Understanding Conflict Dynamics and Impacts in Indonesia No.2/February 2010 Policy Brief Understanding Conflict Dynamics Conflict and Development and Impacts in Indonesia Program 53334 Edition II February 2010 The Effect of Troop Withdrawal on Extortion: Decentralized Corruption on Trucking Routes in Aceh Extortion by police and military personnel anti-corruption efforts elsewhere. First, it manning roadside security posts has been suggests that in many cases, a simple policy This note is based on the following a consistent problem in each of Indonesia's of reducing the number of roadside security article: areas of large-scale conflict. The staged posts on a road may lead to less corruption. withdrawal of security forces from Aceh Second, the case illustrates that tackling Olken, Benjamin A. and Patrick Barron following the 2005 Helsinki peace accord corruption by targeting the top level of an (2009). "The Simple Economics of presented an opportunity to observe the organization could actually lead to higher Extortion: Evidence from Trucking in effect of a reduction in the number of bribes being charged, if doing so causes Aceh." Journal of Political Economy security posts on the overall cost of illegal a centralized scheme of bribe setting to 117(3): 417-452. payments for trucks to transport goods. A become decentralized. Conflict and Development (C&D) program study found that troop withdrawals during the first six months after the peace INTRODUCTION agreement led to a decrease in extortion, The 2005 Helsinki peace accord between but that illegal payments decreased by a the Government of Indonesia and the Free Two series of Policy Briefs are smaller proportion than did the number Aceh Movement required the government published by the Conflict and of security posts. An 80 percent reduction to withdraw all security force personnel not Development program within the in the number of posts during the period permanently stationed in Aceh. As a result, World Bank Indonesia country of the study produced only a 51 percent 31,690 military and police personnel-- reduction in the amount of bribes paid at more than half the number in the province team. The first, "Understanding posts. when the peace accord was signed-- Conflict Dynamics and Impacts," summarizes the results of research were withdrawn in four waves between The discrepancy can be explained by September 2005 and January 2006. on conflict in Indonesia. These briefs draw out lessons for understanding thinking of extortion at security posts and responding to conflict in other in terms of a market of corruption, with The personnel withdrawn had been middle-income countries. The each post free to set the amount of illegal responsible for manning many of the second, "Evaluating Responses to payments it extorts. When troops were security checkpoints along Aceh's roads. withdrawn, changing the structure of the As has been the case in other conflict areas Conflict," summarizes the results corruption market, the remaining posts in Indonesia, these posts routinely extract of evaluations and assessments each adjusted their prices upwards, but illegal payments from truck drivers. In of conflict programs, and the Aceh, these payments have taken four main methodological implications of how not by enough to offset the effect on the overall level of illegal payments caused by forms: troops at security checkpoints may we can best measure the impacts of collect payments, trucks may pay a monthly the reduction in posts. Had the amount peace-building programs. All Policy of illegal payments extracted by the protection fee or pay for convoy protection Briefs are available at posts been set centrally, for instance by a by the police, or overweight trucks may pay www.conflictanddevelopment.org provincial commander, prices would have bribes to provincial transport officials at been expected to be raised sufficiently at weight stations. The amount of payments each post to keep the overall level of illegal extracted in late 2005 and the first half of payments constant. 2006 were large: the C&D study summarized in this note found that, on average, illegal payments amounted to 13 percent of the There are two implications for the cost of operating a truck for each trip, more Government of Indonesia's ongoing than the total wages received by the truck commitment to combat corruption and for driver and his assistant. Policy Brief | Conflict and Development Program - World Bank Office Indonesia 1 Understanding Conflict Dynamics and Impacts in Indonesia No.2/February 2010 Figure 1: Trucking routes to and from Aceh Since the 1990s, observers have (for instance, if a central authority would also change because no started to model systems of is setting an overall price for coordination between posts was corruption such as these security the road) or engaging in double taking place. posts in terms of conventional marginalization (a decentralized commercial markets (Shleifer and system where each post sets its own This note addresses two key ques- Vishny 1993). Corrupt officials act like profit-maximizing firms and the price). The withdrawal of troops tions: level of corruption is determined from Aceh provided an opportunity · What effect did troop withdrawals by three factors: the structure of to observe whether double have on the pattern and overall the market for bribes, the extent marginalization had been taking levels