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.