Economic crisis revisited

The People's Consultative Assembly's (MPR) recommendations for accelerating economic recovery starts with the bold statement that the government remains unable to lead the nation out of the 1997 economic crisis.

Politicians then came out with the right diagnosis of the main causes of the failure, citing policy inconsistency, weak law enforcement, inadequate security and a political situation that is not conducive to the concerted efforts to fuel economic recovery.

There is, however, not much new in the five basic policies the Assembly recommended, as they are mostly normative policy directives that have been outlined annually in the state budget.

One of them is, nevertheless, outstandingly fresh and quite strategic, as it is addressed to the three branches of the government -- the executive, judiciary and legislature.

The recommendation calls for the straightening out of the coordination, the scope of responsibility and authority of state institutions with regards to projects to accelerate economic recovery.

Not withstanding its low credibility, inefficiency, incompetence and high venality, the executive branch (government) seems to always get an unfairly large share of the blame for all the things that have gone wrong with the management of the economic crisis.

The blunt reality, though, is that many of the problems that have hindered the reform measures badly needed to speed up the recovery, have also been caused by the seemingly over-zealous House of Representatives, which wants to intervene in virtually every step of the programs the government is pursuing.

Meddling by the legislature has been so excessive that many policy measures have remained stuck in delay after delay and have sometimes been forced to backtrack, thereby causing policy inconsistency and damaging the government's credibility.

We are not suggesting the House be as submissive as its predecessor during Soeharto's authoritarian rule, which rubber stamped any proposals from the executive branch. But what we see now is a legislative branch that has swung from an extremely subservient posture to an extremely intrusive one with regards to the exercise of its control.

The House should certainly exercise effective control of the government to ensure good governance that is both transparent and accountable. However, this oversight must be done proportionately under the proper mechanism already in place. Once the annual budget plan and its programs are approved, the House should no longer intervene in every deal or move the government makes, as long as the measures are in line with the budget programs, other regulations and budgetary procedures.

But what the government is now dealing with is a legislature that is overly spirited to intervene in every government transaction.

The judicial branch also seems unaware of its vital role in helping fuel economic recovery. It does not feel it essential to give top priority to handling cases specifically related to the management of the economic crisis, such as those related to bad debtors, bankruptcy petitions, bad bankers, and other wrongdoings that have contributed to the crisis.

Worse still, many judges have often meted out entirely insensible rulings that have not only insulted common sense and caused legal uncertainty but also jeopardized the effectiveness of reform measures to restructure the business sector and banking industry, the core components of the recovery process.

Hopefully, the three branches of the government will seriously take into account the Assembly's recommendations.

Surprisingly, though, there are two vital elements fatally missing from the 15 policy measures recommended by the Assembly. One cannot understand why the Assembly did not mention anything about the Indonesian Bank Restructuring Agency (IBRA) and state companies, which are so crucial for a stronger recovery. In fact IBRA is perhaps the most important policy instrument to cope with the economic crisis.

It is rather futile to talk about recovery without referring to the role of IBRA, which is managing more than Rp 600 trillion (US$66.6 billion) in distressed assets of all the largest banks in the country, and of the state-company sector that controls around Rp 772.5 trillion in assets.

It is not an exaggeration to suggest that the recovery process will never be sustainable, let alone accelerated, without an effective restructuring of the distressed assets, the banking industry and the 145 state companies. Many of these public companies operate in strategic upstream industries and public utilities that influence the efficiency and competitive advantage of the entire economy.

Though their glaring absence from the recommendations would not in anyway negate the vital role of IBRA and state companies, which have always been central in the reform package under the International Monetary Fund's extended facility, the Assembly's specific note of them would have made the recommendations better directed.

Despite this shortcoming, all in all the Assembly's recommendations could still serve as a stronger warning to the three branches of government, rewakening them to the urgency of the critical economic situation we are now facing.