governance peace transformation strategy a4pfm conference 2013

Good Governance for Economic Reform 2013 – Vivienne Tobassa Eggers – Stie Widya Wawaha

Good Governance in Economic Reform for Indonesia – Framework and Implementation Strategy for Peace Transformation and Sustainability

AUTHOR: Prof. Vivienne Tobassa Eggers MA Int. Rel. Human Rights & Intl Law, M Arts, M COM LLM

INSTITUTION: STIE Widya Wiwaha, Yogyakarta Indonesia

Email: [email protected]

Abstract: This paper identifies background and rationale for Indonesia’s call to implement a peace development model. Indonesian, international economists and societal experts have described this governance framework as an ideal management strategy solution for economic financial reform and good governance practice. Transformation is perceived best through incorporating social cultural values under legal, constitutional and synchronized sustainable business cycles. Discourse proposes and elaborates a contextual peace model of heterarchic governance. Historic review of social political environmental factors that have culminated many prevalent global systemic problems forms the catalyst to selecting an alternate systemic governance model of heterarchy. This discussion describes paradigmatic and operational relevance of a heterarchy in relationship to Indonesian criteria and issues that have incited systemic appeal for strategic solution. Conclusion asserts required actions toward implementing heterarchic peace framework as a priority to achieve success for even the most rigorous economic reform initiatives of financial management and good governance.

Keywords: good governance / economic reform / interdisciplinary governance / organization change management design / sustainability framework / transformation management / social development / peace development/ governance strategy / heterarchy / integrated governance / holistic governance

INTRODUCTION: FRAMING THE REGULATION AND CONTEXT OF INDONESIA’S REFORMING ECONOMY

Since economic crisis in 1998, Republic of Indonesia has been undertaking a significant role of transformation toward economic recovery; including financial management, constitutional law, sustainable development based on human rights equity and environmental sustainability. The fifteen year period of this activity has been shaped by external and internal impacts to economic stability – namely in the form of environmental development and natural disasters, global financial crisis, insurgency conflict and matters concerning international relations in public and private sectors. Indonesia has progressively experienced growth and positive return from strategic solutions implemented under these national endogenous and exogenous


environmental conditions.

To date, economic recovery efforts have focused on government through adoption of United Nations (UN) driven International Monetary Fund (IMF) and World Bank guidelines, financial principles and practices that move toward accountability, integration and enactment of unified global standards and corporate governance models such as OECD guidelines. Positive injection of funds into manufacturing and the population heavy small to medium enterprise sector (SME) has resulted in some growth and buoyancy internally, in Asian and international markets. In the wake of strengthening regional alliance Association of the Southeast Asian Nations (ASEAN) and Indonesia’s membership of UN G22 group, Indonesia has emerged as a prominent rising presence in the Asian region.

Since global financial crisis in 2008 Indonesia has responded to risk by implementing a wide range of measures that include economic stimulus. In 2009 the economy expanded by 4.5 percent and in late 2011-2012 international key credit rating agencies upgraded the sovereign rating to a “positive, investment grade”. (Srinivas PS 2013) Despite these efforts World Bank’s Lead Economist for the region P Srinivas reports that reform progress has been slow and “a great deal remains to be done”. One of the greatest challenges identified is to improve financial intermediation, particularly in terms of credit-GDP or loan-deposit ratios. Less than half of all Indonesians have access to formal financial sector services and less than 20 percent have ever borrowed from a financial institution. The failure to provide more SME sector financial services is purported to be acting as a brake hold on economic development. Solution proposed involves implementation of integrated financial systems that adopt a more coordinated approach across institutions; that improve awareness, access and overcome barriers to competition, growth, poverty alleviation - while providing a more levelled distribution of capacities and resources throughout the country. This task is allocated to policymakers, public and private sector stakeholders in a bid to seek innovative and robust solutions for future governance. To date, Financial Institutions Supervisory Agency (Bapepam-LK) and Bank Indonesia (BI) have established authority schemas and methodologies that align with global regulatory frameworks and international norms. Improvements to legally mandated coordination of banking supervision continue to be called for to enable accountability and transparent decision making. The deficit of supervisor legal authority weakens the process of enforcement and remedial action against those who may currently fail the system and its endeavours of reform. General consensus is that more effective cooperation and coordination between various domestic supervisory authorities, foreign agents and supervisors should be implemented to facilitate adequate progress and reform transformation.

The Indonesian House of Representatives passed a law in October 2011, establishing Indonesian Financial Services Authority (OJK) to take over regulatory and supervisory function in capital markets and non-bank financial institutions from Bapepam-LK at the end of 2012. The transfer of Bank Indonesia’s banking sector supervision and regulation responsibilities will follow this move by the end of 2013. It is hoped that OJK will facilitate improved coordination and supervision across the financial sector. Further legal clarity of roles and responsibility is required as are visible frameworks for


the management and ongoing operation of this transformation. The absence of a suitable legal framework for institutional set-up, development of internal accounting, auditing standards and general governance - in accordance with internationally accepted and consistent stakeholder practices - is further identified as risk to success of continued economic reform.

