ . 51

Despite the strong S1I..IJge toward freedom, Indonesia may not b e read)' to adapt ('I Freedom of lnformatlon Law like Thailand, History and. culture are cited as barriers to such legislation and lndoneslans ~'uld. need time to prepa~e for its proper use and l.~p,]~~entatiOlil. ln time, such a. law can help to promote greater accountability of gevernment and pubhc offiCials and encourage more active ,e_ngageme':lt of aU stakehol~ers in so~iety. Indonesians however should review the state of dlsclosu re laws. and explore other app~opria .... te ]egis~]ation such as "sunshine laws" and laws to protect "'whlstl eblowers. .

Resource Speakers " __ .. , .. , . . . . . . 6'9

Participants and Observers ,. _ .. , " _ _ 7.2

I

INTRODUCTION

BACKGROUND

TIle conference on Freedom ofEoonomic Information fOil' .Bffective Governance was the second regtonal proj.ect wmplemeoted bY' the Manna-based Center for Media Freedom and Resporws~bmty (CMFR) with the support of the Center for International PriVate Enterprise (CIP8) in Washington D.C

The capstone event of the flirst project was a region a] conference in MafI.i]a on Access to Economic Information, In preparation for the ,c{lnference, CMFR organized] a series ot focused group, discussions in six Southeast Asian ,capitals:

Manila.lakarta. Bangkok, Kuala Lumpur, Singapore and Phnom Penh, These meetings ,exp~ored how each of the six countries addressed the common problem of providing their people with timely access to ro~iable business and economic information and the consequences ofttu~,ir successes 'or failures, The results or these counby-leve] diScussions pro-

The results of'these country-~evel d tscusstons Iprovided the framework and the a'gend,a for the re:g Ii ,0 nail conference,

'The' Ja karta Conference brouglht togefhelr the pe1rspe·ctives of

govern ment, bus'i ness and the media.

2

videdthe framework and the agenda for the regional conferenee,

The last metilingwdS held in Bangkok as theproblems of the Thai banking sedorwere beginning to surface, triggering a finandailand economic crisis that spread from Thailand vw"lh unexpected virulence and speed into the rest of the region. The discussions jnthe conference antidpated later demands for trdnSparency in the \laY gQ

Related Interests

    f:lTIments and business corporations made business and economic decisions,

    Whne analyzi.ng o(ll.mby-spedfic problems, resource persons from ~ndonesia, Malaysia, Singapore and Thailand probed far common patterns jn their experiences, pointed to mistakes others need not make again, and tried to identify strategies that migilt prove effective in other settings. The participants also noted how differentia] access to economic ~nfonnation had an impact not only on business results but also on the gro1;\ftJ of democratic practice. A better-iniormed public would respond more effectively to market signals and could hold IJo]itiical leaders more accountable for their decisions.

    The positive response to the Manila Conference prompted an invitation tor CfvlFR to design and organize a roundtable discussion in Indonesia eWE paeed the way for the partlcip,ttlion in the project: of its Jakarta parmer, the mffititute for Social and EoonomicResearch, Education and Information [P.3ES}. Originally scheduled for 1998, the meeting was. postponed because ,of the poUticaI turbulence that led. to the coUapse of the Soeharto regime and continued to affect the Hablbie Government Indonesian colleagues suggested holding the meeting after the elections, whkh presumably would define the polliitical landscape \wllh greater darirt)t

    As in Manila, the Jakarta Conference bro~ together the perspectives ,ofgovemment business and the media Repre-

    3

    sentatives from civU society organizations and the academe elso joined the three sectors.

    CONTEXT OF DISCUSSIONS

    The emergence of democratic gO\!emment in Indonesia has fiesu[lted in greater freedom for media. At the Saine time, the joumal.ism cornmunity of Indonesia had already begun to echo the call for responsible reporting that the CMFR had sounded a decade ago mthe Ph i]ippines.

