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.