The quest for governance frameworks and management also accompanies the need for diversification of Indonesia’s financial sector away from a bank focussed exclusion – to increase stakeholders such as finance companies, pension funds, mutual funds and insurance companies. World Bank advisors propose that access to formal financial services and inclusion of financial systems will support poverty alleviation. The service provision frees poor sectors and SMEs from reliance on limited savings to build assets and prepare for life change events such as education, health and small business entrepreneurship or innovation. Coordination and integrated governance frameworks will ensure consistent equity distribution, aid transparent accountability of financial management and enhance related operations to the grass roots level of communities.

The economic reform toward financial inclusion of the poor, individuals and SME sectors includes authority and oversight of microfinance, banking, consumer protection and relevant regulatory frameworks that span these sectors. Regulators in Indonesia include the Ministry of Cooperatives and Small-Medium Enterprises, National Consumer Protection Agency and the Bank of Indonesia. (Boston University Center for Finance, Law & Policy 2013) Indonesia currently holds only secondary legislation that is microfinance-specific under banking law regulations. These are primarily drawn under Act No. 21 Concerning Sharia Banking, 2008, Act No. 23 Concerning Bank Indonesia 1999, Act No. 7 Concerning Banking 1998, Regulation No. 11/1/PBI/2009 Regarding Commercial Banks; Regulation No. 6/27/PB/2004 Concerning Supervision of Village Credit Agencies 2004 and Regulation No. 8/26/PBI/2006 Concerning Rural Banks 2006. Cooperatives in Indonesia fall under Act No. 25 on Cooperatives 1992, providing legal framework and basic regulations towards improving the members’ welfare and participating in developing national economy. Regulation No. 9 Concerning Saving and Lending Activities of Cooperatives 1995, provides for credit through savings mobilization from members and other parties. Under this regulation Cooperatives may also issue securities but they are prohibited from providing insurance and foreign exchange services. Savings and Loan Cooperatives are defined as business enterprises comprised of individuals or primary cooperatives as members under Act No. 9 Concerning Small Businesses 1995. Savings and loans cooperatives uphold a people’s economy movement based on unity principles or brotherhood. A Microfinance Bill drafted by BI in 2001 was passed on to Ministry of Finance and disseminated in 2003 seeking governance to set up formal policies and supervisory authority of Microfinance Institutions (MFIs). These comprise a mix of BRI Units, BPRs (rural banks, smallholder credit banks such as BKDs or village banks), non-bank non-cooperative (LDKPs, sub-district and village-level cooperatives, credit cooperatives and saving and loan units such as credit unions); Grameen Bank replicators (often unlicensed) and NGOS (mostly hold a foundation license).

The National Consumer Protection Agency (NCPA) was mandated by Law No. 8


Concerning Consumer Protection 1999 and commenced operations in 2004. Under its supervisory umbrella numerous laws and regulations form the legal framework including Act No. 7 of 1992 Concerning Banking (consumer protection related) 1998, Law No. 11 Concerning Electronic Information and Transactions (consumer protection-related) 2008 and Law No. 5 Concerning the Ban on Monopolistic Practices and Unfair Business Competition 1999. Regulations such as No. 7/7/PBI/2005 Concerning Resolution of Customer Complaints and No. 7/6/PBI/2005 Concerning Transparency in Bank Product Information and Use of Customer Personal Data 2005 mandate ethical accountability practices that serve towards consumer protection. Other regulations in this framework include No. 7/46/PBI/2005 Concerning Funds Mobilization and Financing Agreements for Banks Conducting Business Based on Sharia Principles 2005, Regulation No. 8/3/PBI/2006 Concerning Conversion of Business of Conventional Commercial Banks to Commercial Banks Conducting Business Based on Sharia Principles 2006, Regulation No. 7/52/PBI/2005 Concerning Operation of Card-Based Payment Instrument Activities 2005, and Regulation No. 8/5/PBI/2006 Concerning Banking Mediation 2006.

A recently formed “Branchless Banking” legal framework provides supervisory regulation around electronic banking and money laundering. Act No. 15 of 2002 Concerning the Crime of Money Laundering (amended) 2003 is intended to combat this crime in Indonesia. Law No. 11 Concerning Electronic Information and Transfers 2008 adopts provisions of e-commerce law disseminated by UN Commission on International Trade Law. Cyber crime and data security in Indonesia is emphasised, as is the recognition of e-transactions as equivalent to traditional contracts. This area of law is further supported through Circular No. 11/11/DASP Concerning Electronic Money 2009 and Circular No. 8/28/PBI/2006 Concerning Electronic Information and Transactions 2008. In addition this legal framework comprises Regulations No. 11/12/PBI/2009 Concerning Electronic Money 2009, Regulation No 11/28/PBI/2009 Regarding Implementation of Anti Money Laundering and Prevention of Terrorism Funding for Commercial Banks 2009 and Regulation No. 5/23/PBI/2003 Concerning Implementation of Know Your Customer Principles for Rural Banks 2003.