    Abdurrahman Wah£d '!NOn an unexpected presidential mandate in October 1999' and, ait the time of the Jakarta Conference. had been in offioe for only six. months. His administration had received a significant measure of apprcval, bull: the country continued to face enormous problems. Wfth over 200 minion people, Indonesia is the largest .ASEAN nanon Its, success, or fui.hJ!re at rnation-building ###BOT_TEXT###lt;ViI] have tremendous repercussions not only for the regiDn. bu~. also for the rest of the world.

    Indonesias democratization recaUs many aspects. of the PIililipp]ne post ~MaJOOs experience,

    In May m 998" Soeharto handed over the gm.'€mmern to his deputy, BJ. Habibie. The allixlication did not put an endto poUtical unrest Calls for refullTh-mon persisted and rnassoe protest adions took over the scree:ts. In October the following year; PlPuiar elections gave the nmjortLy vote to Megav.'d!ti and her party, the Indonesian Democratic party of StntWe (PDI-'P~ But p.arliarnentmy elections selected an unillikely cand~datej the blind and aiilling, Abdumhhmrul. Wai-ruid, leader offhe National Awakening, Party, (PKB):.

    [)es,pite initial rrtigMngs b¥ politicail ~; the ejection of \Vahid or "Gus Our is now seen as haW1g vaved the way for genuine democratic ch~

    Th@ issue of

    i nformati on and communication is oentra.11

    to the

    new order, with

    i miP~ i catl ons 'for the conduct

    not only

    of the press and media, but fOlr' gover'n ment, for business and fOIi the rest of civill s'ociety,.,

    4

    The demoerafic process has not been wi.t:hnm serious setJoacks.1be violent separation of East llmot economc collapse, runs for secesslcnandmra-etbnk a;nJilirt in the Durer lslands \eighe:d hea'V1ly on the transition govenmletU and set back e1IDrts at economic and poUtk.a1 recovery. Thetasks of po]iJtica] refornlinoo1ved among others, the consolidation of s'l:aJtre autl1orU~y, eradli.caJtion ,of corruption the establishment of a new ~egal framework for-greater demooacy,and the fOJmulaoon ofan Btbl.enda for more effootive gcweIDarJ:oo..

    The issue ofinfu:ltl:'l!a"lion and oommunica"llon is cemralto fhe new order, wilh mw]icatlons tor the conduct not only otthe press and media. but fur government· for business and fur the rest off dvi~ society.

    Bringing togtiher members off these di11i~rent sectors, the furlml made possible a free-wheeHng exd1al1get 'where pooplewno do not ommarlly ###BOT_TEXT###gt;l,Um toge~ler' coul~listell to (jilerent perspectives and mew ~ ·ofklorong at or lmdersrnnding problems 'The focus, on eccnomic imomlatrion retleded the significance of business and economics in the mrl::ion-buJildIDg prooess.The theme of IDe GOl1ference thus.linked access to, and managemel~t of infcnmation, parliClLilill1y economic information as a factor for good. go

    Related Interests

      errnm.oe rot only iolte pubtl~ burt also in the pffi!ailte domain

      The emergence ofa democranc ,environmem in Indonesia has broadened the possibjlitiesfor deiivering and sharinginfonna~ non How Indonesia responds to these poss]bili:1ties, canpOO\i1l:dJe lessons fonjbller new democrades,

      AGENDA

      The goaill of the comerence '!NaS roinitiarte a mu]lI:i-sectoraJ dlscusslon on an issue genera[1y identified as relating primarily to 1he psess and media, but which a.ctua]!1y [[wolves the entire society. A1llio~l focused on Indonesia, the meetiW1ig broughtiil1

      5

      a region,C1il perspective through the sharing of experiencesfrom the Philippines and Thailand

      The schedule (oneday--andl-a-halflllad three sessions Each session opened 'With a presentation by a l:"€Sooroe person from another ootlnUy providing a 're~onal context lndoneslan pane1isls, leaders in 'the4r fields) responded ###BOT_TEXT###lt;Virh react:ions. AI1 open forum provided ample time for questions, comment and debate. '8

      Nimda.~ And124. 2000' 6:30PM

      Registra tion

      7:00PM Cocktails

      7Uesdar. Annl25 2000 &OOALVl

      Registration

      9:00 p;J.

