"It is
undeniable that there are a lot of tasks that we did not
complete and various weaknesses that still have to be
improved. For these weaknesses and all the things that
have not been finished ... I offer you my deepest
apologies." - Indonesian President Megawati
Sukarnoputri
JAKARTA - With these words a
tearful President Megawati ended a speech to the
country's top legislative body, the 700-strong People's
Consultative Assembly (MPR), three days after Susilo
Bambang Yudhoyono had taken a commanding lead in the
run-off poll for the presidency.
Yudhoyono has
succeeded in selling himself as capable of strong
leadership, made somewhat easier by Megawati's faltering
performances in public debates. The Jakarta stock
exchange hit a record high a day after the poll as news
of his victory sank in. But now, as in Robert Browning's
Bishop Blougram's Apology, the "truth that peeps
over the glasses' edge when dinner's done" is that
Indonesia's president-designate has a truly mammoth task
ahead.
The economy Bank Indonesia (BI)
governor Burhanuddin Abdullah says the new government's
task is "to try to maintain the stability of the
macro-economy". Though Megawati's leadership was
minimal, her economic ministers, led by Coordinating
Minister Dorodjatun Kuntjoro-Jakti and Finance Minister
Boediono, slowly but surely laid the groundwork for an
eventual improvement. Inflation fell from more than 12%
in 2001 to 5% earlier this year, interest rates plunged
from 17% to 7%, and foreign exchange reserves rose from
US$29 billion to $36 billion.
Government debt as
a proportion of gross domestic product (GDP) dropped
from more than 100% in 2000 to less than 70% by the end
of 2003. To cap it all, the government successfully
floated a $1 billion international bond issue barely a
month before the parliamentary elections. These
achievements are a hard act to follow. Rumor is,
however, that Boediono, credited with imposing fiscal
discipline, will be invited to stay on and lead the
Ministry of Finance.
Though it restored
macro-economic stability, the Megawati administration
was unable to push the GDP growth rate back above 5% to
match the rapid pace maintained throughout most of
Suharto's New Order era. The current government has
forecast growth of only 4.8% this year and 5.4% in 2005.
Megawati also failed to rein in the high rate of
joblessness. A third of the labor force - 40 million
people - remains underemployed, and the number is
growing.
Rising interest rates in the United
States will increase the cost of servicing external debt
and BI governor Abdullah conceded last week that the
interest hikes in the US and volatile oil prices would
put additional pressure on the economy. However, he said
saw no need to raise local rates. The benchmark weighted
average rate of the one-month Sertifikat Bank Indonesia,
or SBI notes, is now at 7.39%. The central bank will
focus on non-interest rate policies to curb inflation
and sustain the rupiah, Abdullah said.
Fuel
subsidies Yudhoyono will be under immediate
pressure to act on fuel subsidies, which remain an
excessive burden on the exchequer. Originally budgeted
at Rp14.5 trillion ($1.6 billion) for oil prices under
$20 a barrel, the revised budget allocated Rp63 trillion
($7 billion) to the subsidies. Last week, however,
parliament's budget committee reversed its previous
decision and voted to cut fuel subsidies to Rp59.2
trillion, saying the new government had three options:
raise fuel prices; reduce fuel consumption; or boost
efficiency in the use of fuel.
Fuel price rises
have long been a sensitive issue, with earlier attempts
to trim subsidies and increase fuel costs greeted with
violent demonstrations. In early 2003, Megawati's
administration briefly raised fuel and utility prices
but was forced to backtrack after massive
anti-government demonstrations.
Early this year,
the government again withdrew its plan to slash costly
fuel subsidies on non-kerosene petroleum products and
pledged not to raise pump prices, arguing the move was
necessary to prevent the possibility of widespread
unrest and violence during the legislative and
presidential elections.
The obstacles
ahead The poor showing of Megawati's ruling
Indonesian Democratic Party of Struggle (PDI-P), which
is estimated to have won less than 20% of the popular
vote, gave Yudhoyono's progressive Democratic Party, the
spur it needed. However, the Democratic Party and its
minor allies have fewer than 100 seats in the 550-seat
national parliament, the House of Representatives or
DPR.
The so-called Nationhood Coalition, formed
to support Megawati's presidential bid and comprising
Golkar, PDI-P and the Islamic-based United Development
Party, holds more than 300 seats in the House.
