Patron-Client Relationship in Mining Sector: Symbol of Local Resource Curse in Decentralization Era

Every country must have aspirations to create an environment that can make its people prosperous, and Indonesia is no exception. As a country that made many sacrifices in achieving independence, Indonesia also has these ideals, reflected in words “adil dan makmur” from the second paragraph of the Preamble to the 1945 Constitution. It shows that these aspirations are non-negotiable, considering the Constitution Preamble is a staatsidee with a high sacredness for the existence of the Republic of Indonesia (Pambudi, 2018).¹Pambudi, W. (2018, April 25). SAKRALISASI PEMBUKAAN UUD 1945. ISTORIA: Jurnal Pendidikan Dan Ilmu Sejarah, 14(1), 1 – 12

The Resources Curse as a Contributing Factor to Extractive Economic-Political Institutions 

Daron Acemoglu and James Robinson, in one of the most cited works in the world, Why Nation Fail, state that a country can become prosperous not because of geographical location, culture, or ignorance but because it has inclusive political-economic institutions. On the contrary, the state fails to occur due to extractive political-economic institutions (Acemoglu & Robinson, 2012)²Acemoglu, D., & Robinson, J. A. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Crown Business: New York. In simple terms, inclusive institutions can be said to be institutions that can ensure an equitable distribution of power, property rights, and provide incentives for economic activity. In contrast, extractive institutions concentrate the state power structure on a few groups, so they only tend to make economic gains for particular groups (Vries, 2012)³Vries, P. (2012). Does wealth entirely depend on inclusive institutions and pluralist politics? A review of Daron Acemoglu and James A. Robinson, Why nations fail. The origins of power, prosperity and poverty. TSEG-The Low Countries Journal of Social and Economic History, 9(3), 74-93..

One example of a failed state that is mentioned in the book Why Nations Fail is Sierra Leone. With abundant wealth in the form of diamonds, it could not make Sierra Leone a prosperous country that could prosper its people. The poor condition of Sierra Leone happens because of an extractive economic system that only relies on natural resources, deeply rooted identity politics, and corrupt political parties that are centralized and move according to their interests (Rotberg, 2012)⁴Rotberg, R. I. (2013). Governance Matters: Why Nations Succeed. Journal of Interdisciplinary History, 43(4), 599-607.. This fact also implies that countries with abundant natural wealth have a tremendous potential to be trapped in an extractive political-economic system and find it challenging to increase their economic development, which is termed the resource curse (Jensen & Johnston, 2011)⁵Jensen, N. M., & Johnston, N. P. (2011). Political Risk, Reputation, and the Resource Curse. Comparative Political Studies, 44(6), 662–688..

The dependence on natural resources is exacerbated by a world division system that groups countries into core, semi-periphery, and periphery countries (Wallerstein, 1974). The dichotomy of peripheral countries that only supplies extractive commodities structurally causes them to be trapped in a vicious cycle of the resource curse, so they seem to be restricted from experiencing some economic development (Chase-Dunn & Grimes, 1995)⁶Chase-Dunn, C., & Grimes, P. (1995). World-systems analysis. Annual review of sociology, 387-417.. This condition also causes the political-economic institutions to focus on extracting maximum profits from the extractive sector because, in the short term, it is the easiest to exploit and ignores long-term growth factors, such as innovation (Luong & Weinthal, 2006)⁷Luong, P. J., & Weinthal, E. (2006). Rethinking the resource curse: Ownership structure, institutional capacity, and domestic constraints. Annu. Rev. Polit. Sci., 9, 241-263.. As one of the countries with abundant natural resources, Indonesia is also not free from these risks.

Unveiling  the Influence of Interest Groups on Decentralization and Local Democratization

One of the efforts made to realize the existence of an inclusive political-economic institution is to implement decentralization. Decentralization has been considered a democratic promotion tool because of its ability to increase citizen participation and equity by allocating resources to more of the population (West, 2015)⁸West, K. J. (2015). Decentralization, the inclusion of ethnic citizens, and support for democracy in Latin America. Latin American Research Review, 50(3), 46-70.. However, the initial spirit of decentralization in realizing inclusiveness was hurt by local interest groups who tried to make a profit (rent-seeking) by taking advantage of the dynamics of decentralization. For example, in the Philippines, the clientelism relationship between the government and the private sector is rampant, known as a local boss, a businessman who can control the course of regional politics when decentralization is implemented (Sidel, 1999)⁹Sidel, J. T. (1999). Capital, coercion, and crime: Bossism in the Philippines. Stanford University Press..