      Overview and Introduction MEL1NDA QUINfOS DE JESUS

      EWj!Cutir.e Dimctm; Center for Media Fmedam and Nesponsibility(CJtJFR) fl1anila. PhlJippillt!S

      Wekome Remarks ~OHN SULUVAN Executiw! Din..'Ctol; Center IiJrlntemational Piivate Enfc!prin:(aPE) WashintJfon aa us»

      9:30AM

      Session I: 'fRANSPARENCY [N CORPORATE GOVERl'JANCE

      MARK BAlR_U

      1#Jdd Bank Country lJiJ7!Ctor

      Jllkarta. Indonesia

      P~ s :

      SABAM SIAGIAN Br;wd oICOmmfuionels; Thejakarla Post

      FEUA SALIM

      &ecutir..e Dimeten; Capital fo:f.iu:ireISlipe.ndwt)' ~Q'

      Moderator:

      DR. EDD..BERTO DE JESUS Pmsirb;t JW&!i.tem l/nidlelSi(y(/iElf)

      Mani4. Philippines

      6

      PROGRAM ScHEDULE

      [0:30AM

      Coffee Break

      1 lOO Arl-t

      Open Forum

      li2:30AM Lunch

      .2:00 PM Session ]1:

      MEOlA ETHICS AND SELF-REGUL4.TlON

      MEUNHA QUINTOS DE JESUS

      PanelDsts:

      ARlSTIDES KATOPPO

      Pk?.sidellt Dir:ectm,: PI PiJ.sla/ft:1 SiniuH.i1I'iI!7i:trJ Jalfiflf41m1oreia

      ATMAKUSUMAH ASTRAATMADJA ExeClitive iJ;irxim; i);; Soet0l170 Institute Ja/fd1f4/ndonesia

      EM[L SAUM Pro/e.s;sOt; Fiicuiif Of EamOlfJfi UniielSl~/of Indol1esia' Ja:k;vtJl,!ixlonesia

      BAMBANG HARYM1JR'"TI Editot-l'rrchie! 'lEfl'1FO Wet'k_JIj~"sM_ag<lzjne

      Jab$. Indonesia

      Moderator.

      DREDilLBERl'O DE. JESUS

      380 P!'>'l

      Coffee Break

      4:00.PlI1

      Open Forum

      1:00 PJ!,'] Dinner

      NillntNiaKAplff,Atj m? 9:00AM

      Session In:

      FREEDOM OF [NFORMATION LEGISLATION

      KAVI GHONGKlTTAVORN Southeast Asian Pi'l;ss Alllance ts'E4f'AJ lJimg/rok 'fh;pJand

      Panelist'>:

      NOKE KlROYAN Pt~entRio 7inw jakalt?!,. indonesia

      DEW.! PORnJNI\ ANWAR AssociateDirectm; Habibie Center

      !ilkarta Indonesia

      SO'ElD;wl DJM'AND01

      Related Interests

        O $eJ1iorFelIoo{ Resean:h Institute forDemOCIifJ£Y andPeace

        /akiYf4 Indonesia

        Moderator:

        MIEUNDA QUJN110S DE JESUS·

        10:30 AM

        Coffee Break

        ll:OOAM:

        Open Fm'uIn

        l2:30PM CI,(lsing

        I:OOP"M Lunch

        7

        SESSION I:

        TRANSPARENCY IN" CORPORlUE GorvERNANCE

        -_. __ ._- _.

        RESO'URCE SPEAKER:

        MARR. BAIRD Countn' Dir-ector World Bank lndonesla Indonesia

        .M.wr BaffdplV,vlded the peI:5pective oT the World Bank an institution caJletllipOn Iv playa cmdalmle if} the e/forts to If?hi!hilitate the Indonesian economy. His paper cliscvS$ed the Walia BankJ;v.i'woF wJPOlilte!fOl-femance 3JuJ assessedtlie ctiffcaJ role a/media end the jJIl!SS Ii} creating an enwmnment .that favored.sound economc poIides and business p1ac&es.

        TRANSPARENCY

        AND CORPO'RATE GOVERNlANCE

        MARK BAIRD

        7lie proper govemEl11Ce Oi.COlllj)i!1JJies will become as cmd..al to the world economy as the proper goWlll/ng of countne: ....