Though anti-Megawati and anti-Golkar sentiment
may have boosted Yudhoyono's vote tally in last week's
run-off, Golkar chairman Akbar Tanjung, firmly back in
command of Golkar after the dismal showing of its
presidential nominee, retired general Wiranto, is almost
certain to use the party's weight to thwart consensus on
new policy debates in the DPR.
After all,
Yudhoyono's victory is as humiliating a defeat for
Golkar as as it for Megawati and her PDI-P; Megawati had
promised eight cabinet posts to Golkar. Latest reports
say Yudhoyono's cabinet will include two legislators
from his own Democratic Party and two each from the
Indonesian Justice and Unity Party (PKPI) and the
Crescent Star Party (PBB). The rest will go to
professionals.
Policymaking and
development Yudhoyono has yet to say what he
plans do about boosting investment prospects and the
economy in general to help provide jobs for the
increasing masses of young Indonesians. Up to 40 million
people are already out of work or underemployed. A plan
for a US-style national economic council has not been
spelled out in any detail, with Yudhoyono leaving it to
his running mate Jusuf Kalla to say, "We'll talk about
the details [of the council] after October 5." This is
the date when the General Elections Commission (KPU)
will announce the official result of the presidential
election.
Yudhoyono has said he will select his
cabinet members shortly after this date and that his
cabinet will start working as soon as he takes office.
Kalla said there would be no overlapping tasks between
the work of the council and that of the Coordinating
Ministry for Economic Affairs, as "each has its own
functions".
However, a law on national
development planning endorsed at a plenary session of
the DPR earlier this month allows for the National
Development Planning Board (Bappenas) to formulate
guidelines for the president before the government sets
out on its economic agenda. Bappenas will retain an
active role in drawing up the economic development
planning for one, five and 10-year periods, though it
will lose its budget-drafting authority.
"The
Economics of Democracy" - a joint report by Bappenas,
the Central Statistics Bureau and the United Nations
Development Program - sets the blueprint for
development. An earlier version, in 2001, won an
international award for the quality of analysis. The
latest report points to potential improvements in the
collection of taxes and the need for greater efficiency
in public spending as a way of increasing additional
revenues for priority spending. It suggests a social
sector fund that might be financed from privatization
revenues and other sources.
The one-year
economic plan will now be the main guide to the creation
of the annual state budget. The report argues that
policymakers should be less preoccupied with achieving a
balanced budget - the trend during the Suharto era - and
instead consider crunching the numbers to maintain a
modest budget deficit. Though such deficits have been
frowned on by international financial institutions,
deficit spending, says the report, can perform a
valuable function - especially when private investment
is so low - by funding vital public services and also
stimulating the rest of the economy.
In their
projections for the Transitional National Development
Plan, Bappenas said investments totaling Rp379.8
trillion for 2005 and Rp471.4 trillion for 2006 would be
needed to achieve these targets. Most investments are
expected to come from the private sector, with the
government contributing just Rp82 trillion in 2005, and
Rp92.9 trillion the following year.
The primary
source of investment is expected to come from domestic
savings, which are projected to grow steadily from 16.4%
of GDP in 2004 to 16.9% in 2006. Economic growth will be
further spurred by a predicted rise in public
consumption, which will increase at an average rate of
3.7%. Exports are projected to grow at 5.8% annually.
The oil and gas sector is predicted to grow by 7.2%, and
agriculture at around 2.5% per year.
Business
prospects Among the chief obstacles to higher
growth is the poor business climate. Many analysts blame
slow growth on ongoing hindrances to domestic and
foreign investment. Foreign investment is needed to
drive growth, and it must come primarily from the
private sector and the multinationals.
The three
major impediments cited are a weak banking system, an
unreliable judicial system, and corruption. Though
unlikely to achieve an investment climate comparable to
that in Thailand or Malaysia for some time, the new
government will need to act quickly and decisively to
remove such impediments and keep the transition of
Southeast Asia's biggest economy on track through 2005.
Foreign direct investment has slowed to a
trickle this year, with increasing problems from the
unions pushing up labor costs and reducing productivity.
The corporate sector, following workout deals with
creditors, including the Indonesian Bank Restructuring
Agency before it closed down in March, needs borrowing
to fund job-generating investment. But banks, still
shell-shocked by widespread corporate defaults in the
post financial crisis period, remain reluctant to lend
to businesses.