of illegal payments made to which demand for corrupt place: by trucks on the two routes officials' services varies in response · If the model of a market of surveyed? to price changes, and the degree corruption was not appropriate, · What anti-corruption strategy is of coordination between corrupt then the price of bribes would best suited to combat extortion of officials. As in other markets, local have been expected to decrease trucking in post-conflict contexts `monopolies' may exist; if each in line with the decrease in the such as Aceh? official is free to set their own price, number of posts. they may not fully consider the effect · If price setting for illegal payments of them charging higher prices on the METHODOLOGY was centralized, then the overall prices that other corrupt officials can cost in illegal payments to use the To collect data on extortion, the C&D charge. This `double marginalization' road would not have decreased program recruited local Acehnese means everyone loses. In the Aceh at all, as each post would have enumerators to accompany truck case, the price of using the road raised the amount collect by just drivers on their regular routes to becomes very high, costing trucking enough to compensate for the and from Aceh. As virtually all truck companies and consumers. And the troop withdrawals. drivers have at least one assistant posts actually collect less money · If prices were decentralized, anyway, the surveyors blended in than they would have if they had and double marginalization was and those manning the checkpoints coordinated, because so few people occurring, higher bribes would were presumably unaware of their use the road. have been charged at each presence. The survey ran from security post in response to the November 2005 until July 2006. Because corruption is secretive, it change in the structure of the In total 304 trips to and from Aceh is very difficult to observe whether market (i.e. fewer posts), but were made and more than 6,000 security posts are coordinating the overall cost of using the road illegal payments were observed. 2 Policy Brief | Conflict and Development Program - World Bank Office Indonesia Understanding Conflict Dynamics and Impacts in Indonesia No.2/February 2010 The survey covered two routes: An Asia Foundation study has since to set its own prices. These posts · The 637 km journey from Meula- adapted the C&D methodology for engaged in double marginalization. boh on the west coast of Aceh to a study of costs along nine domestic Medan, the capital of North Su- trucking routes in Indonesia (Sudjana The pattern of increased payments matra; and Hergesell 2008). at remaining posts on the Aceh · The 560 km journey along the portion of the Meulaboh-Medan east coast of Sumatra from the FINDINGS route suggests that price setting capital of Aceh province, Banda is also decentralized within each Aceh, to Medan. The amount of bribes charged district. Price setting at each post at each remaining security post in Aceh adjusted as the number of changed as the number of posts posts decreased, but the share of Enumerators were placed on the decreased. This suggests that the bribes collected in each district also trucks of several cooperative firms behavior of corrupt security force changed. If price setting had been on each route, with the knowledge personnel along the Aceh-North centralized at district level ­ certainly of each driver. The enumerators Sumatra roads can be modeled in a plausible hypothesis as military recorded the quantity and frequency terms of a commercial market, in and police commands are organized of bribes as well as the context which changes to the structure of by district ­ then the share of bribes of each transaction. Efforts were the market (in this case, less posts) collected in each district should not made to obtain as representative a affect the behavior of all remaining have changed even as the number of sample as possible of the journeys actors. posts in the district decreased. made by each firm, but the survey was not necessarily representative of all trucks traveling on each route. A reduction in the number of CONCLUSIONS In particular, certain goods such as checkpoints produced a decrease timber that are carried by special in the overall amount of illegal The withdrawal of troops from trucks were not included in the payments for each trip, but the Aceh under the Helsinki peace survey. overall decrease was offset by each accord presented an opportunity to remaining checkpoint charging a investigate whether extortion along higher amount. The 80 percent the main land transport routes to To observe the effects of troop reduction in posts on the Meulaboh- and from Aceh was centralized or withdrawals, the C&D study Medan route (from 90 to 18 posts) decentralized. The study clearly compared data on bribes in Aceh produced a 51 percent reduction demonstrated that military and and North Sumatra. Troops were in the average overall payment at police personnel were engaging in only withdrawn from Aceh but trucks checkpoints. On the Banda Aceh- double marginalization ­ trying to going to and from Medan also had Medan route, where no significant maximize their own profits without to pass through North Sumatra. As troop withdrawal took place during regard for the effect on demand to such, observed changes in payments the survey period, no increase in use the road. in North