        7he Wom.Bank has .becam:eaatle!ya~ thatstrong C()Jp()liJtego.wenumce plvdaces dOOd soclal plr;gress. me m:v go togetlier..jllst iIS with Covemmrot /inns must be sua tmnsjJan>Jl* RliYlagem:ent milst be accolll1tll.ble ....

        - [ames Wo!:fensohn, President of the WorM. Bank. (fium, me Economisl£,''fhe World in 1999")

        Introduction

        J!\lllhaughH1J€ need (or corporate govemance has been admowledged since corporatlons were first created, an awareness of "this need has grown rapidly around the worldIn recent years .. ]nitiaitivesffor iroprovement started to accelerate in the US in the ear]y 1990s. Sincethee the Organisation for Economic. Co~operatiol:1J. and Development '(OECO) has published prindp]es for good corporate governance and the WorM Bank has worked in pa:riI:Ilership 'With the DECO in disseminai[ing fhese prindp1es.

        Poor' corporate governance is widely l'Iegardled as one of the Imain factors that filrs,t lbrolU9ht

        Oln the crisis in Indo'rliesia

        and then contrfbuted to 'its severity and Ilengtih.

        The: crisis

        has shown us that it ics

        no Ilongelf possible for companies,

        i nstttutions or cou ntries to do whatever they like

        in iscl ation w;ithout attractl n'g penalties.

        8

        Poor corporate govem,ance is widdy regarded as. one of the mainfactors tha:lt first brought on the crisis in lndonesta and then cornributedto its severity and length. Investor confidence was undermined during the crisis and remains weak, not just in certain companies but 1n the entire Indonesian market The domestic andintemetional financial markets are still reacting negatively, espedallyto thelack of transparency in the Indonesian banking and corporate sectors,

        Thislack of transparency ls no longer acceptable in the world of today - a 'world in wh~.chthe leap ]ninffonua:lion technology has made it possible, via email andintemet to gain access to intnrmation more quirkily, and from more diverse sources, than ever before. The crisis has shown us tha[ it is no longer possible for companies, institutions or countries ito do 'l,vhi.ate:ver they like in isolation without ai1racUng penalties, No company, institution or country canafford to risk the dispassionate logic of the markclp~ace by pursU[llg policies or strategies that lead 00\ say, thewholesale withdrawal of investor caDita~; as we saw here during the cris~s, or in the multinationa[ corporations that have had to respond to pressures tor ,change by consumers and investors alike.

        Investment decisions are based on ]nform.ation~ and the quicker and more reliable the jnfmmation, the less likely it is that decisionswill be: made Or! emotion and herd insfinct Itis possible forihe Dow to rise and fall by 500 points lWithout setting off glOb0[ panic, This is in part due to the trust that investors on Wan Street have that the information underpinning their decisionsis accurate and transparent and that they get it at the same time as the Thai baht set off investor reactions of panic and flight in response to gm'Wingknow]edge about the deep cracks in the financial sectors.And it certainly was not true in Indonesia, where you had a sltuarttion ~nwhicn. the more investors foreign and domestic learned about the ]Jrob~ems williin the economy, the bigger the crisis in corfidencegrew

        9

        Althoughlhere haverecently been signs of an incipient economic recovery in lndonesia, this should not be grounds for cornplacer« .. )1. Unless the governance problems affecting Indonesia's corporate and banking sectors are resolved, the recovery will be Iimilted and Indonesias population, especially the poor, will remain highly vulnerable to future crises,

        There ere some rea] opportunities, however, that we can look to in helpjng shape recovery and inimprovi.ng corporate gD\!emance. One of these is the role that the media have already IJ~ayed and can increasingly illay in fostering greater transparency~ and holding both government and the business sector accountable to the pu blic,

        The press has played a critical role in the reform process of the' past years, and in the tremendous political transtormanon Indonesia has undergone. This is a country that has achieved the triumph of securing a democratically-elected President OF empowering afree press, and otbeglnrnng a campaign aga]nst a system of corruption that is as bad as any in the world today. You have to ask. what CQu1d have been achieved in this new environment had the media not been free to report on the government on politics, on corruption, collusion and nepotism? The media here have been a catalyst for change; they have challenged successive governments - and institutions such as Parliament tile \Vorid Bank and UVIF" as well as 'the private sector - to be increasingly open and accountable for their actions, Through their words and their actions, the press has done a lot to promote transparency in government, business .. and dvU society. It has broadened the debate on public paHey. and played a key role in exposing, and perhaps more critican>,~ foL1olAring-up on anegations of corruption, such as you saw w.ith Bank Bali and the social safety net programs.

