Customs Reform in Indonesia

This case describes the Indonesian government’s decision to combat systemic corruption and enhance efficiency in the customs service by “outsourcing” the customs inspections function to a foreign private company. Although the program was a success from an efficiency point of view—the cost of importing goods fell and customs revenues increased significantly—the decision was highly controversial and eventually there was strong pressure to reverse the decision and return customs inspection to the national customs service. The case highlights how the government struggled to reconcile the interests of diverse stakeholders in government and the private sector. Nationalist constituencies in the country advocated returning customs inspection to the government, arguing that it was an issue of national sovereignty, but importers and other business groups wanted to continue with the outsourcing approach because of its success in reducing corruption and lowering transaction costs. The objective of this case is to evaluate the pros and cons of the two alternative approaches, taking into consideration the interests of powerful and important stakeholder groups.