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Indonesia loses $4 billion annually to procurement fraud, study finds

Jakarta, Indonesia, courtesy of WikipediaIndonesia loses $4 billion every year due to poor procurement practices in the public sector, the Jakarta Globe reported Wednesday, citing a recent study by consultanting firm A.T. Kearney.

“This equals 40 years of operational cost for 32,000 schools in Indonesia. It also represents 20 percent of Indonesia’s public infrastructure spending,” said ShirleySantoso, a principal at Kearney, in a statement obtained by the Jakarta Globe.

The Kearney study found that around 30 percent of the cases handled by the Corruption Eradication Commission (KPK) over the past decade were related to poor procurement practices.

President Susilo Bambang Yudhoyono created the Government Public Procurement Agency (LKPP) in 2010 to monitor and evaluate procurement practices within the public sector.

John Kurtz, head of A.T. Kearney’s Asia-Pacific division, said transforming infrastructure programs across the public sector and state-owned enterprises could save the country up to $1.7 billion. 

Among the procurement projects mired in graft allegations is the recent purchase of buses for the TransJakarta network. The Attorney General’s Office last month named several officials from the Jakarta Transportation Office as suspects in the case.

The implicated officials include former Jakarta Transportation Office chief Udar Pristono, who signed the $127.2 million contract for the Chinese buses, which were overpriced and found to be in poor condition upon arriving in the capital earlier this year.


Julie DiMauro is the executive editor of FCPA Blog and can be reached here.

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1 Comment

  1. Having worked in Indonesia I believe the figure is badly understated.

    The average 'fee' or incentive/ bribe to obtain a contract in Indonesia is 10 – 25% of the contract value. Considering that companies report their gross turnover on the basis of sales recorded in their sales systems, and that the 'fees' are normally recorded as general expenses, consulting or agency fees, means that the total aggregate of reported national corporate turnover in Indonesia similarly reflects the 20 – 25% fees.

    If we consider the Gross Domestic Product for Indonesia of US $ 895 billion (2012), then we can hypothesize that the total annual loss due to bribery and corruption in Indonesia is possibly in the region of US$ 180 billion.

    The average percentage cost of contracting in Indonesia has been reported by the World Bank at a similar rate as my practical observations. And it also ties in with other publicly available rports on the global cost of corruption.

    So I believe the US$ 4 billion is a very bad understatement, since most fraud and corruption tends to be linked to procurement.

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