Reform measures need to address main problem<\/p>\n
The government last Thursday announced its second massive
\nreform measures recommended by the International Monetary Fund
\n(IMF). Subroto, a former minister of mines and energy and former
\nsecretary-general of the Organization of Petroleum Exporting
\nCountries (OPEC), who is now rector of Pancasila University in
\nJakarta, discusses the impact of the reform measures.<\/p>\n
Question: Last week's reform measures have, among other
\nthings, abolished tax and monopoly privileges enjoyed by
\nPresident Soeharto's family. Do you see any political indication
\nof the move?<\/p>\n
Subroto: The President has done what he should -- putting a
\nhigher priority on the interests of his nation than the interests
\nof his family. Tax and customs privileges for the national car
\nproject caused tensions with car producers from the United
\nStates, Japan and Europe. The abolishment of these privileges,
\nfor example, has prompted General Motors of the United States to
\nreconsider the cancellation of its investment plan in Indonesia.<\/p>\n
The abolishment of the clove marketing monopoly, which had
\ncreated market distortion, will also revitalize the clove-blended
\ncigarette business in the country.<\/p>\n
Q: But the reforms have failed to bolster the rupiah's value,
\nwhich remained weak after the announcement. Why didn't the
\nreforms help restore public confidence?<\/p>\n
S: The reform package is OK but market players did not respond
\nenthusiastically because they do not see that any of the massive
\nreform measures will address the core problem that caused the
\nmonetary crisis -- the private sector's huge debts.<\/p>\n
Q: The government, under pressure from the market and the IMF,
\nhas decided to revise its draft budget for 1998\/1999 with new
\nassumptions: An average rupiah rate of Rp 5,000 against the U.S.
\ndollar, zero economic growth and 20 percent inflation...<\/p>\n
S: Setting the rupiah's value at Rp 5,000 per dollar will
\nprobably have a positive impact because it will increase tax
\nrevenues from the oil and gas sector. But we must be careful
\nabout setting an average crude oil price of $17 a barrel. We may
\nhave to review the price projection because the downward trend in
\noil prices will force Iraq to export more oil to earn $2 billion,
\nan earning level allowed by the United Nations to make it
\npossible for Iraq to buy food and medicines. Iraq, therefore, is
\nlikely to increase oil exports to more than 1 million barrels per
\nday (bpd) from the previous level of about 600,000 bpd to 700,000
\nbpd.<\/p>\n
Oil prices will also be under pressure because declines in
\neconomic growth in Asian countries may decrease the demand for
\noil in this region alone by about one million bpd. Furthermore,
\nthe mild winter in Europe and North America will also affect
\ndemand.<\/p>\n
The planned reduction of the fuel subsidy will probably
\nincrease the inflation rate, but inflationary pressures can be
\ncurbed by making the increases gradual, and the burden of the
\nprice hikes on people can be reduced by setting lower price rises
\non the fuel products that are used mostly by the low-income
\nmajority.<\/p>\n
The expected zero economic growth will be our greatest concern
\nbecause of a consequently steep increase in unemployment and
\npossibly social unrest.<\/p>\n
Q: The government will dismantle almost all the monopoly rights
\n(except the one on rice) of the National Logistics Agency. Do you
\nthink such a liberalization move will affect the nation's food
\nsecurity?<\/p>\n
S: Such measures will have a positive impact on the country's
\nfood security. In the first phase of the liberalization, there
\nwill be a gap in supply and demand, which will slightly increase
\nfood prices. But freer competition in the market will, later on,
\nlower prices to levels closer to production cost.<\/p>\n
Q: The reform package will also liberalize the country's service
\nsector, including banking and retail trade. How will this measure
\naffect our economic activities?<\/p>\n
S: The general spirit of the reform package is abolishing
\nanything that hinders the inflow of foreign investment. Such a
\nmove will certainly cause inefficient domestic firms to go
\nbankrupt and this is good for the economy. Freer competition will
\nencourage domestic companies to improve their efficiency and will
\nattract more foreign investors to do business in Indonesia.<\/p>\n
Q: After the introduction of that massive reform package, do you
\nthink that political reform is still needed to restore public
\nconfidence?<\/p>\n
S: Yes, because political figures outside the government system
\nare likely to continue pressing for political reform out of their
\nbelief that the current economic crisis has been caused by lack
\nof confidence in both the economic and political sectors.<\/p>\n
Political reform should start with concerted, firm and
\nconsistent efforts to enhance good governance. This means a
\ngovernment system which is fairly efficient, technically
\ncompetent, highly accountable and clean (not involved in)
\ncorruption and collusion with the business community (crony
\ncapitalism).<\/p>\n
The government should also improve law enforcement, and
\nstrengthen the judicial system. The fact that the government has
\nyet to complete processing many legal cases, such as the murder
\nof journalist Fuad Muhammad Syarifuddin in Yogyakarta and labor
\nactivist Marsinah, has caused legal uncertainty.<\/p>\n
The government should allow for a high degree of social
\ncontrol either through the mass media or other organizations, and
\nimprove the transparency of its policy-making process.<\/p>\n
The laws on general elections also need revision. The
\nrecruitment of the majority of the House of Representative
\nvirtually by way of government appointment has made the House
\ninsensitive to developments in the society, and subservient
\nmostly to the government. (riz)<\/p>",
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"sponsor": "Okusi Associates",
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