Considering the national resources of these countries, why can’t their
governments improve living conditions? Here we are confronted with the
political software problems largely ignored by the World Bank book on
decentralization in developing countries (Shah 2006).
Corruption continues to be a major problem in Indonesia. A 2006
World Bank report suggested that as much as thirty percent of the country’s
development budget disappears through civil service corruption. Because
local governments have limited capacity to raise revenue, they are dependent
upon grants and transfers of funds from the central government. Their
uncertainty and inadequacy means that local governments must “rely on
corruption to help supplement the salaries of local employees” (Henderson
and Kuncoro, 2006, p. 3). About 75 percent of firms, according to one
survey, reported bribes amounting to more than 10 percent of their profits
(Henderson and Kuncoro, 2006). Nearly two-thirds of sub-national revenues
come from the General Allocation Fund, but it is not targeted in such a way
as to reduce poverty (World Bank, 2006). Without reliable income from the
central government, expenditure on education remains between 1% and 2%
of GDP (as against 13.3% in South Korea), the lowest in the region (USAID,
2005). The fact that in 2004, it took 151 days to register a business indicates
the impact of corruption, as well as mismanagement. Likewise, corruption
and inefficiency may account for the fact that only about 20