Although assisting stability of economy and improving capacity to supervise and ensure compliance of reforms, the increase and strengthening of Indonesia’s financial economic legal frameworks also heightens the need for greater holistic governance: visibility of management, operation and societal engagement – raising the severity of risk from non compliance. The “Indonesia Country Strategy 2013-2016” describes Indonesia’s current “most important economic and social challenge is to embark on a more sustainable and inclusive growth path.” (Swiss Economic Cooperation and Development 2013, 5) The report elaborates that Indonesia needs to address underinvestment in strategic areas, economic disparities between rural and urban locales, improve competition, open trade and investment; improve physical infrastructure and continue to combat corruption. Also highlighted as needing address are the areas of social equity, environmental degradation, labour policies and market inefficiencies. To address this broad scope in economic deficit, an evolving body of law such as the financial legal frameworks described above will also require broader scope in governance, including integrated coordination and raised awareness of all


interacting economic stakeholders.

Economic recovery and growth requires close monitoring and implementation of short, medium and longer term strategies that ensure growth rate is neither ineffectual nor over proactive to maintain stabilized economic management. To achieve this stability balance Indonesia has utilized internal and international expert knowledge, researched and adopted numerous models as relevant to unique criteria identified. Among those pertaining a stakeholder and knowledge interest in reform activities are experts in the public and private sector. One panel of experts comprises consultants from Institute of Southeast Asian Studies (ISEAS) and Bank of Indonesia (BI). The panel’s 2010 assessment resulted in the publication of their findings on the progress of economic reform. In "The Indonesian Economy - Entering A New Era" (eds Aris Ananta, Muliana Soekarni, Sjamsul Arifin, 2011) a number of key issues and needs were identified for Indonesia to meet presidential goals set for 2015 and future governance strategy. The panel highlighted the critical requirement for a sustainable peace model as being of utmost significance to Indonesia’s economic reform and management:

"Ananta (Ch 12) presents a global change of development paradigms ... in the search for a short-term rescue plan for the recent crisis and a long-term new world development paradigm. A revolutionary inter-disciplinary solution is needed to prevent the repetition of the crisis and to promise a more sustainable and peaceful development in both developing and developed countries."

(Ananta Aris Soekarni Muliana Arifin Siamsul 2011)

This call for inter-disciplinary governance solution and platform for economic management by Ananta et al is echoed within global and presidential Indonesian drivers for evolving a vibrant democracy that ensures benefits to its citizens. In the 2010-2014 National Medium-Term Development Plan to United Nations Development Program (UNDP) the Government of Indonesia identified good governance as critical to achievement of societal equity and furthering the aims of financial reform; successful reduction of poverty. (UNDP in Indonesia 2013) National Development Goals towards realization of democratic society based on the rule of law prioritise strengthening of decentralized and regional autonomy, civil society organizations, political parties and the consolidation of democratic institutions. In a good governance partnership, UNDP perceives supporting Indonesia’s achievement of effective decentralized governance, through creating conducive legal frameworks and through capacity building of national and local institutions to improve accessibility and delivery of justice. The UNDP identified need for Indonesia governance is to work with a broad stakeholder engagement – comprising government institutions, media, universities and community service organisations to grass-roots level - reflected in the increasing pace of citizen engagement and political participation taking place in the country. This paper elicits these high level identified contexts and needs to rationalize, define and discuss a relevant inclusive governance framework and its management operational platform. The impetus is towards furthering economic reform transformation and evolving good governance; facilitating the diverse knowledge, coordination and function required for


successful implementation and ongoing management.

SITUATION ANALYSIS: BACKGROUND AND RATIONALE FOR IMPLEMENTING INTEGRATED STRATEGIES OF GOVERNANCE

As global governance trends and impacts upon national governments continue to approach broader and holistic needs of society, the nature of internal economic reform and enduring management becomes more complex. Contemporary governance frameworks require mechanisms and drivers that diversify from traditional financial values into social and environmental sectors. These schemas provide the capability needed to coordinate, monitor and support a decentralized governing model that integrates core values and physical “reach” into grass roots community. Where accountability and governance context are constrained by authority of legal frameworks, the realization of democratic harmony by society must be represented as a stasis or balance achieved. Global governance has identified that optimum stasis for human society is one of “sustainability and equity justice”. This declaration was upheld by international governments at global UNDP summit in Rio 2012, when meeting to discuss the severity and implications of increasing climate impacts and needs for sustainable development by world society and governments since global economic crisis in 2008. (United Nations Development Programme 2011)

