Crisis calls for govt neutrality

By Hendrajit

JAKARTA (JP): The recent liquidation of 16 troubled banks, given the close link between political power and business practices, was indeed the first test of the government's political will to deal with the business community.

It is necessary for the public to have a clear signal that those who have enjoyed privileged access to the nation's resources are willing to share the pain with tens of millions of ordinary Indonesians. These are the ordinary Indonesians who have been hit by rising prices, unemployment and spiraling interest rates on car and home loans. This means that the government should be committed to scrapping politically connected monopolies, rationalizing the country's shaky banking system, reducing the subsidies of some sensitive commodities and cutting import duties.

Indonesia's record of leaks and misuse of public funds via the granting of licenses is well-known and has resulted in a high cost economy and market monopolies or oligopolies. The accumulation of capital in the hands of a small number of people has become an extraordinary phenomenon in Indonesia as a result of protection mechanisms and irregularities in the use of public funds. Thus in the process of economic reform, the question of public accountability is of paramount importance in terms of policy legitimacy.

More importantly, the government must be transparent in its use of the public's funds in order to earn trust. Therefore, transparency and accountability in the management of public funds and the budget are badly needed. But they are not easy tasks. In an effort to improve banking performance, for instance, the government needs to be more proactive to maintain tough measures against banks which are not managed prudently.

Consequently, the government should be responsive, independent and neutral from conflicting interests among the business community. Accordingly, the issue is what mechanism includes people and enables them to participate in the decision making, where the interests of the people as a whole are well represented? There must also be a mechanism to prevent the abuse of power by the authorities and business elite who are very close to government officials. If such abuse occurs, the authorities and those who are close to power cannot be free from legal account.

The problem that arises is that Indonesia's political institutions are powerless, with no established rule of the game to play by. The government's style of personalized rule, as opposed to using institutional mechanism to exercise power, has resulted in a political system which still has a patrimonial character as it had in earlier periods as far back as the pre- colonial Javanese kingdoms. The state stands above any contending groups or vested interest. It must be recognized that there is no institution whose function is to capture the government. The institutions of power are there to ensure the smooth running of the political system by integrating people into it.

In such a situation, economic and political reform cannot be encouraged from below, but only from the center with the development of a healthy and authoritative bureaucracy and the implementation of laws in the wide sense. In consequence, the commitment to economic and political reform must be started from the top level of bureaucracy, not the lower level. This is partly true because of Indonesia's tradition of patronage, where people take examples from their leaders. If the leaders were corrupt, its subordinates would be corrupt as well.

On the other hand, Indonesia today is facing new realities. Pressure for change from society is increasing. Although rural Indonesians are still bound in feudal-traditional ways of life, there is growing chorus of urbanites who desire to see a less authoritarian and paternalistic rule of law. According to political observer Dr. Richard Robison from Australia, there are internal forces at work as a result of Indonesia's economic successes. Increasing industrialization and urbanization are having an increased influence on the aspirations and political consciousness of Indonesians. This newly affluent middle class will look toward a more open and responsive political system in the future. They are mostly dissatisfied with the excesses of local government officials, the lack of public accountability, and the relative gap in income between themselves and the wealthier group. For the dissatisfied group, political change offers the possibility of improving themselves.

Robison's way of analyzing is indeed insightful. By the way of his observation, it is likely that in the future, power holders outside the state will become more significant. In other words, power will be moving to powerful social groups such as independent professionals, conglomerate owners and young reformist officers. In short, change is already occurring among the educated middle class. More people are willing to confront old taboos and rail against corruption, inefficiency, pollution, low wages and even nepotistic monopolies in business practices. Hence, those who hold power now must be wise enough to read the development with clear glasses. This means that speaking about development is really speaking about the adaptation of a whole social system to new problems and challenges.

Economic development does not take place in a vacuum. It needs a government that is strong enough and has a willingness to avoid prestigious projects. It also means the willingness, the courage and the capability to bring about the necessary administrative reform. Economic development requires the capacity, the will and the courage of the government to organize the whole nation for that purpose, not only economically, but also politically. The capacity of the government to maintain the momentum of economic development will very much depend on its courage and ability to absorb the political changes that follow in the wake of economic development. Each phase of economic development will create its own constituency, and these new constituencies will have to be incorporated into the body politic of the nation. Clearly, it needs a constant broadening of the power base on which the government rests and a constant shifting of the constellation of forces.

The writer is a researcher at the Institute for Strategic Studies of Indonesia.