Inadequate Budgets and Salaries as Instruments for Institutionalizing Public Sector Corruption in Indonesia

Abstract

Soeharto used the Indonesian bureaucracy to generate rents that could be harvested by ‘insider’ firms, while also encouraging it to extort money from ‘outsider’ firms and individuals. This necessitated incentives that would ensure strong loyalty and minimize internal opposition. Government entities were provided with insufficient budget funding to cover their costs, and their officials were expected to generate cash from illegal activities, making public sector employees financially dependent on corruption. Any employee who opposed this system could expect to be restricted to earning no more than the pitifully low formal salary entitlement. The system therefore became strongly self-reinforcing.

• corruption
• public choice
• bureaucratic reform
• political monopoly
• Indonesia