Stalemate prevents recovery<\/p>\n
By James Castle<\/p>\n
JAKARTA (JP): Businessmen are normally hesitant to make their
\npolitical views public, but there is little doubt that the long
\nrunning political stalemate between President Abdurrahman Wahid
\nand the House of Representatives (DPR) has had severe economic
\nconsequences.<\/p>\n
While the economy performed relatively well last year, this
\nwas primarily due to a benign international environment and a
\ncontinuation of the V-shaped rebound which usually follows such
\nlarge drops like Indonesia's economy experienced in 1998. It is
\nfair to say that last year's growth was not due to improved
\npolicies and performance.<\/p>\n
It happened despite the lack of attention to economic policy
\nin either the administration or the DPR because of the intense
\nfocus on the political struggle between the President and his
\nopponents.<\/p>\n
This year the global economy has slowed dramatically,
\nrevealing the lack of a clear national economic policy or any
\nserious attempts to pursue such a policy. Indeed, how can any
\npolicy continuity or effective implementation be expected, given
\nthe ministerial merry-go-round to which the country has been
\nsubjected over the past several years.<\/p>\n
Since May 1998 there have been four coordinating ministers for
\nthe economy, five coordinating ministers for political affairs,
\nfour finance ministers, five heads of the Indonesian Bank
\nRestructuring Agency (IBRA) and an equal number of changes in
\nposts of critical importance to business and economic recovery
\nsuch as the minister of energy and mineral resources, minister of
\nmanpower, President of Pertamina, etc.<\/p>\n
It is clear to business as well as the public at large that
\nthese frequent changes have not been made on performance grounds
\nbut rather in response to the various political imperatives, as
\nthe government struggles to survive attacks from its numerous
\npolitical foes.<\/p>\n
The effects of this stalemate can be felt everywhere. The man
\nin the street feels the economic decline most directly in rising
\nprices and the decline in job opportunities. Unemployment
\nincreases and social tensions rise. Government planners and
\npoliticians suffer because they have been forced to watch their
\ncarefully-crafted 2001 budget fall apart under the onslaught of
\nrising prices, higher interest rates and ballooning government
\nsubsidies.<\/p>\n
The collapse of the government's original budget has also
\nincreased tensions between the country's policy planners and the
\nInternational Monetary Fund (IMF) and now threatens the entire
\ninternational bail-out package.<\/p>\n
At the beginning of this year, the IMF agreed to fund a budget
\ndeficit equal to about 3.5 percent of gross domestic product.
\nOnce it became clear the deficit would exceed 6 percent of GDP,
\nor more than US$8 billion, the IMF balked.<\/p>\n
Not only did it indicate it would not increase its financial
\nsupport to fill the wider gap, it also said it would not supply
\nthe amount originally agreed upon because the government did not
\ndeliver on its promise to limit the deficit to 3.5 percent.<\/p>\n
The passage of a new budget by the DPR has removed this
\nroadblock and renewed talks with the IMF are underway at this
\nmoment.<\/p>\n
To business observers, it seems like the country's leaders
\nhave gotten themselves into a deadly trap. Because the economy
\nis not recovering, political tension has increased and support
\nfor the current government has declined.<\/p>\n
Conversely, the increase in political tension and the decline
\nof support for the current leadership both in the administration
\nand in the DPR has further eroded economic confidence, causing
\ninvestors to defer activities.<\/p>\n
The breakdown in communication and, more important, the loss
\nof respect between the DPR and the President has made it
\nimpossible to implement the few policies the government has tried
\nto pursue, even those agreed upon with the House.<\/p>\n
Routine decisions, well within the scope of executive
\nauthority, taken in implementing policies approved by DPR, are
\nsubject to review, renegotiation, vicious attack and de facto
\nvetoes. The most glaring business example in this regard, is the
\ninability of investors to close deals with IBRA even after they
\nhave paid their money. Cases like Manulife insurance and the
\nGuthrie plantation deals have poisoned the atmosphere. The
\ncurrent lack of interest in the sale of BCA shares is a clear
\nindicator of the real cost of the political intrigue and policy
\nstalemates which have plagued IBRA since its inception.<\/p>\n
Meanwhile, business watches helplessly while politicians trade
\naccusations and parliament threatens to remove the President from
\noffice. While individual businessmen have their favorites, there
\nis no consensus in the business community as to whether President
\nAbdurrahman Wahid or Megawati Soekarnoputri would be the better
\nperson to lead the country and promote economic recovery.<\/p>\n
One suspects this political agnosticism is primarily because
\nthe current political struggles seem more based on the desire for
\npower for its own sake and the right to name colleagues and
\ncronies to important and powerful positions, rather than to
\npromote any particular policy agenda or economic ideologies or
\nprinciples.<\/p>\n
In the wake of such an uncertain political climate, investors
\nare keeping their money in their pockets. Businesses are
\nreducing spending to absolute minimums. The biggest worry in the
\nbusiness community is that the current leadership struggle will
\nend in yet another stalemate rather than produce a decisive
\nresult.<\/p>\n
Many observers talk about seeking a win-win situation.
\nUnfortunately, politics rarely offers win-win solutions. It is
\nin the nature of democratic politics that one side wins and the
\nother loses, at least until the next election when a past loser
\nmay indeed become a winner. It is vitally important for the
\ncurrent political struggle in Indonesia between the President and
\nthe DPR to produce a clear and decisive winner.<\/p>\n
It is also important that the loser acknowledge and accept
\ndefeat, knowing that it may be his or her turn again in 2004 or
\nan earlier election should the People's Consultative Assembly
\n(MPR) so mandate. If a clear winner does not emerge, it is
\nhighly unlikely that any new government formed in the wake of
\nthis debilitating process, be it a new Megawati government or yet
\nanother revised Abdurrahman government, will have the necessary
\npower and support to pursue a strong economic recovery program.<\/p>\n
If a new stalemate results, one can expect more economic
\ndrift, a further decline in the rupiah value, higher inflation
\nand increasing political dissatisfaction, insuring that the next
\ngovernment will have an equally short life. On the other hand,
\nif a decisive winner is produced with a clear mandate to attempt
\nto lead the country out of its economic morass, we can anticipate
\na market honeymoon, a strengthening rupiah, a decline in interest
\nrates, a contracting budget deficit and an ultimate turn around
\nof Indonesia's devastated economy.<\/p>\n
There is little the investor can do at this point. The
\ninitiative and the power is now in the hands of the politicians.
\nIt is time for them to put the nation's interests ahead of their
\nown.<\/p>\n
The writer is a technical advisor at PT Jasawenang
\nCitrasempurna, a subsidiary of the Castle Group.<\/p>",
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