In Indonesia, this practice of patronage and clientelism continues to be entrenched even though decentralization has been implemented. Decentralization has become a tool for interest groups in the regions to fertilize petty kings who make profits for themselves. The democratization process at the local level is a battle of political actors who have substantial capital and make the local election (Pilkada) a medium of conspiracy between potential rulers and owners of capital (Hadi, 2010)¹⁰Hadiz, V. (2010). Localising power in post-authoritarian Indonesia. Stanford University Press.. Regional heads commit corruption to provide financial protection to political investors in covering campaign costs (Agustino, 2011)¹¹Agustino, L. (2011). Sisi gelap otonomi daerah: sisi gelap desentralisasi di Indonesia berbanding era sentralisasi. Widya Padjajaran.. This condition is reflected in one of the data on corruption cases by Indonesia Corruption Watch (ICW) in 2021, which shows that most defendants in corruption cases came from village officials, 26%, and of local governments, 25% (ICW, 2022). Based on ICW data, during 2010 – 2019, 294 regional heads were entangled in corruption cases, including bribery and gratuities (Utama, 2020)¹²Utama, F. (2020, October 15). 294 Kepala Daerah Tersandung Kasus Korupsi. Okezone. Retrieved October 16, 2022, from https://nasional.okezone.com/read/2020/10/15/337/2294380/icw-catat-294-kepala-daerah-tersandung-kasus-korupsi.

Patron-Client Relationship in Mining Sector

Then, what is the relationship between decentralization, corruption, and the resource curse discussed in the previous paragraphs? As a form of decentralization, the local government owns the management and licensing of local natural resources (Suhartono, 2013)¹³Suhartono, S. (2013). Desentralisasi pengelolaan sumber daya alam untuk mewujudkan kesejahteraan masyarakat. DiH: Jurnal Ilmu Hukum, 9(18), 110-121. On the other hand, the extractive resources industry is fertile ground for developing corruption cases involving various stakeholders, from the government to the private sector (O’Higgins, 2006)¹⁴O’Higgins, E. R. (2006). Corruption, underdevelopment, and extractive resource industries: Addressing the vicious cycle. Business Ethics Quarterly, 16(2), 235-254.. Research conducted by the OECD shows that the extractive sector accounts for 19% of bribery cases in multinational companies, the largest compared to other sectors (McCarthy, 2014)¹⁵McCarthy, N. (2014, December 8). The Multinational Industries That Bribe The Most. Statista. Retrieved October 16, 2022, from https://www.statista.com/chart/3034/the-multinational-industries-that-bribe-the-most/.

The two facts above make the extractive sector the most potential field for regional heads to abuse the power of decentralization in reaping profits and interacting with political investors. It is reflected in the number of state losses due to corruption in the mining sector in 2019 which was the largest compared to other sectors, reaching Rp5.9 trillion, most of which came from bribery in the mining sector by regional heads (Ahdiat, 2020)¹⁶Ahdiat, A. (2020, February 19). ICW: Korupsi Paling Besar 2019 Terjadi di Sektor Pertambangan. Kantor Berita Radio. Retrieved October 17, 2022, from https://kbr.id/nasional/02-2020/icw__korupsi_paling_besar_2019_terjadi_di_sektor_pertambangan/102332.html. In addition, in the 2011 – 2018 period, four of the ten regional heads with the most prominent corruption cases played in the realm of land clearing permits, especially mining (Sinambela, 2022). The most corrupt regional head is the former Regent of Kutai Kartanegara, Rita Widyasari, who comes from the province of East Kalimantan, the area with the most extensive natural resource dependence index in Indonesia (Sinambela, 2022; Rahma et al, 2021)¹⁷Sinambela, D. B. (2022, August 31). Sepuluh Kepala Daerah Nilai Korupsi Terbesar. Jaring. Retrieved October 17, 2022, from https://jaring.id/sepuluh-kepala-daerah-dengan-nilai-korupsi-terbesar/.

The mining sector provides ample space for local political actors to abuse their power because each stage of the extractive value chain is prone to corruption. This condition happens because of the power of discretion and politicization of the decision-making process in the extractive sector value chain (OECD, 2016). The solid political element in the mining business has led to the rent-seeking behavior of regional heads to make quick profits because they only have five years to reverse the expensive campaign expenses (Aidit, 2016)¹⁸Aidit, T. S. (2016). Rent seeking and the economics of corruption. Constitutional Political Economy, 27(2), 142-157..

The two most significant sources of corruption in the mining sector are the tender stage and the issuance of environmental permits. The nature of the system for the extractive sector, which is very close, such as non-transparent tenders and the government does not disclose geographic and geologic information, triggers loopholes for corruption. The corruption happens through bribery in issuing regional head decrees that do not include public consultation and tend to perpetuate the economic power of several business elites (Oley & Adi, 2018)¹⁹Oley, J. D. B., & Adi, Y. S. (2018). Vulnerabilities of Indonesia’ s Extractive Industry to Illicit Financial Flows. Integritas: Jurnal Antikorupsi, 4(2), 75-98.. It is reflected in the number of Mining Business Permits (IUP) with non-clear and clear statuses of as much as 30% or 2,522 permits (Hatriani, 2017)²⁰Hatriany, J. (2017). Ijin Tambang Status Non C&C. EITI Indonesia. Retrieved October 17, 2022, from https://eiti.esdm.go.id/ijin-tambang-status-non-cc/. Environmental impact analysis is also often politicized due to defects in bureaucratic processes, minimal involvement of local communities, and non-compliance regulations, thus opening regional heads to accept bribes and gratuities to guarantee compliance with environmental requirements (OECD, 2016)²¹OECD. (2016). Corruption in the extractive value chain: Typology of risks, mitigation measures and incentives. OECD Publishing..

