November 2, 2005

Cleaning Up
After the Tsunami,
An Aceh Surprise:
Good Government

Indonesia's Yudhoyono Tackles
Legendary Corruption
In $6 Billion Rebuilding

Suspicious Midnight Meeting

By PETER FRITSCH
Staff Reporter of THE WALL STREET JOURNAL

BANDA ACEH, Indonesia—The tsunami story of fisherman Zamzami is sadly familiar: A black wave taller than the coastal coconut trees swallowed his home, his wife and five of his six children, none ever to be seen again.

Less familiar is what the 47-year-old says is beginning to go right in his life. Government bureaucrats not only let him move back to the coast but asked his advice on where to build a new dike to best protect the handful of survivors scraping out a living in his village.

"They asked us what we know and what we wanted," says Zamzami, who like many Indonesians goes by a single name. "It's taken time to do the talking, but now we think they are doing the job right."

As Indonesia's massive reconstruction effort here begins to hit its stride, the nation is trying to build something more enduring amid the ruins of the tsunami-ravaged northern tip of Sumatra: a model for good, clean government that listens to its people.

That sounds simple, but it's not what most foresaw for the war-torn region after 60-foot waves killed at least 130,000 and left homeless many multiples more last December. Predictions then were dire. Disease would kill thousands more; the military would seize the opportunity to crush the region's separatist rebels once and for all; and politicians in Jakarta would contrive ways to siphon off some of the billions of dollars in foreign aid and impose unworkable solutions from afar.

The story of Aceh is turning out to be something quite different. It's still early in the rebuilding process and signs of devastation are everywhere, with thousands of people still living in tents. But relief efforts have stabilized the region's health. Peace between the rebel Free Aceh Movement and the government is holding and stands its best chance in nearly three decades of bloody confrontation. The corruption synonymous with business as usual here has yet to appear.

The fact that this is happening in one of the most conservative Muslim regions in the world's most populous Islamic nation is encouraging to those who feared the tsunami would deepen the appeal of radical Islam among the dispossessed. Indonesia has suffered numerous terrorist attacks since 9/11, most recently the Oct. 1 suicide bombings on the resort island of Bali, which killed 23.

"One of the positives coming out of this tragedy is that this government is doing things right," says William M. Frej, director for the U.S. Agency for International Development in Jakarta. "There is a strong focus on transparency and accountability."

For that, most give credit to President Susilo Bambang Yudhoyono, Indonesia's first directly elected leader. The former general, who had earlier led efforts to get the military out of politics, took office just weeks before the Dec. 26 catastrophe. He swept to victory on a platform of honest and open government.

After the initial shock of the tragedy sank in, Mr. Yudhoyono correctly identified his biggest long-term problem: how to spend nearly $6 billion in pledged aid, a tantalizing blank check in a country notorious for corruption. To squander the goodwill of the international community now would be to negate his mandate and invite negative comparisons with the cronyism of former dictator Suharto.

Casting around for ideas, Mr. Yudhoyono did something unusual for an Indonesian politician. He went outside the cozy club of Jakarta's political class, consulting Southeast Asia's elder statesman, Lee Kuan Yew. The fastidious founder of modern Singapore stressed the importance of a professional reconstruction effort. He also suggested Mr. Yudhoyono consider working with management consultants to design the right framework, mentioning the name of McKinsey & Co., according to several people familiar with the matter.

In early February, Mr. Yudhoyono sat down with McKinsey consultant Adam Schwarz, an American based in Singapore. The president knew Mr. Schwarz from his previous work as a journalist in Jakarta when he had written about Mr. Yudhoyono's reform efforts as a general.

That initial contact evolved into an intense and unpublicized behind-the-scenes collaboration. A dozen McKinsey consultants, working without pay, have crafted a reconstruction and recovery plan stressing competitive bidding and community involvement. People familiar with the project value the amount of consulting donated by McKinsey thus far at around $5 million.

