Political moves key to economic cure<\/p>\n
By Sofyan Wanandi<\/p>\n
The following article is based on a paper presented at the
\n\"Indonesia Update 1998\" Conference in Melbourne from Sept. 25 to
\nSept. 26, 1998. This is the first of two articles.<\/p>\n
MELBOURNE: To many Indonesians, and the so-called reformists
\nin particular, the country has not yet entered the post-Soeharto
\nera. The transition government under President Habibie is seen as
\njust a continuation of the Soeharto regime without Soeharto. This
\nis perhaps correct if judged on the basis of the practices of
\ngovernance. Here, nothing seems to have changed. It is perhaps
\ntoo early to expect that the practices of governance can change
\novernight. What is expected is not the results as such, but clear
\nsigns that changes are being made. Indeed, such signs are nowhere
\nto be seen.<\/p>\n
However, from the perspective of the Indonesian business
\ncommunity there are already changes, not in terms of practices of
\ngovernance but in the political agenda of the government that
\nhave a direct bearing on the business community. Although the
\neconomic policies of the Habibie government lack coherence, the
\ngeneral thrust of its policy towards business is quite clear. The
\nemphasis now is on small enterprises and cooperatives. This is
\nnot unjustified in view of the fact that small enterprises and
\ncooperatives are very weak and play only a marginal role in the
\neconomy.<\/p>\n
There has always been a strong belief that the Indonesian
\neconomy should rest on three pillars: the state, private
\nenterprise, and cooperatives. This is not the cause of uneasiness
\non the part of the business community. What worries them is the
\nfact that the government is not interested in a revival of
\nexisting big businesses that are currently in deep trouble. The
\nbig uncertainty on their part comes from the feeling that the
\ngovernment is basically hostile to them. Will small enterprises
\nand cooperatives be promoted at the expense of the larger
\nbusinesses? Does the policy essentially have racial overtones?
\nAre all of these concerns at all justified?<\/p>\n
Unless these issues are clarified, confidence in the business
\ncommunity will remain low. This holds true not only for
\nIndonesian-Chinese businesses but also for the much wider local
\nbusiness community, and perhaps for the foreign business
\ncommunity as well.<\/p>\n
Soeharto had been a strong proponent of an economic framework
\nthat rests on the three pillars referred to above. He introduced
\nvarious policies over the years to strengthen the weakest link in
\nthat framework, namely cooperatives and small enterprises. The
\nMinistry of Cooperatives was established quite early during his
\nreign and huge amounts of resources were directed to the
\ncooperatives especially during the time when the Minister of
\nCooperatives was also the head of the State Logistics Agency
\n(BULOG). The Ministry of Industry also introduced various schemes
\n(e.g. LIK or lingkungan industri kecil) to assist small scale
\nindustries.<\/p>\n
Various schemes of \"partnership\" (kemitraan) were also
\nintroduced on the basis that not only the state should be
\ninvolved in the strengthening of the cooperatives and small
\nenterprises but that the large private enterprises are equally
\nresponsible. The results were not encouraging on a national
\nscale, although there are individual success stories. In later
\nyears, Soeharto, who became very impatient, took things into his
\nown hands and established the Jimbaran Group. This was an even
\nbigger disappointment as nothing concrete came out of the
\ninitiative.<\/p>\n
Much can be said about the above policies and initiatives. An
\nobjective assessment of their meager results points to their two
\nmain causes, namely poor governance and the politicization of the
\nprogram. It should be a matter of concern to all that the current
\npolicies will have the same fate because, as proposed earlier,
\nthe practices of governance have not changed, and the project is
\na highly political one. And it is not improbable that the
\ngovernment would find scapegoats for its failure. The previous
\nhead of BULOG has become the first victim, ironically not because
\nof the agency's corrupt practices.<\/p>\n
What about the other pillar, namely the state or more
\nprecisely state-owned enterprises? Many of the large state
\nenterprises are in financial difficulties. Garuda Airways is in
\ndeep trouble and Robby Djohan, an experienced banker recruited
\nfrom the private sector, has been given the task to rescue the
\nenterprise. Perusahaan Listrik Negara (PLN), the state
\nelectricity company, is technically bankrupt.<\/p>\n
While the new minister in charge of privatizing state
\nenterprises has removed the head of the company, who was held
\nresponsible for deals with private power producers that were
\nforced on him, it remains unclear how the enterprise will be
\nrescued. The plan to privatize Semen Gresik, which was to become
\nthe first privatization exercise, ran into trouble with the
\nparliament and public opinion because the negotiations were
\nregarded as non transparent. Pertamina, the largest state owned
\nenterprise, is also in deep financial trouble.<\/p>\n
It has begun to rid itself of the rent-seeking activities of
\nthe Soeharto clan that had cost Pertamina dearly in foregone
\nrevenues and higher charges. Having done so, in order to survive
\nPertamina still needs to do much more. It must formulate its new
\nmission and adopt a new business orientation. This is a challenge
\nfaced by all state enterprises. Having Tanri Abeng, Indonesia's
\nfirst \"one billion rupiah professional manager\", in charge of
\nstate enterprises (with the exception of Pertamina) is not a
\nguarantee that the challenge will be successfully responded to.
