Backsliding on reforms 'could cause depression'
JAKARTA (JP): Indonesia's most senior economist Sumitro Djojohadikusumo has warned that the country may plunge into a prolonged depression if economic and political reforms are not implemented firmly and consistently.
"What we are now facing is not simply a monetary or merely an economic crisis, but the outbreak of the cumulative pain from a series of institutional diseases in our almost entire body politic," Sumitro told the media over the weekend.
The monetary crisis was only the symptom of these institutional diseases which had been ignored for many years, he said, adding that "we only need to take an aspirin to cure the monetary upheaval. But we should take antibiotics to cure the institutional diseases."
Sumitro said the country had no other alternative but to carry out broad economic reforms firmly, consistently and decisively while enhancing good governance through greater transparency, legal certainty and effective social control.
He expressed optimism that Indonesia's economy could fully recover after two or three years provided the necessary reforms, deregulation and structural adjustments were firmly implemented.
"But if we waver in our reform commitment, the economic recession may turn into a depression from which it would take a long, painful period of time to recover. Perhaps six to seven years," cautioned the economist.
Sumitro invited a selected number of journalists to a breaking of the fast gathering Saturday because he said he wanted to raise his concerns over what he saw as backsliding and inconsistency in the implementation of reform measures, notably those in the real sectors.
He regretted that a number of officials and businesspeople misperceived the current crisis for which they layed the blame almost entirely on economic and monetary technocrats.
"This misleads the public from the actual problem, which I think has escalated to a crisis of confidence on the entire body politic."
Sumitro said he fully shared the views of economist and former minister Mohamad Sadli in The Jakarta Post Friday that the present government should immediately be replaced.
"I share Sadli's views with a precondition that the ministers should have full autonomy, authority and independence to implement reform measures fairly and consistently," he told the gathering which was also attended by Sadli.
Sumitro said that the replacement of the cabinet should not wait until after the meeting of the People Consultative's Assembly in March which would, among other things, elect the new president and vice president.
However, Sumitro stopped short of explicitly commenting on the need for a new president as Sadli outrightly stated in his remarks to the Post.
He blamed the crisis of public confidence in the government on a series of institutional diseases, such as extensive corruption, legal uncertainty, collusion between officials and businesspeople, a weak judicial system and monopolies.
"There has long been a wide gap and dichotomy between macroeconomic policies, which are by and large adequate and appropriate, and microeconomic policies which are full of distortions and inconsistencies and marred by corruption and excessive protectionism.
"I have repeatedly warned since many years ago that this gap would sooner or later cause a short-circuit between those who govern and the ones being governed. This is what is happening now," he said.
He said he anticipated strong resistance from groups with vested interests to the implementation of reforms.
Sumitro said these vested interest groups consisted of an unholy alliance of crony capitalists who prospered from special government facilities, political connections and collusive practices, a group of people who felt not rooted in the Indonesian soil and officials and businesspeople who had their own political agenda.
"But we don't have another choice. If we want to get out of this crisis we must act immediately and firmly to attack these institutional diseases in a more focused manner," he added.
The main objective, he said, was to regain the confidence of domestic and foreign investors which was a prerequisite to restoring economic stability.
For example, he said, clove and citrus fruit monopolies should immediately be abolished and all non-tax revenues should be accounted for in the state budget.
He added that reforestation funds should be used for forest development and not for other purposes, while weak and small banks should be forced to merge.
Sumitro conceded that Indonesians would have to endure more economic pain as a result of the reform measures. But this painful period would be much shorter and less devastating than if the measures were postponed or half-heartedly implemented.
Therefore, he said, the tight monetary policy should not be enforced indiscriminately on all sectors. More liquidity should be injected to small businesses and labor-intensive projects to help laborers. This could serve as a social safety net for poor people.
He predicted that economic growth would decline from an estimated 4 percent to 5 percent last year to 2-3 percent this year and inflation would increase to a range of 12 percent to 14 percent. (vin)