One example of the most significant corruption case of regional heads in the era of President Jokowi’s administration was the bribery case for mining license PT Anugerah Harisma Barakah (AMB) by the Governor of Southeast Sulawesi, Nur Alamsyah, in 2016, which reached Rp42.7 billion (As’ad, 2020)²²As’ad, M. (2020). Ketika Sumber Daya Alam Menjadi Arena Korupsi dan Persekongkolan Politik Para Aktor di Era Demokratsisi. Genta Publishing. At the time, the Deputy Chairman of the KPK, Laode M Syarief, stated that the modus operandi of the corruptors was to issue an IUP decree to a person or company accompanied by a kickback or compensation (As’ad, 2020).²³As’ad, M. (2020). Ketika Sumber Daya Alam Menjadi Arena Korupsi dan Persekongkolan Politik Para Aktor di Era Demokratsisi. Genta Publishing. He is guilty of issuing SK that is not following the law, namely approval of mining area reserves, exploration mining business permits (IUP), and forgery of production operation mining business permits. The rent-seeking practice is categorized as rent-seizing, the condition of rent-seeking carried out by state actors by utilizing the authority of the institution he leads to transfer rent from the institution to private pockets (Saleh, 2019).²⁴Saleh, M. D. (2019). Praktik Rent Seeking dan Relasi Negara dengan Kapital (Studi Kasus Korupsi Pemberian Izin Usaha Pertambangan Nikel oleh Gubernur Nur Alam di Provinsi Sulawesi Tenggara). Jurnal Analis Kebijakan, 3(1), 76-84 Based on state and capital relations, corruption cases tend to be driven by the relationship of crony capitalism with equal positions between political and economic actors (Saleh, 2019).²⁵Saleh, M. D. (2019). Praktik Rent Seeking dan Relasi Negara dengan Kapital (Studi Kasus Korupsi Pemberian Izin Usaha Pertambangan Nikel oleh Gubernur Nur Alam di Provinsi Sulawesi Tenggara). Jurnal Analis Kebijakan, 3(1), 76-84

Extractive Local Government: Barriers to the Prosperity of Local Communities

Decentralization, which gives freedom to regulate natural resources, and the potential for corruption from natural resources, has a bad influence on each region and creates the resource curse phenomenon. There is a significant negative correlation between the natural resource dependence index and the sustainable regional development index, which considers poverty, economic growth, and unemployment (Rahma et al, 2021).²⁶Rahma, H., Fauzi, A., Juanda, B., & Widjojanto, B. (2021). Fenomena natural resource curse dalam pembangunan wilayah Indonesia. Jurnal Ekonomi dan Pembangunan Indonesia, 21(2), 148-163. This phenomenon implies that the most abundant natural resources weaken local communities’ economic conditions as a result of the culture of extractive political-economic institutions. Regarding market competition, favoritism in natural resource management projects, especially mining for specific interest groups, can make the extractive industry more concentrated and create a monopoly. It is supported because of the nature of this industry, which requires significant capital to enter the market, so favoritism creates greater barriers to entry (Auty, 2021).²⁷Auty, R. M. (Ed.). (2001). Resource abundance and economic development. Oxford University Press.

Conclusion

The emergence of extractive political-economic institutions can hamper Indonesia’s goals to create a just and prosperous country. These institutions weaken the community’s socioeconomic status due to various policies that are too focused on the benefit of a few interest groups. One of the reasons for the emergence of extractive political-economic institutions is the abundance of natural resources that creates the resource curse phenomenon. In addition, Indonesia’s position as a peripheral country in world system theory further increases the risk of dependence on natural resources, which leads to an extractive institution.

As the authority that controls the management of natural resources in Indonesia, local governments with abundant natural resources tend to only focus on extracting profits from unsustainable extractive sectors. The extractive sector’s potential to be politicized makes it a potential field for regional leaders to reverse campaign capital by engaging in corruption and abetting other interest groups, such as private companies. This condition is reflected in the number of regional heads caught in corruption due to the issue of bribery in mining permits. This condition needs special attention from every element of the Indonesian nation because decentralization without adequate transparency and supervision only makes regional heads become tiny local tyrants and eliminates the initial essence of decentralization to realize equitable welfare distribution in each region.

Editor: Aribho Rahman, Dhia Rana N.

Ilustrator: Alethea Finietha Ester Kumaat