The urgent need to incorporate holistic paradigms of governance towards achieving sustainability is not a sudden issue for international society and UN. The increasing severity of environmental impacts from natural and development factors in past decades has significantly raised awareness, changed commerce practices and accountability globally. Indonesia has been actively involved in the development of an international environmental legal framework as part of the World Commission on Environment and Development (WECD). (International Development Law Organization 2006) Good governance and strengthening the Indonesian rule of law has been supported by the International Development Law Organization (IDLO) - towards minimising environmental degradation, sustainable development and poverty alleviation. It is recognized that environmental damage most critically affects the poorest communities who rely on natural eco-system for basic survival. In this context environmental sustainability is critical to poverty alleviation and longer term strategies of sustainable economic and social development. Indonesia and IDLO have asserted that enforcement of environmental law and policy framework is only achievable through a paradigm of good governance – via a national matrix of transformation.

Indonesia adopted international environmental principles in The Environmental Management Act, No, 23 of 1997 (EMA). This instrument supports principles of Environmentally Sustainable Development (ESD) through clauses b, c and d of the preamble and Article 3 of Chapter II requiring management of environment to be


performed under principle of sustainability. Sustainable development concepts are also expressed in the preamble to the Law on Forestry No. 41 of 1999 and in the Government Regulation on Environmental Impact Assessment No. 27 of 1999. Natural resources management such as the Fisheries Act No. 31 of 2004 also provides for environmental sustainability practices. Indonesia also actively cooperates in regional environmental legal frameworks as one of 10 member countries of ASEAN. Although the ASEAN original mandate to promote regional economic development and peace did not directly refer to sustainability, this mission has since evolved to incorporate sustainable development and protection of the environment as critical. Agreements such as ASEAN Agreement on the Conservation of Nature and Natural Resources (ACNNR) formed in 1985. This action has evolved multilateral working parties such as the ASEAN Working Group on Nature Conservation and Biodiversity and the ASEAN Working Group on Multilateral Environmental Agreements. By 2003 environmental focus had reached priority for ASEAN meeting agenda in “ASEAN Environment Year”. The focus has continued to gain momentum as strategy for sustainable development and poverty alleviation – ultimately leading towards a peace development economy. Yet despite these proactive measures and actions introduced, the need to improve compliance and effective enforcement of legal instruments remains an issue critical to successful observance of sustainability. IDLO advises that “the best tool for achieving environmental compliance is effective and consistent civil and criminal enforcement of the law” (International Development Law Organization 2006, 6) Indonesia advises that strengthening institutional capacity to manage its highly complex legal and regulatory framework – particularly prosecution and civil enforcement processes – along with increased public engagement is necessary to reinforce compliance and internal societal alignment to environmental sustainability practices.

Multi-national corporations and business agents who continue to focus development, basic materials, agriculture; manufacturing, trade and industry production in third world and developing nations maximise efficiency and profitability when those nations profess an adequate and supportive infrastructure (e.g., roads, air, shipping, technology communications) and when suitable labour resource pool is easily accessed. Paramount, the enduring peaceful stability of a developing nation will minimise corporate and financial risk – adding further attraction and development opportunities to international financial markets. It is for this reason that first world and trans-national commercial operators now subsist with a “sustainability charter” as an essential criteria for the successful organization management of their companies – many now so large, diverse and dynamic in culture, that they operate as quasi governments in their own constitution. The formation of the UN “Global Compact” in 2006 culminated in a need for companies to engage effectively in global business by aligning to a set of ten universal principles within the areas of human rights, labour, environment and anti-corruption. This blueprint of global Corporate Social Responsibility (CSR) recognizes that business as the primary driver of globalization can play a critical role in governance to ensure that markets, technology, commerce and finance advance to the mutual benefit of economies and international society. (United Nations Global Compact 2013)


The UN Global Compact upholds over 10,000 stakeholders spread throughout 130 countries and has become the largest voluntary corporate responsibility initiative in the world. Yet incentives for CSR are also a primary compulsory driver installed by many governments. The Indonesian legal framework encapsulates CSR obligations through three evolved laws: the Limited Liability Company Law No. 40/2007, the State-Owned Enterprises Law No. 19/2003 and the Investment Law No. 19/2007. Under Article 74 (1) of the Limited Liability Company Law, companies hold an obligation to practice environmental social responsibility when activities are in or related to the natural resources sector. Under Article 88 of the State-Owned Enterprises Law, companies are obligated to support SMEs, community organizations and citizens in an effort to elevate social service. Foreign investors are also under compulsory obligation to practice CSR activities under Article 15 of the Investment Law and administrative sanctions may be imposed if this law is breached.

