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The theoritical literature makes ambiguous predication about the relationship between the extent of rent extraction by private parties and its impact on economic activities. One view argues that after putting ethical consideration aside, corruption may in fact improve efficiency, particularly in developing economies. In this model the size of bribes by different economci agents could reflect their different opportunity cost. Better firms are more willing to buy effective ered tape. The theory suggesting that bribery may lead to ower effective red tape is known as the efficient grease hypothesis. The crucial assumption of this model is that the red tape and regulatory burden can be taken as exogenous, independent of the incentive for officials to take bribes. The opposing view on the other hand asserts that because the bureaucrats have discretionaty power with given regulation, regulatory burden may be endogenously set by corrupt officials such that they customize the nature and the amount of harrasment on firms to extract masimum bribe possible. In this model firms that pay more bribes could still face higher, not lower, effective red tape. Consequently corruption could lower economic efficiecy insteaf of improving it. In this paper we estimate a model whereby bribe could be endogenous. The model stresses the role of firms' commitment ability's function of their characteristics. We use the data from the recently completed survey on the governance of the local governments in Indonesia. The data cover bribe that needs to be paid by firms to goverment officials at the district level. Other aspects of governance such as transparency, accountability, efficiency and the general attitude toward business sector are included in the data as well. The firm level regression suggests that the amount of bribe paid increases with the firms size. Thus rejects the efficient grease hypothesis.

The president reconstituted his cabinet in early December, focusing primarily on the economic team. The highly experienced Boediono was appointed as Coordinating Minister for Economic Affairs, while Sri Mulyani Indrawati was promoted from chair of the planning agency to become Minister of Finance. The former economics coordinating minister, Aburizal Bakrie, was made Coordinating Minister for Social Affairs-out of the economic limelight, but still with considerable influence. These changes overall have been well received by the markets, as indicated by a considerable strengthening of the rupiah. The challenges facing the new cabinet remain immense, however. On a range of macroeconomic variables, performance has fallen well short of the government's targets. Output growth declined to just 4.9% p.a. in the December quarter from 6.5% a year earlier. Investment growth has fallen to a very low level, giving rise to concern about the creation of job opportunities. In a booming global economy, exports grew by only 7.4% in the four quarters to December, despite Indonesia's wealth of natural resources. The inflation rate doubled from September to October to almost 18% p.a., although subsequent price increases have been much slower. The president's anti-corruption campaign continues to generate much attention. The number of corruption cases involving government officials and state enterprise managers brought to the courts continues to increase. Some high-profile cases have resulted in convictions, but others have not. The campaign seems likely also to be extended to judicial reforms, which are clearly crucial, but one urgent issue yet to be tackled directly is the widespread suspicion that funding of major political parties derives largely from abuse of power by government officials. Numerous floods and landslides early in 2006 resulted in deaths, injuries and considerable physical damage. The frequency of such natural disasters has risen significantly over time, suggesting that governments at all levels need to develop mechanisms to manage them and implement policies to mitigate or prevent them. Reconstruction progress in Aceh and Nias during 2005 was disappointingly slow. The reconstruction authority predicts dramatic improvement in 2006, but there appears to be a need to clarify the relationships among its three components, and to make some adjustments to its master plan, particularly in relation to land use planning. A reallocation of available funds among major activities, better coordination of implementing organisations, and a rethinking of conflicts between the authority's roles as implementation agency and coordinating agency may all be needed if the ambitious and urgent targets are to be met.

This paper investigates the political economy behind the three economic reforms in Indonesia, in 1983-91, 1994-97 and the reform under the IMF umbrella immediately after the 1997-98 economic crisis. The prevailing belief is that the Indonesian political economy scenario during those periods closely matched that of Weberian patrimonialism, in which the patron-client system was managed personally by Soeharto. Our findings indicate that, whereas economic reform was possible within the patron-client system in the initial stages of economic reform, this was not the case in later stages.

The president reconstituted his cabinet in early December, focusing primarily on the economic team. The highly experienced Boediono was appointed as Coordinating Minister for Economic Affairs, while Sri Mulyani Indrawati was promoted from chair of the planning agency to become Minister of Finance. The former economics coordinating minister, Aburizal Bakrie, was made Coordinating Minister for Social Affairs-out of the economic limelight, but still with considerable influence. These changes overall have been well received by the markets, as indicated by a considerable strengthening of the rupiah. The challenges facing the new cabinet remain immense, however. On a range of macroeconomic variables, performance has fallen well short of the government's targets. Output growth declined to just 4.9% p.a. in the December quarter from 6.5% a year earlier. Investment growth has fallen to a very low level, giving rise to concern about the creation of job opportunities. In a booming global economy, exports grew by only 7.4% in the four quarters to December, despite Indonesia's wealth of natural resources. The inflation rate doubled from September to October to almost 18% p.a., although subsequent price increases have been much slower. The president's anti-corruption campaign continues to generate much attention. The number of corruption cases involving government officials and state enterprise managers brought to the courts continues to increase. Some high-profile cases have resulted in convictions, but others have not. The campaign seems likely also to be extended to judicial reforms, which are clearly crucial, but one urgent issue yet to be tackled directly is the widespread suspicion that funding of major political parties derives largely from abuse of power by government officials. Numerous floods and landslides early in 2006 resulted in deaths, injuries and considerable physical damage. The frequency of such natural disasters has risen significantly over time, suggesting that governments at all levels need to develop mechanisms to manage them and implement policies to mitigate or prevent them. Reconstruction progress in Aceh and Nias during 2005 was disappointingly slow. The reconstruction authority predicts dramatic improvement in 2006, but there appears to be a need to clarify the relationships among its three components, and to make some adjustments to its master plan, particularly in relation to land use planning. A reallocation of available funds among major activities, better coordination of implementing organisations, and a rethinking of conflicts between the authority's roles as implementation agency and coordinating agency may all be needed if the ambitious and urgent targets are to be met.

This paper investigates the political economy behind the three economic reforms in Indonesia, in 1983-91, 1994-97 and the reform under the IMF umbrella immediately after the 1997-98 economic crisis. The prevailing belief is that the Indonesian political economy scenario during those periods closely matched that of Weberian patrimonialism, in which the patron-client system was managed personally by Soeharto. Our findings indicate that, whereas economic reform was possible within the patron-client system in the initial stages of economic reform, this was not the case in later stages.

Indonesia has a tradition of corruption among local officials who harass and collect bribes from firms. This paper examines whether corruption is affected by a change in institutions introducing local democratization and by party composition of local assemblies. Democratization occurred in 1999 and decentralization in 2001. We have firm-level data for 2001 and 2004. The 2001 data benchmark corruption at the time of decentralization, but for a limited sample of districts. We find that corruption declines between 2001 and 2004 overall, but much less [more] so in districts with more secular [Islamic] party representatives in district assemblies. For a larger sample of districts, correspondingly, we find that corruption in 2004 is more in districts which voted more in favor of secular party representatives in the first elections in 1999. We argue that the effects seem to be causal, over above any effects of changing religiosity and economic circumstances across districts.

Using three waves of survey data from fishing villages in Aceh, Indonesia for 2005-2009, we examine the determinants of local volunteer labor after the tsunami. Pre-existing social capital and the form of aid delivery (but not trauma) strongly affect village volunteerism initially, but these effects weaken with time. What persists is the effect of essentially a new institution, formal village elections. While recent work suggests democratization increases cooperation, the differentially timed introduction of elections negatively affects volunteerism, suggesting a regime switch effect where traditional leaders chosen by elites want more volunteer labor projects than democratically elected leaders do.