Key to the effort was the creation in April of the Rehabilitation and Reconstruction Agency for Aceh and Nias, or BRR as it is known by its Indonesian name, a cabinet-level ministry reporting directly to the president. The BRR oversees the distribution of government reconstruction funds and helps coordinate the projects of donors like the World Bank.

The BRR, as drawn up by McKinsey and others, is free of many of the bureaucratic back alleys where corruption thrives here. By law, its accounts are open to public scrutiny. Its employees must sign anticorruption contracts and aren't subject to the meager civil-service pay scale—a fact resented by peers in other ministries.

Even its offices are different. Unlike the typical cavernous Indonesian ministry full of idlers smoking clove cigarettes, the agency's Aceh headquarters is in a converted middle-class home. Buzzing with activity—and relentless tropical flies—it has the feel of a transplanted Silicon Valley startup. Twenty-something McKinsey consultants tap on laptops set up in the foyer as locals come and go to daily prayers. Lunch is self-serve, spooned out from crocks set out on a table in the middle of the office. Seating is informal; most grab a spot of empty floor.

The informality belies the agency's power. Crucially, the law establishing the BRR enables the bulk of funds to go from donor nations and nongovernment organizations straight to contractors through a competitive bidding and tender process. That keeps cash off the government budget and away from ministries in Jakarta, where they could be bogged down in bureaucratic tussles or, worse, simply disappear.

The BRR's direct control of the roughly $850 million in aid that does pass through government accounts ensured there would be plenty of powerful politicians angling to head the agency.

Instead, Mr. Yudhoyono chose 58-year-old Kuntoro Mangkusubroto, a Stanford-educated engineer and former minister of mines known for his activism on anticorruption matters. The semi-retired Mr. Kuntoro was not an obvious choice. He eschews the Javanese ceremony and politesse that infuses politics here.

Old-line politicians opposed Mr. Kuntoro for the same reason representatives of McKinsey and donor nations wanted him: impatience and a reputation for incorruptibility. Mr. Kuntoro offers a typically blunt response when asked how he responds to ministers unhappy to lose control of reconstruction projects and the distribution of aid dollars. "I tell them that's your problem," Mr. Kuntoro says. "You don't like it, tough."

Such talk implies Mr. Yudhoyono's strong backing. That has made it difficult for often venal bureaucrats and lawmakers to twist the agency's arm. But it hasn't stopped them from trying.

In early June, a group of legislators tasked with approving the BRR's budget invited a group of senior agency officials to a midnight meeting at room 2080 of Jakarta's Sahid Jaya hotel, according to people at the BRR. Some BRR officials worried that they would be pressured to divert contracts to friends of the legislators. Invited to the impromptu meeting, Mr. Kuntoro says he waited outside the hotel "because I can't always control my temper."

As it turned out, people familiar with the matter say, the lawmakers wanted the BRR to support a contract for a tsunami early-warning system they claimed was being pushed by Kusmayanto Kadiman, Minister for Research and Technology.

Before long, Mr. Kuntoro says he got a cellphone text message from a deputy relaying the legislators' request. "I called [Mr. Kusmayanto] and threatened to make [the legislators' claims] public," said Mr. Kuntoro.

He said Mr. Kusmayanto pledged his cooperation and the matter ended there. Mr. Kusmayanto declined to comment on the incident and referred questions to Idwan Suhardi, assistant to the Deputy Minister for Research and Technology. Mr. Suhardi said: "The state ministry for research and technology has never given any recommendation or favor to any particular company or institution, domestic or foreign, related to the development of tsunami early warning system."

Whatever the case, the incident helped serve notice on those who would seek favors from the BRR that the agency wasn't playing by the old rules.

"Look, we Indonesians are famous for corruption," says Mr. Kuntoro. "We have to get this right."

Getting it right has also meant going slow—often subjecting the government to criticism as reconstruction projects wait to get off the ground. It has taken time to create transparent procedures and competitive bids for contracts; more time to hire auditors to look over the BRR's shoulder; and yet more time to do the thankless work of sorting out things like land titles across such a vast area in which many land owners are dead.