The visible commitment by Indonesia to implement and reinforce good governance practices carried out by private commercial interests not only impacts SMEs, community and culture; but lays additional context and foundation principles for governance. Within the legal framework, financial economic reform and management whether private or public must ensure to accommodate the broader context and flexibility of CSR that extends and integrates environmental and social indicators. In consideration of these essential criteria it becomes apparent that financial economics can no longer be isolated and driven apart from other governance values if a robust, successful platform is desired. Management and accountability measures may best be instilled in a framework that has the capability to measure and validate the overarching context of sustainability and equity across all societal sectors. The corporate response to CSR in governance charter and management frameworks is one that accounts under Triple Bottom Line (TBL) – financial, environmental and social indicators. (European Commission Employment and Social Affairs 2003)

CSR frameworks include auditable instruments, broad guidelines, codes of conduct, charters, investment accountability mechanisms and other measures or indicators that can typically form within specified boundaries of governance. As compliance schemas they comprise a mix of legal black letter, mandatory hard or soft obligatory instruments and combine soft optional codes, process and guidelines in a matrix that forms contextual regulatory requirement and ideology of governance operation. It is the multitude and complex nature of CSR instruments, stakeholders, cultural and environmental influences that necessitate mapping, design and implementation of models suitable for good governance. It is the CSR charter that forms the skeletal auditable backbone to promote visible accountability and enables measurable validation and success of all points and facets of the governance paradigm. Through the generalist Global Reporting Initiative Guidelines (GRI), regulations, standards and guidelines that are specific to the categorised sectors of TBL (e.g., UNGC, OECD, Social Accountability 8000 SA8000 or International Organization for Standardization ISO9000 & 14000) the governance model will link, coordinate and facilitate knowledge, technology and other services to the intricate layers and sectors within its defined parameters. The diversity and scale of CSR instruments cover aspirational principles and codes of practice, management systems guidelines and certification schemes,


rating indicators and social responsibility transparency checks; accountability and reporting frameworks. It is TBL within ultimate legal authority (albeit constitutional and/or international law) that provides the overarching and definitive container to form the governance blueprint. (European Commission Employment and Social Affairs 2003) Bringing together the formerly isolated three TBL pillars of societal management enables consolidation of resources, process, technology and often disparate functions installed throughout private and public sectors. A unified model for governance then enabled with platform of interactive technology and communications provides opportunity for maximum efficiency, responsive adaptability, knowledge awareness dissemination and education. It is able to deliver into grass roots community and validate back through the framework mechanisms installed. The optimum result is a financial efficiency overlapping change model equipped to drive out governing incentives, support stakeholder and cultural adoption; then measure and feed back any issues for the ongoing management and evolvement of the governing aims and objectives.

By designing and mapping an integrated governance model, any future government initiatives and legal frameworks will be supported through an existing implementation management platform that has the capability to rapidly adjust and service the new objectives with optimum time, resource and cost outlay – significantly improving opportunities for success and innovative growth. When initiatives are required to extend through the various layers of society and all sectors are legally obliged to support a CSR remit, it will remain remiss if governments facing the contemporary conundrum of globalization continue to drive sectors of economic reform in middle management isolation. Global government forums, economists and societal experts have collectively stated a clear need for future good governance: encompassing the dimensions of TBL integrated engagement is essential to societal function and critical to higher government utility and adequacy. It is conceded that achievement of these governance objectives within a sustainability and equity context will ensure a peace development blueprint has naturally occurred. When that blueprint extends beyond sovereign nation into collective societies, an opportunity for implementing additional UN supporting governance measures with macro-economic and peaceful objectives then ensues.

With rationale and contextual requirement now established, the case for a societal paradigm of equity and sustainability measures defined in general and TBL categories, administered under legal authority umbrella is a maturely formed, natural deduction. Yet with this decision assumed, the immediate issue arises of sovereign nation function and operation within the greater context of global governance. Specifically, the problem is raised that although reported as a global need by international governance, to date no other nation has yet moved forward to implement an inter-disciplinary economic reform strategy that enters into the holistic paradigm and integrated values identified for peaceful, sustainable resilience. This fact does not preclude Indonesia or any other nation from being the pioneer of such reform so expressly called for – rather it demonstrates an emerging nation’s readiness to embrace changes in governance that will eventually prove inevitable for all governing societies in order to survive and evolve. Being in pioneer role to reinvent a local economy has indeed benefited other


nations in recent past – such as America’s Capitalist industrialisation era and Japan’s economic reform post World War II. (Galbraith John Kenneth 1994, 2-5)