        The press must continue to play this unique role - bofh in building awareness and knowledge of public and private sector pracnces - and in building ,expertiise, experience and profes-

        The medial here have been a eatalvst for change; they have cha Illenged suceesslve govern mernts to be i ncreasi n9 Iy open and accountable for their actlens,

        fraud and inside'r'

        tra nsactl ons have been common,

        d iscl aSH re has been weak and the

        d isclpl i narv m,echanismlS of the capital market have been, ineffective.

        10

        storahsm among the~r co]~eagues to establish over the ]ongterm a. well-educated press corps able to hold pu hlic and private sector lnstttutlonsas wen as itself accountable to standards of transparency and resporlsibmly_

        The new openness and transparency in Indonesia has also opened the door to rapidimprovements incorporate governance. The challenge now is to seize the opportunity, to achieve important gains, and lock them in. With the recent lau neil in Indonesia of the Pa rtnership for Governance Reform, the stage has nnw been set for a. concerted effort to 5 u pport corporate governance refo rm in Indonesia

        The Problems

        The underlying condition of the Indonesian corporate and financial sectors at "the onset of U1J.e crisis is wellknown.Banks were exposed to excessive levels of unhedged foreign debt; credit allocation by banks to companies showed little regard for future debt servicing; companies were highly leveraged, with substantial unhedged short-term foreign debt And profitability was low Entry barriers and legal monopolies muted external discipline through 'competttton, and the threat of hosnle takeovers of under-pertorming companies was minimal in the face of strongly-entrenchedinsiders,

        Poor coij)Ornre ~mance was a. major oo:nbibufur to thilS s~~ of afajrs and in ]ndbnes:ia has had the foll~ng charadenstks

        • Corporate go ..... -e:mance has been seen primarily as a compliance issue rather than a. means of enhancing corporate performance,

        • ]]1 common with many other parts of Asia, lndoneslan corporatlonsare predominantly familly-owned, even whe~n publicly listed,

        II

        • Fraud and insider transacnons have been common, disclosure has been weak and the disciplinary mechanisms ofthe capital market have been ineffective .

        ., Minority shareholders and other stakeholders have had few means of protecting themselves ag,ajnst maj omy shareholders' abuses. Although mechanlsrns for addressing abuses do exist in Indonesian ~aw, they are litt1e used and the weak judiciary has limited their effectiVeness..

        • Managers and directors have beenlarge~y immune from stakeholder accountability .

        • ' Banks have been ineffoobive mondors of corporate managers.

        • A weak bankruptcy and judicial system has left creditors with littleleverage over their debtors.

        • State enterprises have been subject to significant. ]nterven~ tlon by government in business decisions, and SOB perfonnanC€ monltonng has been almost non-existent

        • The role OfU1C regulators BAPEPAlVl! and JSX has not been strong enough to. compensate for the weak judidary.

        Measures Taken to Date

        'There have been recent positive steps to begin deahng ,WIh these 'Weaknesses;

        • A number of private business -organizations and NGOs such as the Indonesia Netherlands Assoclafion and Transparency International have' begun initiatives to support unproved transparency and corporate governance"

        '. A broadly based Nanonal Committee on Corporate Governance (NCCG) was created inlate 1999. This committee comprises some 2() members from the public

        12

        and private sectors representing the legal and accounting professions, the banks, state owned enterprises, private corporales, the Stock Exchange and imp0l1ant Government agencies such as BAPEPKM and the Ministry of Law and Lega] Affairs.