\nTanri must go beyond raising funds for the government coffers by
\nprivatizing state enterprises.<\/p>\n
The third pillar, the \"modern\" private sector is in total
\ndisarray. Only a few of the large conglomerates will survive.
\nSome were structurally weak long before the crisis. Others easily
\nfell victim to the crisis because they had over-invested, become
\nover-leveraged and over-stretched.<\/p>\n
But there are also healthy enterprises that are having a hard
\ntime coping with the crisis situation that has already lasted for
\nmore than one year. Some continue to make their debt service
\npayments but there is a strong incentive for these companies to
\njoin in the debt moratorium of their foreign and domestic
\nborrowings.<\/p>\n
The banking sector, which in itself did not have large foreign
\nexposure, unlike the case of Thailand and Korea, has become the
\nvictim of the debt moratorium or rescheduling. Some banks,
\nincluding the banks that have been liquidated and frozen, were
\nalso in trouble before the onset of the crisis. They had large
\nproblem loans and had severely violated the prudential
\nrequirements. Of course the bad ones must be penalized.<\/p>\n
Yet, separating the good ones from the bad ones does not seem
\nto be an easy task. Partly, this is due to weak corporate
\ngovernance resulting in poor transparency and accounting
\npractices. Partly, it is because the mechanisms and the
\nregulations are not in place. In other words, there is a lack of
\nan exit policy, as put forward by the 15 economists that signed
\nthe Declaration on the Recovery of the Economy in early August.<\/p>\n
IBRA, the banking restructuring agency, has to start from
\nscratch and is confronted with real problems of financing the
\nrestructuring. INDRA, which is trying to assist in resolving the
\nexternal debt of the private sector, has produced a framework
\nwhich still lacks a mechanism for implementation. The more
\nworrying part is that the attempts to separate the good from the
\nbad has become highly politicized.<\/p>\n
In a recent television talkshow, Soegeng Sarjadi from the
\nKodel Group, expressed his concern that the government and public
\nopinion cannot discriminate between the good and the bad because
\nthe problems have become so politicized: all the big ones must be
\nbad; all conglomerates must be bad; all Chinese-Indonesian
\nbusinesses must be bad; all the businesses of Soeharto's children
\nmust be bad; all businesses of his cronies must be bad. What then
\nis left?<\/p>\n
The overall environment for business is far from conducive. To
\nsome, most likely Soeharto's children and cronies, there is a
\nwitch hunt taking place. If improper procedures are used, this
\ncould have a negative effect on the business environment. To
\nothers, perhaps the big Chinese-Indonesian conglomerates, there
\nis the danger of hostile takeovers by groups sponsored by the
\ngovernment.<\/p>\n
Recent noises from within the government about a policy of
\nasset redistribution have increased such concerns. Asset
\nredistribution may mean redistribution to the government's new
\ncronies. Still, some other groups feel that the government will
\nforce them out of their businesses, to be replaced by
\ncooperatives or other business units that are government
\nsponsored.<\/p>\n
Such signals have been made by the government towards
\nparticipants in the food distribution system. Whatever the case,
\nin general the Chinese-Indonesian community feels most uneasy
\nwith the uncertain situation about their place and acceptability
\nin the society, not only in business.<\/p>\n
They feel that if their participation in business is no longer
\nwelcome, they are essentially unwelcome in the society. No
\nassurances have been made at all by the Habibie government. More
\nreason for concern was the statement by Abdurrahman Wahid (Gus
\nDur) that four ministers in the present cabinet are anti-Chinese.<\/p>\n
Sofyan Wanandi is Chairman and CEO of the widely diversified
\nGemala Group.<\/p>",
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