Despite the absurdity of the
bankruptcy decisions on Manulife and Prudential - both
later overturned - the judiciary is now separate from
the government and, with the aid of a credible blueprint
for judicial reform, has slowly started to stamp its
independence.
Corruption Though
Yudhoyono reportedly plans to begin with an
anti-corruption campaign, no specifics have been
promised. Underscoring Indonesia's most chronic
weakness, the Supreme Audit Agency (BPK) reported last
week that it had uncovered 22 major corruption instances
involving trillions of rupiah.
Chairman Satrio
Budiardjo Joedono, though providing no details of the
alleged corruption, told the four-day annual session of
the MPR that the cases had been reported to police and
the Attorney General's Office. "The 22 cases displayed
strong prima facie indications of corruption, involving
amounts worth some Rp166.5 trillion [$18.22 billion] and
$62.7 million," Joedono said.
BPK officials
reportedly told the local media that most of the cases
were connected to Bank Indonesia's liquidity support
program, in which Rp144.5 trillion was pumped into the
banking sector. They said "the state has so far
recovered little of this money". Ironically, the
Attorney General's Office topped the list of state
institutions that have committed irregularities. In a
separate report to the lower parliament, the DPR,
Joedono claimed: "The highest percentage was found in
the Attorney General's Office, covering about 51.8% of
the total audited funds of Rp618.7 billion."
Worse, it was disclosed on Friday that the
Attorney General's Office is looking into corruption
allegations against Minister for State Enterprises
Laksamana Sukardi. Representatives of the Association of
University of Indonesia Alumni, the Bandung Institute of
Technology Alumni, Trisakti University Alumni and the
Civil Society Professionals submitted reports claiming
that Sukardi had been involved in corrupt deals in
several divestment programs over the past few years,
including the controversial divestment of
telecommunications firm Indosat in 2002, the sale of
Pertamina tankers in 2004 and other sell-offs.
The deputy attorney general for intelligence,
Basrief Arief, said complaints had also been filed with
the Attorney General's Office against Minister for Trade
and Industry Rini MS Soewandi and former Indonesian Bank
Restructuring Agency chairman Syafruddin Temenggung. In
a bid to raise cash to cover the budget deficit, the
government has sold its shares in several firms,
including Bank Central Asia and Indosat.
Sukardi
dismissed the allegations on Monday, saying all of the
sales of state shares had been conducted in accordance
with the constitution and current laws.
Democracy forever? However long
Yudhoyono holds the fort, the transition to a new
government on October 20 will be a major achievement for
Indonesia. In only six years, the country has taken a
quantum leap from authoritarianism to a real democracy.
Any honeymoon period for Yudhoyono is likely to
be short lived. "If he doesn't produce on the rule of
law, on corruption, on the economy, on jobs, on getting
investment going, he's going to be thrown out too in
five years," says Jeffrey Winters, a well-known
Indonesia expert at Northwestern University in Chicago.
Others suggest, more cynically, that given the
power of the entrenched elite, the new president could
even suffer the same fate as the deposed Abdurrahman
Wahid, unceremoniously booted out mid-term after failing
to reach a consensus with legislators.
In the
first round of the presidential election in July, three
of the 10 presidential and vice-presidential candidates
had a military background, including Yudhoyono and
former military chief Wiranto. This raised fears among
some that the armed forces were staging a political
comeback. Others believed that competent leadership
would only come from the military.
In any event,
on Monday, current military chief General Endriartono
Sutarto told the MPR: "For the future, we will really
leave the arena of practical politics and ourselves on
the matter of defense." Few doubt, though, that if
Indonesians were to get completely disillusioned with
Yudhoyono and his government, the door would be wide
open for a return to authoritarianism.
"If the
political life is already good, democratic life is
proceeding healthily and there are no political forces
trying to persuade the armed forces to support them,
then soldiers will have their voting rights and can vote
in 2009," the general said, clearly leaving the options
open.
Bill Guerin has worked for 19
years in Indonesia as a journalist and editor. He
specializes in business/economy issues and political
analysis related to Indonesia. He has been a Jakarta
correspondent for Asia Times Online since 2000 and has
also been published by the BBC on East Timor. He can be
reached at softsell@prima.net.id.
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