        • The NCO::; has produced a dmft of a Code of Good Corvorate Governance that addresses issues such as shareholders' rights and responsibilities, the functions and compositions. of tile Boards of Ccmmssioners and the Boards of Directors, lnternal and extem~. audit. the role Dillie corporate secretary, stakeholder rights and stal ... eholder partidpation and monitoring of management decisions; timely detailed and accurate disclosure of management and. financiailinformalion, confidenlialiily of information that can affect share prices if it is leaked before it is officially made publtc, and resbidions on the use of inside lnformation lor personal gain.

        The Reform Agenda

        COl1Jorate Governance reform in Indonesia is s"l:ll1 in its il1fanC)l' and much remains. to be done. It win be years before the necessary reforms are fully effa.iive, but there are some quick ###BOT_TEXT###quot;lfins to be made and a need now for immediate action to get the ban roIling so it can gain momentum

        First urgent measures are needed to improve the business envlronment in general not only for large corporauors, but also for small and medium entemnses that have the potential to be a major productive force in the 'economy a" well as major sources of employment and income .. 1l1€Se measures include:

        • Promote better competition and create the new competition agenc.y provided for in the 1999 ~v on Competition.

        • Start taking st-eps to reduce the burden otexeessive government regulatioD; with its associated burden of corruption on lhe business sector.

        13

        • Strengthen tile rule of law and the judicial sys:lrem, ill particular tile commercial court as it affects theinsolvency andbankruptcy mechanisms, proper~ rights and contract enforcement

        • Accelerate banking and corporate restructuring, especially bymeans of debt equity conversions. An important effect of this wH~ be to dilute the concentration of corporate ownership and bring fresh management into the banking and corporate sectors,

        Some specific measures needed toimprove corporate govemance include

        .. ~mprove the requirements and the frequ ency of d lsdosu Fe and publlcanon of "financial information to bring them into line with best Intemational practice, especially from listed companies, banks and other companies raising money Hum the pubHe.

        • Improve disclosure of related party transactions and improve fhe rules and enforcement against the use of ins~de lnformanon.

        • lmprove standards of accounting and audit in line with intematioflal. norms and provide more training for aceountants and auditors.

        • Strengthen rules govem]ng the respol1sibUitiesand accountabilities of supervisory Boards, Boards 'Of directors. and internal and external auditors.

        • Improve the quality of Supereisory Boards and Boards of directors by increasing. the required minimum number of outsiders on these Boards, set crtteriafor the selection of Komfsars and Directors, and provide them "vith training as needed,

        It win be yeallis before the necessary reforms are full,y effectilve, but there are some qu ick wiins to be mlade and is need now for immediate: action to get the ball ro~lling

        so it can galin m omentum,

        A first step by the NICC'G should be

        t 0 w--o"rk' to"

        .1 '. '", I. I .. ".

        devellop a real consensu s amo,ng

        its members around

        its recentlv d t'aftedl Code on Goo,d Corporate Gove:rlnance.

        14

        • Strengthen all aspects of BAPEPA1V1 but especially its capacity to monitor and enforce comphance with rules on pu blic disclosu reo

        Ii! Fully implement the company registry; train its administrators, pu bhdze its avaiLIabiUty and provide training in its use.

        ~ Strengthen minority shareholder rights by nnproving rules on listing and securities transfer,

        Next Steps

        • Explore the potentia] for the use of fur public/private National Commiltee on Corporate Governance as at forum for all major stakeholders to discuss and plan corporate governanoe reforms.

        • A first step by the CCG should be to work to develop a real consensus among its members around i1Srecently drafted Code on Good Corporate Governance.

        Ii! Govemment should move rapidly to implement the measures within its own control. such as improving existing regulations, i mplementing new regulations. and strengthening puhlic ins:l::i.tutions such as BAPEPAM, responsible for encouraging and enfordng good cerporate governance

        • Private initiatives and self~regula:tion should also be encouraged, A good example is the recenIJy announced corporate governance agreement between thelndonesia Netherlands Association and a number of Indonesian prolessional associations and self-regulatory organizations, KADW has also annouuced d. campaign to promote improved corporate govemance among its members.

