Deepening reforms

Deepening reforms

The World Bank's briefing paper for Indonesian foreign
creditors, who are scheduled to meet in Bali tomorrow, charts out
an ever more challenging agenda of reforms at a time when the
government's ability and credibility to take tough measures are
declining.

The 100-page report, titled Indonesia: Maintaining Stability,
Deepening Reforms, reaffirms that fiscal sustainability is one of
the basic requirements for strengthening macroeconomic stability,
which in turn is the key to a sustainable, strong recovery from
the five-year-old economic crisis.

Just witness how the government has succumbed to public
pressure to cancel its move to reduce the subsidies to the
detriment of fiscal sustainability, poverty alleviation programs
and the investment climate.

The document, which will become the main topic of discussions
at the meeting of the Consultative Group on Indonesia where the
creditors will decide on their respective pledges for Indonesia's
2003 state budget, also calls for the acceleration of asset
recovery by the Indonesian Bank Restructuring Agency (IBRA),
corporate and banking reforms and the sale of state companies to
more entrepreneurial private investors.

Yet the disposal of distressed assets at IBRA and
privatization have become the most controversial issues over the
past four years amid the campaign by narrow-minded politicians to
politicize the economic measures by whipping up xenophobia.

These structural reforms are the same policy measures
prescribed by the International Monetary Fund (IMF) for its
US$4.5 billion extended facility and are by and large the same
bitter pills taken by other crisis-hit countries, such as
Thailand and South Korea, which have returned to robust growth.

With or without the lectures of the World Bank and the IMF,
these reform measures are the key to Indonesia's ability to get
out of its economic debacle. However, the haphazard manner in
which the government has been pursuing its policies have created
the impression that the tough programs are not really necessary.

Many, including some members of the Cabinet, have even
perceived that the tough measures were dictated by the two
multilateral institutions. Since these two institutions are
controlled by the economic powerhouse, notably the United States,
as a major shareholder, one can easily see how the issue has
become a fertile breeding ground for xenophobia, triggering a
gnawing suspicion that international capitalists are ganging up
to take over Indonesian assets.

It is certainly not fair to compare Thailand and South Korea
with Indonesia in regard to the management of an economic crisis.
The two other countries are not facing the complications that
Indonesia is grappling with in its transition from an
authoritarian, centralized government to a democratic one that
focuses on local autonomy.

The multidimensional crisis has been reshaping the political,
economic and social landscape of this nation of over 210 million
people.

However, the complex conditions should not have necessarily
held the government hostage had it firmly demonstrated from the
outset a high sense of crisis and urgency by focusing its efforts
on building credibility and establishing justice.

Credibility or public trust in the government can be built
only with a strong determination to crack down on corruption and
gross inefficiencies, and to bring to justice the corrupters and
those responsible for bankrupting the economy. Without
credibility, the government is unable to effectively execute
reform measures as it is devoid of the popular legitimacy and it
always becomes a suspect in any policy it intends to pursue to
resolve the economic problems.

Justice is the key to effective management of the economic
crisis as its resolution needs mostly tough, painful measures
that require the people, who have been suffering severely from
the economic debacle, to make more sacrifices. The public's faith
in the judiciary would create a conducive environment for
shouldering the burden.

It is not the complex national condition but its extreme lack
of credibility and the virtual absence of the public's faith in
the judiciary that have debilitated the government's efforts to
take reform measures.

The World Bank seems to fully realize the urgency of these
issues, as can be noted from the elaborate discussions on sorely
needed reforms in the judiciary in a special chapter of its
briefing paper.

CGI creditors will surely raise the overall issue of good
governance and long overdue judicial reforms at their meeting,
fully realizing that their loans and grant, which are derived
from their taxpayers, will be wasted if these corrective measures
are not implemented. As with past soft loans and grant pledges,
any new commitments they make in Bali will also be tied to
certain conditions.

But critics should not be so misguided as to say that the
conditions are a means of intervention in our internal affairs,
when they are simply a concerted effort by the creditors to
maintain high accountability for their taxpayers' money.