The major high level issue for Indonesia in implementing an effective economic reform transformation strategy is to continue accountability and cooperation with UN and global governance stakeholders. Under this fundamental obligation Indonesia must continue to uphold global liberal financial economic drivers and operation under unified international financial market and its management accountability. Under this constraint, even TBL generic values are usefully reported and managed when equated with or translated into financial value. As a transitional option at least, social and environmental frameworks should feature financial economic benefits and risk-loss measures. For Indonesia, this task may not be as daunting as for other economies willing to implement holistic strategies of peace development transformation. Since 2011 Indonesian government has already progressed significantly to recognize economic worth in cultural society through the implementation and ministry of creative economy. In this instance Indonesia became one of the first countries in the world to formally embrace the quality of life and financial value of creativity – featuring a predominant burgeoning SME sector comprising a significant proportion of creative industries, cultural attractions and lifestyle tourism. Critical to the success of this move in government administration was the initial opening to contemporary thought, consultation and engagement of international inter-disciplinary expertise to develop and implement successful strategies to accommodate the transformation. This action provides proof of concept for including broad and alternate values in economic governance and potentially paves a way forward to commence a cultural adoption schema at both macro and micro societal level. (UNCTAD 2008, 3)

Inter-disciplinary approaches to knowledge accumulation, sharing and governance function are intrinsically coupled with the stakeholder model defined within any parameters. The identification of governance agents, their attributes, purpose and operation combined with their interaction, interdependence and diversity of relationships determines the complexity of stakeholder matrix and its cultural, environmental paradigm within contextual boundaries. In traditional governed societies, hierarchy of governments tend to oversee the holistic and ultimate needs of the nation at most senior level only. As the governing administration model devolves progressively through layers of middle society and management into community sectors, the governing mechanisms also tend to diversify and spread in often disparate pockets where local government is often subjective to the cultural features and commercial focus of the communities it administers. In these layers, sectors and cultural pockets stakeholders in governance tend to develop stylized authority and specialized knowledge and expertise that is relevant to purpose and function. Accountability and feedback to higher level governance is also deficit due to lack of local access to resources and technology or knowledge for skill building. From this point in society it is easy to perceive how local, mid-level or regional and central high level governance needs may seem to conflict, may grow and be practiced in isolation or may be duplicated and over-burdened in efficiency waste and cost due to ignorance of governance measures and the low visibility of other stakeholders who have similar task and function. While it is well acknowledged that over controlled or governed societies


hold negative connotations for peaceful harmony, cultural and economic resilience, it is also recognized the benefits that inter-disciplinary stakeholder consilience – or coming together – can bring to the nation economy. (Whelwell W 1998) These factors reinforce the assertion that economic reform implementation and management should reflect and align to a holistic governance model rather than solely a government transformation management framework. A governance model may provide the necessary schema that encompasses the compulsory hard, soft obligatory and optional, desirable components of a framework. It may induce and facilitate capacity building by coordinating and operating across the diverse stakeholder model and societal sectors without conflicting with or overriding existing governing mechanisms and their drivers – in many instances that currently fall outside the typical bounds or visibility of government compliance requirements. A governance model may ultimately play a supportive, advisory and mentoring managerial role in the coordination of societal functions towards achieving the aims and objectives of government delivered through president and party elected. This is an approach that facilitates accountability measures of decentralised and semi-autonomous government entities without detracting from the level of authority they have been delegated.

FINDINGS AND SOLUTION: FORMING STRATEGIC APPROACH FOR REFORM TRANSFORMATION MANAGEMENT AND ONGOING

GOVERNANCE

Throughout this discussion, the review of Indonesian economic reform under its major governance pillars has revealed a similar call echoed throughout all sectors and by stakeholders who have a prominent presence in societal monitoring. There is apparent unanimous agreement that Indonesia should prove successful transformation and ongoing economic performance improvement through increased generic coordination and by implementing integrated management strategy frameworks that include micro and macro levels of society. The adoption of a transformation management driver and cultural operation strategy that is relevant to diverse stakeholder complexity is imperative to the ongoing success of strategic governance function. Where the lines of authority are levelled, governance requires coordinating and driving horizontally while concurrently operating in grass roots community, mid-level and senior layers of vertical governing hierarchies. For cultural adoption of reforms and a robust operational platform, it is necessary to employ a collaborative style of governance that engages and utilises benefits from the societal network and infrastructure in place.

Cooperative network management has proven successful in social and commercial ventures that require a high degree of client or stakeholder relationship management. In all organization cultures and societies, collaboration networks to some degree exist, by usefulness and by natural human organization. Where the purpose and function of management is dynamic and frequently changing, the governance model will benefit


from forming a collaborative strategic management stewardship that is purpose oriented to specific function initiatives or project needs – engaging stakeholder alliances relevant to that purpose. This governance orientation is often referred to as heterarchy, and is an increasingly featured model for global commercial enterprise operation. In “The Sense of Dissonance” 2004, David Stark describes heterarchy as:

“… mode of organizing that is neither market nor hierarchy: whereas hierarchies involve relations of dependence and markets involve relations of independence, heterarchies involve relations of inter-dependence … characterized by minimal hierarchy and by organizational heterogeneity … drawing upon collaborative practices … twinned features are a response to complexity of …[management] strategy [and] relentlessly changing organizations where the future is uncertain.”