        • There is a need for broad programs using the media as wen as pub]k meetings, conferences and seminars to

        15

        develop publlc awareness of the need for transparency and improvement in the governance structures and medianisms of the banking and corporate sectors. TIle message is that better corporate governance andtransparency can bring benefits to all- tile general population, customers, suppliers, employees, investors, shareholders and managernent alike,

        • Shareholder activism should be encouraged as a means of enfofCin,g good governance on public corporations Such activism has been a major driving force for change in the United States and elsewhere.

        • NCOs and 0 ther "watchdogs" should be encouraged to act as pressure groups for reform,

        Support Available

        from the International Community

        Helping lndonesia lmprovetransparency and good corporate governance are top priorities for the lnternanonal Financial Institutions and the donor community Improved corporate governance is a part of the reform program agreed by the Government WITJ) the h\lJF and spelled out in the Letter of latent

        Within'l:h.e recently created Governance Partnership, the Asian Development Bank is taking the lead in promoting good corporate govemance, but substantial help wiU also be pmeided by the World Bank and the bilateral donors, This helpwill take the fonn of partnerships with the private sector, spedalist technical advice for the NCCG, BAPEPAM and other key agendes, and financing of training, seminars and conferences to disseminate intemational best practices,

        Indonesia is coming to .grips with the benefits of openness, offhe need. fur serious legal reforms and for ensuring respect

        Helping Indonesial Improve tra n spa rency and good corporate governance, are t01P priorities for the, Inte rnatl 0 na II Fin.ancial In stitutions and the donor corn munity,.

        16

        for human rights~ of instilling sound corporate governance and other positirve changes. The lack of these basic ingredients of an open democracy in the past has caused Indonesia great pain and great: cost President WahM. has. shown himsef to be OJ reformer - and we have learnt anything from the' lessons of development it is that countries that commit themselves to reform .. to opening up, to transparency, 11:0 freedom of expression, are the ones that are. going to succeed and prosper.

        Corporate governance reform 'Will become one of the most lrnportant items on lndonesias medium term economic reform agenda. Its successiu I implementation VIoiU be one of the prerequlsltes for sustained economic growth, which in tum is the key to reducing poverty and H1E~ vulnerabil:H;y off the poor. Good corporate governance VIo,U also be an lmportant element in ensuring a more transparent fair and just society. You can be assured that the international community wiU give all the support that it can to lndoneslas effo:rts in these areas.

        PANEL REACI10NS

        The two reactors reflected the perspectrsesef government; the press, and dv.U sodety. Sabam Siagian, a member of the The Jakarta. Posit Board of Cemnussioners, considered himself part of the press community. He had also. served gov·emment as lndonesias Ambassador to Australia, Felia Salim, Executive Director off the Cdpttai Market Supervlsory ~m:y,###BOT_TEXT###quot;iIas a. Director of the Jakarta Stock Exchange. She is also a member of the board of the Centre for Strategic and lntemational Studies. In discussing "corporate governance," their comments drew from historical SOUfiQeS as wen as institutional memory

        H]STQRY ANn Cuef1Um~

        Sabam Siagian saw Indonesia's colonia] history as a [actor in sihaping patterns of corporate governance. Dutch colonial rule perpetuated the business structures set up b1' the Dutch East India. TIading Company.

        17

        As late as the 1950s,tthe so-called Big 5j the Wa.nt Dutch. liJading companies, each with ~.ts commercial bank stin dominated Indonesian business. TIle Indonesian govemment then decided to e-stabHs,hind~geIlOUs business groups to compete against the Europeans, favoring the former with generous credits and, even1tuaJly,granfu;;" That kind of government patronage did nat encourage a climate conducive to 1i:rZlPlspareIlCY" butthe approach continued ti1ro1!J!ghltl!fe Sukamo and Soeharto periods.

