A matter of will
A matter of will
Many people assumed that the economy would automatically
recover as soon as the government of President B.J. Habibie won
the approval of major aid donors for its handling of the economy.
It is now clear they could not have been more wrong. Two weeks
since the government signed the latest letter of intent with the
International Monetary Fund, the rupiah's exchange rate -- the
barometer measuring people's confidence in the economy -- still
hovers between Rp 14,000 and Rp 15,000 to the dollar, with no
sign of improving any time soon.
The President does not seem to have any problem convincing aid
donors to come up with large cash pledges. In the past three
weeks, the Asian Development Bank has disbursed $1.5 billion, the
World Bank $1 billion, Japan has come up with a plan to help
finance Indonesia's export and import activities, and the United
States has started mobilizing food aid for Indonesia. The World
Bank has also appealed to other donor governments to come up with
more cash at a meeting of the Consultative Group on Indonesia in
Paris later this month.
In normal circumstances, such a strong international vote of
confidence from foreign governments and official lending agencies
would have been sufficient to convince private investors, local
and foreign, to follow suit. Alas, this is not the case now.
Investors need a lot more convincing from the government than
mere pledges of economic reforms given to aid donors. While
donors may base their aid on compassion, investors are motivated
by profit. That means some form of basic guarantee of the safety
of their investment is needed. Habibie may have met many business
leaders, but he has done very little to create a climate
conducive for them to invest once again in Indonesia.
For one, there is the question of the prohibitively high
interest rates that would kill off most investment plans. The
government has kept interest rates high as part of its policy to
try to strengthen the rupiah's exchange rate. Initially this was
to be a temporary, shock-therapy measure. But with the rupiah
remaining stubbornly low, high interest rates are now becoming a
permanent feature of the economy at the expense of investments.
The repercussions of this will be felt in the years to come.
An even bigger deterrent to investors is the uncertainty of
doing business in this country. The wave of protests and riots
that led to the resignation of Soeharto in May undermined
investors' confidence. But even with Habibie firmly embedded in
power and the protests becoming rarer and smaller, and with the
military firmly in control, investors are still reluctant to
resume their activities in Indonesia. This is because confidence
in the new government, and its ability to provide the minimum
guarantee for conducting business, is low.
Habibie may have promised a lot in his meetings with various
business leaders, but he has not regained their confidence. The
May riots have left a sour aftertaste among entrepreneurs whose
businesses were destroyed. How the riots' aftermath is handled
reflects the government's ability to uphold the law and to
protect the business community. Foot-dragging in the
investigation into the riots is not helping the government's
cause to win back the confidence of the business people.
The revival of the private business sector must be made part
of any government strategy for an economic recovery. Habibie must
appease investors as much as he has convinced foreign aid donors.
He cannot ignore investors, of whatever ethnic background, for
they are the ones who create wealth and jobs in this country.
Investors, as we have seen, are not asking for much. They just
want a greater legal and political certainty. This should not be
hard to provide, but it needs political will. This, sadly, is
lacking in the present administration.