(Stark David 2004, 75)

Definition of heterarchy is an area of confusion for many academics and practitioners in society. Consequently, for use in the context of this discussion it is important to make the distinction between a heterarchic governance driver and organization culture schema under the presence of democratic authority – as opposed to a commonly accepted view that a collaborative network style heterarchy exists and is managed purely by spontaneous, collective agreement and trust. Organizations typically function best with more than one “culture” and operational practice. Traditional companies were once incorporated with the stated aims and charter of the directors or managers – commanding a top down hierarchical approach to what was needed for the business success. The emergence of the technology era and rapidly changing consumer market pre-empted the enterprise need: to integrate and build businesses that can cater for frequent mergers and acquisitions. The take-over or frequent restructure of public and private corporations required organizations to merge and operate singularly with the multiple management processes, information and communications systems required. As a result strategy and change leadership has become a pre-eminent feature of management consulting and governing board function. The continued unification of global financial management and economic activity, the development of integrated information and communications technology (ICT) and the development of internet has changed the global practices of economies and the way societies conduct their daily lives and business. The time, resource and cost investment of economic management in the technology era has determined that the traditional hierarchical structure alone cannot adequately fulfil an organization’s function. The role of organization formation and management is now beyond a charter directive of governing board – extended to architectural design. Architecture requires planning and laying solid foundations as a platform for the business to operate. This base layer; hard asset, infrastructure and technology rich is more static than any other area of the business apart from the articles of incorporation and high level governance.

To minimise cost from growth restructure and adequately service information, reporting and communications needs, holistic consideration of the organization context, function and inter-relationships is necessary. Sustainability organization


design has progressed the concepts of efficiency, strategic planning and design that considers a “whole” organization context as if a living entity, preparing its needs and catering for its current function; potential strategic growth and its ability to respond to business risks, impacts and changes to maintain profitability and success in mission. While multi-national corporations and large enterprises have become increasingly proficient in creating the sustainability governance blueprint, the more anarchic nature of general society under democratic governance has to date failed to match governing frameworks that holistically meet evolutionary change and keep pace with societal trends, technology and economic practices. (Burchill S 2009) This is undoubtedly due to the hierarchic structure of government (even democratically elected) as much as to the amorphous and disparate nature of sub cultures and sectors in an economy.

In a corporate organization design context the heterarchic culture ideally operates within a governance paradigm that often comprises vertical pillars (such as functional units), layers (e.g. foundation infrastructure, mid operations, management) and a cultural paradigm. Often these internal parameters will be extended into market and citizen society; incorporating stakeholders who may hold interactive interest, partnership or even cultural responsive communications. This stakeholder arrangement will depend on the purpose and function of the governing model and in the case of heterarchies may include a dynamic interplay of entities that engage in governance relationships solely for specific activities or projects. This anomaly determines the complexity of the stakeholder relationship model and sets it apart from other constants of the organization management framework.

To reflect these described advances in architecture and corporate governance, the socio-political good governance paradigm will optimally comprise three major organization models to successfully function and achieve mission: the hierarchy of authority, the heterarchy of collaboration and the autonomy of individuals and inter-dependence. (White J 1995) The sustainability framework will take this governance model one step further to induce transparency, personal and macro level accountability, consideration and fairness to all involved; compliant to a clear modus operandi under a recognized umbrella of authority. Transformation and management of this model should best mirror the format of successful corporate consultancy driver: semi-autonomous skilled, international and national expertise that conducively provides knowledge and advisory to government and management; mentoring as needed and combining project oriented direction.

Leadership of heterarchies is formed by alliances of power and authority that come together for a specific task or to oversee an operation that is relevant to their unique interest and function. Dynamic relationships of control may be more clearly defined and agreed by the parties when appointing representatives to or from a semi-autonomous management consulting utility to oversee the success of mission and objectives. The agreed devolution of authority may change from task to task or according to variance in function – often likened to program or multiple project management where leadership is appointed on a needs and competency basis from a central pool of resources. Where the heterarchy also upholds a constant, more stable charter of governance, the consultancy driver may be overseen by a consistent


representation of management – such as a governing consultative board or taskforce. This may include complement of transformation drivers who add strategic expertise and leadership to an appointed knowledge and area specialized steering committee (the heterarchic alliance). In this scenario the steering committee will comprise represented stakeholder groups who administer and facilitate the governance operation, while the consultative taskforce will facilitate the activity of managing reform and governance delivery.

