Economic crisis revisited

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.