        Corporations have always looked primarily to theinterests of the shareholders, at times to the detriment OF the greater good. The weakness ,of the judicial systemfrustrates those relying on ~aws to regu~ate the predatory be;havior of some business grr:nups., The more ,enlightened companles, however, have begun to move beyond narrow defini.1:i.ons of shareholder .ililteres1!s to ccnsiderihe ]niteresits of aU stakeholders in fhe formulation of corporate pollcres The ~den1tificatiofl ofcorporate "best practices" presents an alternative way of establishing standards of'good corporate governance

        Ms. Salim stressed the concern at the regiona~. and even theglobal ]eve] over standards for corporate g,CNem~.Ilce. III the national context, estabUshing these standards is a CO]1- tinuing process mat \v:iU require the participation of both political institutions and market p~ ayers, The wm.lngness. of market p1a~lCrs to play their part may determine whelli.er histoncal patterns of doing business 'Wi][1 prevail or will gijve way to a new socio-political dynamic that \vill changethe course of Indonesian development

        CummNT EffORTS FOR CHANGE

        Ms. Saltm called attention to current efforts and activities that may help chan_ge the errolrnnment The National Commission of Cerporate Goveroance has drafted (it code of conduct to serve as a framework For corporate governance" The Masyarakat 'Irensperanstls now "",urking on establishlng

        Corpoliations have alwavs looked prl ma r'i Iy to the 'interests of the sh a rehol de rs, at times to the detriment of the greater g,'ood.,

        18

        a framework for ethical corporate governance and also works to promote greater public awareness about these issues. Various business groups and assodanons, such as the. Association of Listed Companies. the lndonesian Accounting Association of Securities and Dealers, the Indonesian Finandal Executive Assoclanon, can create the necessary 'forum for thediscusslon of these ideas. Research and academic groups can also playa part in developing more knowledge on the subject

        Both speakers agreed Of! tlle need for more know]edgeaMe medta for members of the press equipped with greaterexperfise in the various areas off business and on the economy in general. lrformed analysis of the way corporanons whether big or small are managed presents a greater challenge, Unfortunately; even wh,cnfile press does a creditable job 'Wirth its reports, file stories tend to. be fOorgotten, resulting in ]ittle action or ffoHaw-up.

        For example, the media reported on the New Listing

        Regu ] ati em introduced by the Stock Exchange.and members of the press pushed for government officials to sign off on the l1'egulation. But the new rule has not been lmplernented until now. Beyond developing the technical expertise of the COoWS of professional journalists reporting on business and economics also lies the challenge of creating the mom] eli mate that "wU help journalists stand up to the pressures of bribery.

        S. Siagjan also noted the plethora of political parties and coalition partners operating in a serni-presldenfial sermparliamentary system. These' parties need funding and are driven to form parmershtps with companies, public or private. These partnerships complicate the issue of corporategovernance

        In his concluding comments, Mark Baird commented on three issues brought up in the discussion-

        19

        Baird admow]edged the formidable d1aUenge of producing business edltors and journalistswith the proper skills in, for instance, the analysis of financial accounts, But there should also be improve.d skills in the management of companies. As the press becomes more professional in its questioning and reporting, companies may be induced to release better; more relevant information. In the Philippines, the independence of the press from other business interests is still a b1g issue It is. also an issue in Indonesia

        The idea] situation, for Bairdwould be' the offer off enough incentives for companies to attain best practice to make legislation unnecessary, In practice, howevert there is a need to strike a balance between reliance on legislation and the promotion of seif-I;egu~ation and best practice in guiding corporate behavior.

        Perhaps pu bllc :interest would feed on disclosure requirernents and make it 'Ito the interest of companies to release more informafion Baird conceded the problem of depending on regulations when the judicial system is 'weak, but argued the folly of not doing anything until the judicia] system has become stronger.

        OPEN FORUM

        CORPORPJE GOVEID

        Related Interests

          ANCB: WHA'T DOES IT MEAN?

          The concept of corporate govemance is relatively new and its discussion provoked more questions than answers.

          The term has not become common coinage in Indonesia, nor has a consensus developed on its precise meaning, With the countrys long hlstory of l¥!vemment controls, Indonesians have only begun to examine the term and tits i mplications on the conduct of business and governance. The focus ()[I corporate activity is also rel,atively new, It is doubtful then that

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          a consensus can be quid\ly established between the international oommuni'~ andthe diverse Indonesian comrnuoifies,

          Does corporategovemance invowe universal standards that can apply,

          Related Interests