Bold reform, not aid

Bold reform, not aid

The government will predictably obtain between US$4.2 billion and $4.7 billion in new aid from the Consultative Group on Indonesia (CGI), which opened a two-day meeting in Jakarta on Tuesday. After all, part of the new aid pledges will consist of funds held over from last year's $5.9 billion commitment from the donor consortium.

Moreover, the International Monetary Fund and the World Bank, both highly influential among CGI's 34 donors, have recast their vote of confidence in the country after its democratic election of a new government led by President Abdurrahman Wahid in October.

The IMF not only lifted the four-month suspension of its Indonesian bailout program but also extended the scheme, originally scheduled to wind up later this year, to the end of 2002 with a total loan commitment of $5 billion. The World Bank, which chairs CGI, disbursed on Friday half of its $600 million loan commitment to social safety net programs, which also was frozen last September after the disclosure of the politically charged Bank Bali scandal.

But a new loan commitment, although important to plug 50 percent of the projected deficit in the 2000 state budget beginning in April, is not the most pressing agenda for the government. Aid commitments from CGI's sovereign and multilateral donors are mostly politically motivated, not driven by market confidence, the most precious commodity which the new government has yet to gain to strengthen the fragile process of economic recovery.

CGI aid, like the IMF bailout, while helping the process of regaining investor confidence, is not enough to recoup market confidence, simply because it is designed mostly to help ease the painful process of repairing the tattered social, political and economic infrastructure through consistent reform measures.

Bold actions are imperative to break through the logjam of legal uncertainty and social injustice which is rooted in the recent wave of regional tension, sectarian violence and mob atrocities against legitimate, resource-based businesses in remote areas.

As Vice President Megawati Soekarnoputri admitted at the opening of the CGI meeting, the country's dire economic situation was caused by corruption, collusion and nepotism. Admitting weaknesses is a laudable part of confronting the problems, but acting firmly to address them has yet to be demonstrated by the Abddurrahman government.

It is too early, even unfair, to expect significant results from a three-month-old administration, which must grapple with deep structural faults and start almost from scratch to rebuild public institutions debilitated under the 32-year rule of Soeharto's corruption-infested government.

But one would rightfully expect bolder actions based on the right set of priorities from the new administration, given its popular mandate at home and considerable support from foreign governments. The problems inherited from the previous administration and the woes inherent in the transition from authoritarian rule to a fledgling democracy are so complex and wide-ranging that the government's legitimacy may not be sustainable for a long time without credibility.

Credibility is generated only when the general public perceives and believes that the administration is serious about building good governance, both in the public and private sectors, and not mired in coalition rivalries, which is so often the case within the Cabinet and in the appointment of senior officials. And the most important hallmarks of good governance -- distinguishing traits that cannot be provided by foreign loans but must be home grown -- are social stability, an impartial and effective system of justice and honest law enforcement.

This must be the focus of the government's attention because the flouting of laws and rules within the government and society is as abhorrent to foreign creditors as it is inimical to private investment, both domestic and foreign.

There can be no foot-dragging and half-hearted efforts on this issue; the sobering reality is that new massive foreign borrowing is out of the question with the government saddled with $70 billion in overseas debts and the equivalent of $82 billion in domestic debts. We must face the fact that private investment is now the only major source of capital for fueling economic recovery, and we must do what it takes to bring the investors back.