Sumatra could be attributed prices at each post was observed to troop reductions along the portion (Figure 2). The effects observed on of the route running through Aceh The withdrawal of troops produced the Meulaboh-Medan route thus province. an atypical result with respect to this should be attributable to troop double marginalization. Under the withdrawals along the Aceh portion Additionally, taking advantage of the classic market model of corruption, of the road, and not to unobserved fact that troop withdrawals in Aceh bribe levels are lower when a central time effects. were staggered, the study looked authority sets their level, because at how the cost of passing through the central authority seeks the given districts changed as troops The pattern of increased payments ideal balance between bribe levels were withdrawn from that area. This at posts on the North Sumatra and demand to use the road. But allowed for the impacts of changing portion of the Meulaboh-Medan in Aceh, the lack of a centralized prices over time to be accounted route corresponds to a model of authority actually benefited road for. decentralized price setting. If the users when the number of troops total amount of payments had been was reduced. A centralized authority set by a central authority, the overall could have been expected to hold This was the first large-scale study amount of illegal payments should the price of using the road constant, to attempt to directly observe actual not have decreased as the number despite fewer posts. Under the bribes in the field. Direct observation of posts reduced. The behavior of decentralized pattern of extortion, allowed the study to record data on the North Sumatra posts, where the remaining posts charged higher each payment made, checkpoint by each post increased its price but bribes, but did not raise their prices checkpoint, and avoided the problem not by enough to fully offset overall by enough to keep the overall cost of drivers exaggerating the amount lost revenues on the entire route, in illegal payments of using the road of bribes paid in post-trip interviews. suggests that each post was free constant. Policy Brief | Conflict and Development Program - World Bank Office Indonesia 3 Understanding Conflict Dynamics and Impacts in Indonesia No.2/February 2010 Figure 2: Impact of checkpoint decrease on bribes paid Meulaboh Num checkpoints Log avg. bribe in N. Sumatra Log tot. payments in N. Sumatra 3000 3000 3000 10 20 30 40 50 60 13 10 9.5 2000 2000 2000 12 Troops Troops Troops 9 1000 1000 1000 11 8.5 8 10 0 0 0 0 11/05 1/06 3/06 5/06 7/06 11/05 1/06 3/06 5/06 7/06 11/05 1/06 3/06 5/06 7/06 Banda Aceh Num Checkpoints Log avg. bribe in N. Sumatra Log tot. payments in N. Sumatra 15000 15000 15000 10 20 30 40 50 60 12 14 10 12 10000 10000 10000 Troops Troops Troops 10 8 5000 5000 5000 6 8 0 0 4 0 6 0 11/05 1/06 3/06 5/06 7/06 11/05 1/06 3/06 5/06 7/06 11/05 1/06 3/06 5/06 7/06 Notes: Each observation is a trip. Dots in the left column show the number of checkpoints encountered on the trip. Triangles in the center column show average prices paid at checkpoints in North Sumatra province on the trip. Boxes in the right column show the log of total payments made in North Suma- tra province, including payments at weigh stations. The top panel shows trips on the Meulaboh road; the bottom panel shows trips on the Banda Aceh road. The solid line indicates the number of troops and police stationed in Aceh province at the time the trip began. There are two policy implications RECOMMENDaTIONS: · Direct observation of extortion from the Aceh case. The case payments is a viable strategy confirms the utility of the market · Investigating how the behavior to understand these questions. model of corruption, and as such of corrupt officials changes in Researchers should seek to suggests that targeting the top level response to changing conditions, develop creative strategies to of an organization could actually such as the removal of troops, can measure other forms of post- result in higher bribes being charged provide a better understanding conflict extortion. if a centralized price-setting system of how the extortion market is consequently replaced by double operates. PaPERS CITED marginalization. · In particular, to understand how Shleifer, Andrei and Robert W. Vishny (1993). to combat extortion in post- "Corruption." Quarterly Journal of Economics 108(3): On the other hand, the case suggests conflict contexts, it is necessary 599-617. that in some cases a simple reduction to understand the degree to in the number of roadside security which it is coordinated and the Sudjana, Brasukra and Alexa Hergesell (2008). "The Cost of Moving Goods: Road Transportation, posts may be an effective policy to mechanisms for coordination that Regulations and Charges in Indonesia." Jakarta: Asia combat extortion. exist. Foundation. For further information, please contact: Conflict and Development Team Jl. Peurada Utama No. 11A, PSF - The World Bank Satellite Office Gampong Peurada, Banda Aceh info@conflictanddevelopment.org Jl. Diponegoro No. 72, Menteng Phone: +62-651 755 1176 Jakarta 10310 - INDONESIA Fax: +62-651 755 1178 Phone: +62-21-314 8175 Fax: +62-21-3190 3090 Please visit our website: email: info@conflictanddevelopment.org http://www.conflictanddevelopment.org 4 Policy Brief | Conflict and Development Program - World Bank Office Indonesia