Democracy on a high, but tough choices loom

Democracy on a high, but tough choices loom

Satish Mishra, Jakarta

In a country in the midst of record open unemployment,
partially brought about by sharp declines in development
spending, it would be surprising if the economy did not figure
prominently in the new President's inaugural speech. The fact
that he recently completed his doctoral dissertation on the
economics and politics of fiscal policy in the alleviation of
poverty and unemployment, may lead one to suppose that he may
take more than a passing personal interest in economic issues.
What would all this mean for the economy?

This is one of those rare instances when the question is more
complicated than the answer. The reason is that many who show
such keen interest in posing such questions to future policy
makers already presume to know the right answer. High on the list
of such persons is the common garden variety of macroeconomist,
brought up on a diet of monetarism, fiscal rectitude and above
all an unshakeable belief in the virtues of macroeconomic
stability.

Concern from this quarter about the economic trajectory of
post October 20 Indonesia, when the new President is sworn in,
reflects a fear of populism, of political pressures on economic
decision making, of election promises, that if implemented, might
blow a hole in the budget. Macroeconomic stability would be
threatened. The careful work of the last seven years might be put
back. If taken too far, Indonesia might even find itself at the
edge of another financial precipice.

But questions about the country's economic future do not just
come from trained macroeconomists. They come from the army of
vendors lining the streets of Indonesia's cities, from the women
flocking to the pasars for bargains, from teachers in pesantrens
and madrasahs, from lowly paid urban workers, from government
civil servants, from junior soldiers and policemen, from farmers
cultivating tiny scattered plots of land, from fishermen and
boatmen, from the unemployed young seeking to fight boredom and
despair. In fact, the most searching questions about Indonesias
economic future come not so much from trained economists but from
precisely those who gave the future president his overwhelming
political mandate.

Here is, therefore, the policy dilemma. Not keeping promises
made to the public risks a deep-seated disenchantment with
democracy. Taken to the limit it may risk political chaos or
retreat into autocracy. Keeping election promises, on the other
hand, might unleash the specter of angry markets, fleeing foreign
investors and distraught macroeconomists. If translated into low
investment and growth, the state may be deprived of the very
resources it might need to expand public services and win support
for sustained institutional reforms.

This seems to be a no win situation for any new
administration. The choice seems to be between macroeconomic
stability, bought by fiscal and monetary restraint and low levels
of public expenditure, or between higher budget deficits and
consequent inflationary pressures. The only way out of the trap
is to either increase domestic revenue or borrowing through
government bonds or to attract larger levels of foreign
investment or aid.

The prospects for higher levels of foreign aid are slim. This
is not just because of the already record increase in the levels
of foreign official loans and grants at the outbreak of the
crisis. It is also because of latent resistance against more
foreign aid. Insensitive policy conditionalities are partially to
blame. But so is the impression that foreign aid's greatest
contribution has been to bail out Indonesia's richest banks and
organized businesses.

Foreign investment and commercial borrowing abroad is a
possibility but is mired in the mysteries of what constitutes an
effective strategy of raising investor confidence. Road shows
advertising Indonesian reform successes might be an obvious way
of drawing the attention of potential investors. It will do
little to answer more searching questions relating to political
stability, social violence, legal uncertainty and bureaucratic
red tape.

It seems as if we are in an impasse. If popular expectations
are unmet we risk political disillusionment and the politics of
intolerance. If they are, we risk budgetary insolvency and
economic decline. Muddling through might mean unleashing both of
the above dangers at the same time. It may simply accelerate the
advent of Indonesia's next economic and political unraveling.

What is the appropriate policy response in such circumstances?
What can a president brought to power on the crest of a new wave
of public hope and expectation do in the face of such difficult
policy choices? How this question is answered might well set the
tone of his entire presidency.

The fuel subsidy can be cut, but perhaps by not too much, the
airport passenger tax can be abolished, identity cards might
become easier to obtain, a national anti-corruption day
announced, high profile foreign dignitaries might be invited to
the Presidential palace. All this will serve to distract the
public. It is unlikely to win its confidence and prepare it to
stand by its president in the difficult days to come.

A second possible response is to use the political honeymoon
period to push through a series of organized "unpopular" reform
measures. Poland's Balcerowicz did. Why not Indonesia's Susilo?

The answer is stark in its simplicity. Poland had a dissident
movement, a government in waiting, a clear set of alternative
programs. This is something still missing in Indonesia which has
a patchwork quilt of political reforms, high levels of public
frustration and little more than a fragile macroeconomic
stability on which to build a robust economic recovery. Unlike
Balcerowicz's Poland, Indonesia is already in the seventh year of
its transition.

The right response is that which comes naturally to the
president elect. That is to trust and empower the people, to
explain the policy choices facing the country, to present a
vision and a road map for the future. In short, he must find a
way of managing expectations by opening transparent and honest
lines of communication and public dialog.

Only then will he be in a position to tackle two of the most
critical challenges facing his administration; the construction
of a strong democratic state, one that can govern as well as
liberate, and the building of a national consensus on the
preferred pattern of income distribution compatible with popular
notions of social justice. Democratic consolidation and laying
down the structural foundations of social justice and peace
remain the most critical tasks of the Indonesian transition.

These national objectives must be set by the democratic
political process. The door is then open for technical
specialists to find out the best way of achieving them. That will
enable the president elect to do what has eluded Indonesian
policy makers so far: Find a way of putting the horse before the
cart.

The writer is Head/Chief Adviser of UNSFIR (a joint project of
Government of Indonesia and UNDP). The views expressed here are
strictly personal.