"Could [the reconstruction] have been done any faster and been done well? No," says Michael Whiting, head of the United Nations Joint Logistics Centre in Aceh and a veteran of relief operations in Bosnia and Kosovo. He says the BRR is effectively helping the more than 120 international aid organizations working in the region cut through bureaucratic red tape, adding: "They actually have taken the time to get a good plan, which is more than I can say for other places I've worked."

That doesn't mean the BRR has acted as swiftly as it could have, a point Mr. Kuntoro is quick to concede. Jan Egeland, the U.N.'s top emergency relief coordinator, recently cited the failure to build permanent housing in Aceh. Some 67,500 people in Aceh still live in tent camps.

To walk the coastal plain of the provincial capital Banda Aceh today is a surreal experience. Need is everywhere and activity seemingly nowhere. Roads are ruts strewn with giant tree trunks. There are families in tents and flimsy wooden structures for whom days are consumed just fetching water. Cranes, backhoes and dump trucks are conspicuous by their absence. The devastation, stretching far beyond where the eye can see, suggests the conundrum of just where to begin.

Then there is paperwork. Eddy Purwanto, a BRR deputy director, says it has taken seven weeks for the BRR to award a government contract that might have taken just a week in another ministry. That, he says, is simply because bids are no longer being rigged.

Time lost to competitive bidding is, however, proving to be money saved. In the case of one $35 million contract for irrigation and flood-control systems in Aceh, even the highest bid came in at only 80% of the government's own estimate for the project's actual cost.

In Banda Aceh, the push to curtail corruption is turning off local bureaucrats, causing further delays. To address that, the BRR boosted salaries for local government officials overseeing reconstruction projects by over 20 times normal scale to as much as $2,000 per month.

Still, the BRR is having a hard time finding project managers. It turns out local officials can make even more money when bribes are involved. "It's taken two months to find some project managers," says Sudirman Said, another deputy director at the BRR. "Usually, finding a bureaucrat to oversee a contract is a piece of cake."

The biggest cultural shock to the system has been the BRR's willingness to give local residents a say in what comes next—a component of the reconstruction blueprint pushed by McKinsey. Local wishes have long been subordinate to Indonesia's post-colonial obsession with holding a farflung archipelago together as a nation.

Juaini, 50 years old, lost all five of her children to the tsunami. She says she has been surprised to see the likes of Mr. Kuntoro himself inspecting new homes built to the specifications of her neighbors in the village of Deah Baro on the outskirts of Banda Aceh. "He's not like the other [government] officials saying they listen to you but then forget," she says. "People like me can talk to him easily, openly."

The theme of local self-determination also characterizes Aceh's new peace agreement—a key strut of the rebuilding process. The government has agreed to let the province elect its own leaders and will even let the rebels contest elections as a political party, something that sticks in the craw of Jakarta hardliners.

The army, a powerful presence in Aceh frequently criticized for human-rights abuses, likewise remains distrustful of the rebels and those who would work with them. Its generals bristle when Mr. Kuntoro says he'll happily rebuild rebel areas and welcome them on his reconstruction team. "The army sends intelligence guys [to spy on BRR's office], but I don't care," he says. "We have nothing to hide."

The BRR's reconstruction efforts will go smoother if the peace holds. Many are confident it will, despite false starts in the past. "We are really sure both sides are committed," says Jaakko Okansen, a military adviser to the Aceh Monitoring Mission, an unarmed group from the European Union and five Southeast Asian nations that is overseeing the region's disarmament. "Not a single time has either side broken its word."

Like the peace process, the reconstruction effort will last for years and is certain to have its share of disappointments. But as the rebuilding contracts begin to flow in earnest, those on the ground see a lot that is encouraging.

"We're satisfied with the work so far," says Zainul Arifin, a descendant of the former king of Aceh. "At least we have a roadmap for where we are going."