Economy amid political crisis

Economy amid political crisis

There is good reason for the market to weather the next two
months of heightened political uncertainty with a lesser sense of
foreboding despite the potentially explosive situation and the
ongoing leadership crisis. Though the House of Representatives
has given a vote of no confidence in President Abdurrahman Wahid
-- making his government a lame duck and a new government widely
expected after the Aug. 1 Special Session of the People's
Consultative Assembly (MPR) -- there are strong indications that
the ailing economy will not be entirely cut adrift.

The first factor, which reassures us that the potentially
disruptive period until August will largely be kept under control
without new grave incidents or violence, is the increasing self-
confidence and professionalism on the part of the National Police
and the military.

The highly professional manner and cool-headed tactics with
which the security forces acted to avert major incidents during
the massive demonstrations by Abdurrahman's supporters before and
during the House plenary session on Wednesday assures us that the
next turbulent period would most likely pass without devastating
violence.

The surprisingly relative calmness, despite repeated threats
of massive violence, is quite reassuring to businesspeople,
indicating that they will be able to conduct business as normally
as possible in the specially vulnerable circumstances Indonesia
is now mired in.

Even though foreign investors will remain on the sidelines,
waiting for the resolution of the leadership crisis, the
favorable developments over the last few days should convince
businesspeople overseas to continue trading deals with Indonesia.
Foreign tourists also will not likely wipe the country completely
off their list of destinations.

The ability to maintain law and order will undergo its most
severe test, especially within the next two months, when the last
round of the political battle between the President and
legislative body will take place and threats of massive
demonstrations and worker revolt will be greatly pervasive with
the plans to raise fuel prices and electricity and telephone
rates later this month.

It is also comforting to note that the House, after a rowdy,
marathon plenary session on Wednesday, immediately resumed on
Thursday its legislative duties related to the state budget.
Irrespective of the vote of no confidence in the President, the
House finance and budget commission resumed deliberations with
finance minister Prijadi Praptosuhardjo on the planned amendments
to the 2001 state budget.

This assures us that despite the differences between the House
and the President they remain united and cooperative with each
other when it comes to the nation's interests.

We are now confident that even though the national political
agenda will likely be dominated by preparations for the upcoming
MPR Special Session, the House, the members of which also make up
500 of the MPR's 700 members, together with the government will
push ahead with the economic reform agenda to strengthen the
budding recovery.

This collaborative stance is quite pivotal because there are
several reform measures, already far behind schedule, that have
to be approved shortly for implementation. Among them are the
planned amendments to the state budget and the central bank law.

The budget amendments are especially quite urgent as the
fiscal year is already in its second half. Further delays would
make the special measures less effective in achieving the targets
set in the budget amendments, thereby threatening the government
with an unmanageable fiscal deficit with its devastating
repercussions on the macroeconomy.

The government-proposed amendments to the central bank law
also requires immediate completion to dispel any doubt about the
political independence of Bank Indonesia that has been stipulated
in the 1999 central bank law.

Few would argue the vital importance of an independent,
autonomous central bank, especially now amid the political
uncertainty and leadership crisis. This independence will assure
the business community and the general public that the monetary
sector will not be vulnerable to short-term political interests.

So all in all despite the turbulent political condition, we
can still rest assured that the decision-making process in the
economy, which directly affects the common people, will not stall
but will continue to run, although perhaps not as full-fledged as
needed to cope with the economic crisis in view of the leadership
crisis.