BPK under the New Order Era (1966-1998)

3.2 BPK under the New Order Era (1966-1998)

During the New Order Era, the centralisation of power was solely controlled by President. Moreover, the Guided Democracy system still continued. In terms of fiscal revenues, about 90 per cent of total revenues were handled by the central government, although the government functions were decentralised to the regions (Ferrazzi 2000: 108). In addition, the army became more powerful in the New Order Era. Lev (2000: 15) stated

―the army became the primary beneficiary group of the most powerful government in the history of modern Indonesia ‖. This means that in the New Order Era, Indonesia was led by

a highly centralised authoritarian regime with a military base. Therefore, the political elite did not worry much about potential disruption from the public.

McLeod (2005: 369) argued that during the Soeharto Era (1966-1998), the reward for good performance in the public sector institution was strongly aligned with meeting the President‘s objectives rather than corresponding with society‘s objectives. He (2005: 369- 370)also coined t he concept of Soeharto‘s franchise system of government which included the Legislature, the judiciary, the legal bureaucracy, the military/police, the bureaucracy, SOEs, and the state banks. Rosyadi and Kurniasih (2009: 20) argued that although the neutrality of the government was legally stipulated, in practice, all bureaucracy was controlled by the power of President as the head of the Executive or government. Therefore, all public institutions, including courts, police, audit boards and most McLeod (2005: 369) argued that during the Soeharto Era (1966-1998), the reward for good performance in the public sector institution was strongly aligned with meeting the President‘s objectives rather than corresponding with society‘s objectives. He (2005: 369- 370)also coined t he concept of Soeharto‘s franchise system of government which included the Legislature, the judiciary, the legal bureaucracy, the military/police, the bureaucracy, SOEs, and the state banks. Rosyadi and Kurniasih (2009: 20) argued that although the neutrality of the government was legally stipulated, in practice, all bureaucracy was controlled by the power of President as the head of the Executive or government. Therefore, all public institutions, including courts, police, audit boards and most

During the New Order Era, corruption became systemic under the power of the President (Soeharto) and his cronies. One of the reasons was the weakness of the Indonesian legal system and the redistribution of income occurred on the basis of kekeluargaan (family) or kemitraan (partnership). McLeod (1993: 35) argued the ambiguity of the written laws that had only minor modifications since the Dutch Era, meaning they were not suitable to the needs of Indonesian economic and social development. He emphasized the very low salary of public sector employees. The officials had additional income from their clients (public) and as a result they sank further into corruption which was widespread and profound. This was supported by Houben (2000: 55)who argued that under the New Order Era, ―possibilities of internal drain (or economic distortions) grew to unhealthy connections between those who seek personal economic benefits and political power holders who offer exclusive opportunity ‖. Therefore, the long- term unreliability of the legal system, which was not applicable to Indonesia‘s vastly

changed economic and social development, led to an inherently poor bureaucratic culture.

The Law on BPK (1965) was replaced by Law Number 15of the Year 1973. Article

1 of the Law on BPK (GOI 1973) stated:

The Audit Board is a High State Institution, which in the implementation of its tasks shall be independent from the influence and power of the Government, but shall not

be superior to the Government. This article clearly states that BPK as an audit board has to be independent. However, BPK

was influenced or controlled by the governmentand suffered many limitations in conducting audits. President Soeharto as the head of state was answerable to the MPR, BPK, and DPA, whose chairmen were directly appointed by the President. During the New

Order Era, O‘Rourke (2002: 287) argued that BPK ―had never been much more than a showcase agency ‖ as it had never conducted its roles and functions effectively due to the

Executive controlling its organisation and resources. The limitation of BPK ‘s roles and functions were indicated with the following facts

(Yoedono 2002a:7-9). Firstly, BPK had the authority to audit only the central government and not regional governments, state-owned enterprises (SOEs), and regional-owned enterprises (ROEs). During the New Order, BPKP (internal audit institution under the Executive) had the greater authority in public sector auditing. Secondly, BPK could not audit local government because of its limited number of regional offices and no budget for larger auditingin local level government. Finally, BPK audit reports were only for Parliament Members and BPK Members had no jurisdiction to report its audits to regional Parliaments. As a result, BPK audit reports could not be an information resource related to the condition of public finances for legislators and decision makers in the public sector. Also, the practice of collusion between private companies and the government grew uncontrollably. Therefore, the BPK‘s roles and functions were reduced by the New Order government and its performance was unsatisfactory with limitations in its authority, audit objectives and resources.

Moreover, the development of financial management in the public sector was also stagnant. As a result, financial audit reports could not explain economic conditions as the foundation for anticipating the future actions and strategies for state administrators. Ramcharan (2000: 64) emphasized the weaknesses of public financial management since the economic crisis in 1997 that had severe implications for all sectors in Indonesia, including the banking sector and for Indonesia‘s crony capitalism. The weaknesses of Indonesia ‘s public sector accounting and auditing system, combined with decentralisation, Moreover, the development of financial management in the public sector was also stagnant. As a result, financial audit reports could not explain economic conditions as the foundation for anticipating the future actions and strategies for state administrators. Ramcharan (2000: 64) emphasized the weaknesses of public financial management since the economic crisis in 1997 that had severe implications for all sectors in Indonesia, including the banking sector and for Indonesia‘s crony capitalism. The weaknesses of Indonesia ‘s public sector accounting and auditing system, combined with decentralisation,

Index (CPI) 18 of Indonesia increased from 1.9 in 2002 to 2.8 (rank 111 over 180 countries) in 2009 (Choi 2011: 27).