Backsliding on reforms 'could cause depression'

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)