Rent-seeking, state capture, and governance failure: A juridical analysis of corruption within Indonesian state-owned enterprises

Abstract

This paper offers a comprehensive juridical and political-economic analysis of the structural vulnerabilities that enable systemic corruption and rent-seeking within Indonesia’s State-Owned Enterprises (BUMNs). While Indonesia has established a formal governance framework centered on Good Corporate Governance (GCG) principles, these mechanisms often operate as a compliance façade, failing to counteract entrenched informal power dynamics and the ambiguous dual mandate that positions BUMNs as both commercial entities and instruments of state policy. Through a forensic examination of three landmark cases namely: the ‘Papa Minta Saham’ political capture scandal, the PT Asuransi Jiwasraya financial collapse (Rp16.8 trillion loss), and the PT Timah natural resource cartel (Rp300 trillion loss) as the study identifies recurring patterns of governance failure. These include compromised board oversight, symbiotic collusion between public officials and private actors, and the strategic exploitation of legal ambiguities. The analysis reveals an evolution in corrupt practices from direct political extortion toward sophisticated financial engineering and bureaucratic capture. In response, the paper proposes a multi-layered reform agenda: (1) legislative clarification of the BUMN mandate under Law No. 19 of 2003; (2) strengthening of evidentiary standards in anti-corruption prosecutions; (3) institutionalization of independent GCG audits; (4) empowerment of genuinely independent Boards of Commissioners; and (5) enhanced whistleblower protections. For foreign stakeholders, the findings underscore the critical need for rigorous political risk and integrity due diligence when engaging with Indonesian BUMNs.