Accelerating recovery

Despite the tumultuous debate about the proposed amendments to the Constitution that are the main focus of the People's Consultative Assembly (MPR) Annual Session, it is a relief to know it has still spent some time reviewing economic issues.

Newspaper headlines and TV reports that have described the suffering of hundreds of thousands of Indonesian workers during their flight from Malaysia in the last two weeks seems to have jolted the political leaders into realizing just how bad our economic condition is.

The Assembly members should now realize that living conditions in many provinces have been so miserable that it has forced hundreds of thousands of rural people to leave the safety and hospitality of their community and travel to a foreign land to seek work. These people were willing to brave adverse, and often exploitative, living and working environments, to make ends meet.

It was this painful realization that has apparently prompted the Assembly to draft a strong recommendation that the government accelerate the economic recovery.

The recommendation should not, however, overlap with the 2003 Annual Development Plan which the government and the Budget Committee of the House of Representatives adopted in June as policy directives for the 2003 State Budget as the third-stage implementation of the Law on 2000-2004 National Development Program.

The Assembly should instead focus its recommendations on the most strategic and influential factors to speed up the pace of recovery, such as structural reforms which urgently require faster implementation to stimulate higher economic growth.

More robust economic growth, higher than the 3.5 percent estimated for this year, is needed to create jobs for the huge numbers of unemployed and under-employed people.

Private-sector analysts and government analysts agree that annual growth of at least 6 percent is required just to absorb the 2.5 million new job seekers entering the workforce annually, not to mention the millions left unemployed by the impact of the 1997 economic crisis which is now in its fifth year.

But economic growth cannot be generated by decree, nor by recommendations. It can only be created by investment and consumption by the government and the private sector.

Investment and consumption cannot increase without a quicker process to recover distressed assets, to restructure the many billions of dollars of corporate debts currently managed by the Indonesian Bank Restructuring Agency and to reform hundreds of state companies.

These assets are business units that determine the speed of economic recovery because they are the generators of jobs, the source of tax revenues and the producers of goods for domestic consumption and exports.

Moreover, the banking industry that provides fuel for economic activities will never regain a stronger footing if most business enterprises remain as unqualified for credit financing as they are now because they are still shackled by bad debts.

But efforts to fuel a stronger recovery cannot be done by the government alone. The economy, which had been severely damaged for decades by the corruption and misguided policies of vested interests, needs better rules of the market game from the legislative branch. Economic players require law certainty through vigorous law enforcement which is the responsibility of the judicial branch.

Put another way, sound macroeconomic conditions, which is the prerequisite to a stronger economic recovery, will never occur without effective laws and stronger law enforcement. Strong law enforcement is in turn a precondition to good governance, which is the key requirement to attract new investments and gain the support of creditors for debt-rescheduling.

It would, however, be entirely misguided for the Assembly to demand the termination of the International Monetary Fund's (IMF) role in the country ahead of its scheduled expiry in December, 2003. Such a recommendation would send the wrong signal to the international market.

Witness the new wave of crisis currently engulfing the economy in Brazil. Market confidence in that country suddenly plunged due to the high probability that left-wing presidential candidates, who are openly hostile to foreign creditors and the IMF, would win October's elections.

It is worth recalling that our economic crisis was set off not by any deterioration in our underlying economic assets but by domestic and foreign investors and creditors who entirely lost faith in the government and moved their liquid assets overseas.

It was the government in the first place that invited the IMF in 1997 to help restore market confidence in the economy and put in place a credible crisis management system.

The question now is whether the government has regained market faith to manage the economy without the benefit of an international endorsement from such a multilateral institution as the IMF? The answer is a big No, as can be seen from the creditors' insistence that any deal with Indonesia would be possible only if the country remains under the IMF extended facility.