Indonesia's top priorities<\/p>\n
Minister of Finance Boediono was not exaggerating when he said
\non Monday that Indonesia faced a new round of crisis if it failed
\nto maintain the pace of reform after the IMF-sponsored economic
\nprogram ends later this year, botched next year's elections or
\nallowed its territorial integrity to be compromised.<\/p>\n
He rightly asserted that these three concerns should be the
\ntop priorities for the Unitary State of the Republic of Indonesia
\n(NKRI). Having said that, Boediono did not by any means intend to
\njoin in on the chorus of the NKRI anthem that has been sung time
\nand again over the last five weeks of military operations in
\nAceh.<\/p>\n
It is by no means the style of the hardworking Boediono to
\nmince words when it comes to an acronym like the NKRI. By using
\nthe acronym, the minister was emphasizing his point that the
\nentire nation -- meaning all of the people, the central
\ngovernment, regional administrations and the two other branches
\nof government that make up the NKRI -- must join hands in
\nensuring no new crisis hits the country.<\/p>\n
Take, for example, the strategy of managing national reform
\nprograms and maintaining macroeconomic stability when the IMF
\nprogram ends later this year.<\/p>\n
Opting for a complete termination of the IMF program, as most
\npoliticians, many analysts and several Cabinet ministers have
\ndemanded, would cause a financing (fiscal gap) and credibility
\ngap.<\/p>\n
The fiscal gap would arise because without the IMF, the
\ngovernment would be deprived of the opportunity to receive
\nanother round of debt rescheduling from the Paris Club of
\nsovereign creditors, thereby adding at least US$3 billion in
\nannual foreign debt servicing to the state budget. And this does
\nnot include the consequences of this on the size of our foreign
\nreserves and its impact on the rupiah exchange rate.<\/p>\n
The government, therefore, should devise programs that are
\ncredible to the market to cover this additional burden and manage
\nour external balance. However realistic and credible the
\nprograms, which are being designed by the finance ministry, they
\nwould be rendered less effective if they were not fully supported
\nby every single component of the NKRI.<\/p>\n
Any well-designed program would likely be doomed if the entire
\ngovernment did not maintain budget discipline, as the recent case
\nof the procurement of jet fighters and helicopters from Russia
\ndemonstrates.<\/p>\n
Likewise, tax revenue will not increase as much as expected to
\nplug the hole in the budget and exports will not expand to
\nstrengthen the balance of payments if local administrations
\npursue policy measures detrimental to sound business operations,
\nor if the customs service does not improve its competence and
\nminimize corruption within its ranks.<\/p>\n
The issue of credibility is perhaps the biggest challenge
\nfacing the government after the end of the IMF program, given its
\npast record of delaying or backtracking on reform commitments.<\/p>\n
The three branches of government must therefore convince the
\nmarket that the pace of national reform will continue even
\nwithout the direct oversight of the IMF. Failing to approve a
\nbill on schedule, as the House of Representatives failed to do so
\nwith the draft legislation on amendments to the anticorruption
\nlaw on Monday, is inimical to market confidence.<\/p>\n
Hence, Boediono is again quite right in attributing the
\ncurrent macroeconomic and monetary stability largely to
\nincreasing market confidence. This factor has created a virtuous
\ncycle within the economy -- a strengthening rupiah, lower
\ninflation, declining interest rates, bullish stock exchange and
\nan improving fiscal balance as a result of decreasing interest
\nburdens on domestic debts.<\/p>\n
This market confidence has increased not so much because of
\nsignificant improvements in the fundamentals of the economy, but
\nbecause investors and businesses perceive that the reforms are by
\nand large on the right track and the progress, though
\nincremental, steady. After all, confidence feeds on a clear
\ndirection.<\/p>\n
Similarly, fair and smooth general and presidential elections
\nin 2004 would bolster market confidence in the country because
\nsuch elections would maintain political stability.<\/p>\n
Though the government is fully responsible for holding the
\nelections, they would be doomed to failure without the full
\ncooperation of all of the components of the NKRI.<\/p>\n
For example, if the House does not complete on schedule all of
\nthe laws that will govern the elections or if the police and
\nmilitary cannot provide a peaceful ballot, political stability
\nwill be damaged.<\/p>\n
But what business is it of Boediono, as the finance minister,
\nto talk about territorial integrity as the third most important
\nitem on the nation's agenda? His remarks, we believe, convey an
\nimplicit warning to the military not to botch up their operations
\nin Aceh.<\/p>\n
If the operations succeed in restoring order and stability in
\nAceh, but in the process alienate the Acehnese from the concept
\nand true meaning of the NKRI, that would be devastating to
\npolitical stability and national unity, with similarly grave
\ndamage to macroeconomic stability.<\/p>\n
So, all in all, Boediono's remarks succeeded in accurately
\noutlining the most pressing items on the nation's agenda.<\/p>",
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