The ideology of horizontal drivers for governance management is to ensure that otherwise isolated silos of power can be brought together to mutually engage and share the holistic purpose of the governance model; reducing internal expenditure and waste; instilling a more adaptive resilient culture that may quickly respond to business environmental impacts as a unified operation. Where the heterarchy involves external stakeholders the emphasis on network collaborative management is increased; operation alliances are negotiated as voluntary agreements for mutual benefit. The dogma of consultative taskforce is proposed as a rapid forming, dynamic matrix style of transformation driver that supports and transfers knowledge and skills to incumbent vertical pillars and societal sector stakeholders. The consultative taskforce may be capable to “float” – advise, manage and operate at all levels and across all sectors without the burden of direct line responsibility – instead reporting and receiving delegated authority as and when required from presidential and government directives.

With Indonesia’s identified economic needs and transformation strategy, good governance may also be well supported by the described sustainability heterarchic consilience format and consultative taskforce management driver. In addition to taskforce resourcing, the key attributes of the transformation consultancy will ultimately feature assets available to members of the heterarchy and society in general. These are highlighted as: knowledge (and its institute or capacity of learning and dissemination), skill (including resource sharing, training, mentoring and advisory), coordination (a central point of “consilience” - bringing together and ensuring provision of the governance model attributes) and essentially a wide area distributed technology platform that enables the heterarchy to function and communicate through the common reference points of the governance framework (such as rules, roles, awareness and accountability reporting). This solution is perceived as an ideal way forward to meet highest peace development aspirational ideals of good governance and concurrently fulfil the practical needs and requirements for general economic reform and management.

CONCLUSION: THE WAY FORWARD TO GOOD GOVERNANCE – MANAGING AND IMPLEMENTING TRANSFORMATION STRATEGY

This review of Indonesia’s economic governance has revealed a consistent commitment across all sectors of government to instil valuable management frameworks, build


capacity of institutions, societal stakeholders and to improve regulation, compliance and supervision under the authority of a growing body of international and sovereign law. To date this commitment has been actively supported by UN and many agents in global governance. Whether economic reform is approached at the sustainability and equity justice level of societal peace development or the fundamental principles of community level semi-autonomous accountability and financial reporting, the primary need identified is the same: good governance coordinated through integrated, cohesive strategies. With acceptance of this statement as fact, the focus need of this discussion shifts impetus from identifying and rationalizing what solution is needed to how Indonesia may best design, implement and transcend a way forward in proceeding economic reform and future management.

The review and discussion findings in this paper lead conclusively to the summation that a holistic framework of governance is not only essential, but also inevitable to coincide and evolve with trends and changes in societal function. The issue that this next step is yet to eventuate is observed to be constrained to an environment that is vast, disparate and diverse in its current formation and operation. This broad context and the high complexity of mapping stakeholders, designing matrices and measurable indicators presents a logistical challenge that governing operatives are typically equipped to manage only in their unique area of specialization. Under the burden of UN bureaucratic process and the lack of a formal inter-disciplinary economic transformation and governance function, the task of holistic approaches to economic reform has been left to senior level of respective governments – a level of vertical hierarchy where resource and time allocation is influenced by the highest demands of governing a country. Yet the feasibility and effectiveness of implementing holistic and integrated governance models is already well evidenced by the largest of multi-national corporations and the international banking sector. In each of these instances technology advancement is both a driver and a responsive support or platform toward enabling the governance paradigm operation and management. The potential of unified knowledge, communications and management frameworks has come of age since the advent of internet and mass availability of inexpensive telecommunications applications (such as mobile phones), virtual data storage and World Bank assisted international roll out of ICT infrastructure. In socio economic paradigm, the cost of logistically meeting the technology needs of integrated governance is now feasible to support even the poorest sectors in society.

Indonesia is poised and appears willing to take a revolutionary step forward in economic growth and management. Courage and willingness to pioneer contemporary concepts and innovate is evident already in unique constitutional changes, such as creative economy formation. As reported by global governance interests, environment and natural resources will continue to require more stringent preservation and protection for global survival. A growing middle class with disposable wealth will make future demands that draw heavily on current economic resource and a heavy base population of poor will require uplifting through knowledge building and social development. Suitable action pertaining to these factors can only be facilitated through access to all in society. In turn, access will be expedited through the provision of awareness building, tools, technology and coordination support mechanisms. Holistic


oversight will ensure maximum streamlined efficiency by providers. Greater opportunity for accountability and risk mitigation then occurs through raised visibility and monitoring activity made possible under auspices of a unified framework.

In concluding statement, this review and discussion has endeavoured to propose a solution and way forward in response to Bank of Indonesia’s call for "a well prepared national blueprint and strategic implementation plan ... developed in an integrated manner”. (Ananta Aris Soekarni Muliana Arifin Siamsul 2011) Making that next step of good governance toward economic transformation will see Indonesia taking a proactive and exemplary sustainability stance as a resilient “emerging” new world nation.

Author:

Vivienne Tobassa Eggers Tobaworld International Consulting

Associate: MOU Stie Widya Wiwaha Yogyakarta

University of Management and Economics


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