Economy strunggles over shaky political ground

Umar Juoro, Jakarta

The strong political support that voters gave to directly elected President Susilo Bambang Yudhoyono, and the take-over of the largest political party Golkar by Vice President Jusuf Kalla, has not yet turned the government into a powerhouse of effective policymaking. Even the relationship between the president and his VP is becoming a never-ending topic of speculation. The odd relationship between the two -- on one side shows mutual beneficial interaction, but on the other side is a source of controversies -- is hard for the public to understand.

At the ministerial level, it quite often happens that one minister will complain about another minister's policy for lack of support and coordination. For example, the minister of energy and his top officials have complained about the tax policies of the minister of finance.

Similarly the minister of trade, who prefers liberalization, does not get along with the policy of minister of agriculture and minister of industry who are quite protectionist. The responsibility of appointing directors of state owned enterprises (SOEs) that used to be under jurisdiction of the minister of state enterprises has been transferred into a a special board chaired directly by the President with its members consisting of the VP and several ministers.

The current investigations into possible lending frauds at state-controlled Bank Mandiri and alleged corruption at the General Election Commission (KPU) have caused political speculation about possible rift within the administration.

These political speculations should not affect the government if in reality the policy was cohesive enough and the implementation was well coordinated. But, for an increasing number of the elite, a cabinet reshuffle by the end of the year is a forgone conclusion. The remaining question, though, is whether a cabinet reshuffle would improve the policy making process and policy implementation. This certainly depends on the type of new cabinet itself.

In the wider political sphere, these political developments are not that encouraging. Even though the House of Representatives is no longer as hostile as in the very early days of the administration, or before VP Kalla took over Golkar chairmanship, there has not been strong moves as yet from the House to help make Indonesia a better place for investment.

For example, the law on electricity that has been annulled by the Constitutional Court and this court's decision that the oil and gas law should be amended has not yet been followed up by the House. Even the critical revisions to the 2005 state budget has not yet been deliberated by the House.

The development of political parties as the base of democracy is also very discouraging. With the possible exceptions of Golkar and the Prosperous Justice Party (PKS), all political parties face serious internal problems. The Indonesian Democratic Party of Struggle (PDI-P) recently fired several if its top executives for claimed disloyalty. The United Development Party (PPP) is facing serious internal disputes among its top executives, especially between the current leader Hamzah Haz with his opponents, including two ministers in the administration.

Similarly, the conflict within the National Awakening Party (PKB) is getting out of control due to the mounting rift between the Abdurrahman Wahid's (Gus Dur) camp and the Alwi Shihab- Syaifullah Jusuf camp, both of the latter being cabinet ministers. The National Mandate Party (PAN), which recently elected a new leader who is relatively unknown in political circles, faces an uncertain future, as Amien Rais supporters in Muhammadiyah prefer the creation of a new political party that is closely affiliated with Muhammadiyah than that of PAN.

An interesting phenomenon is the infiltration by businessmen into politics. Besides VP Kalla and Coordinating Minister Aburizal Bakrie, PAN's new chairman Sutrisno Bachir is also a businessman. The governors of Jambi, Riau, and Gorontalo provinces, among others, are businessmen. This certainly inspires other businessmen to get directly involved in politics.

Taking a positive point of view, the involvement of businessmen in politics accentuates the importance of rational economic policies at the central as well as local level. However, this is also problematic as businessmen could take their own interests into the public sphere, a common phenomenon during the Soeharto era.

At the regional level, the behavior of provincial and district elites who tend to run their regions for their own benefit is very difficult to monitor by the central government. The direct election of local chief executives (regents, mayors and governors) beginning next month may well strengthen the political independence of regional chiefs and this may also embolden them to become defiant of the central government.

Fortunately, the president seems to have been able to consolidate the military so that it focuses on its core task of national security, and not messing in political affairs. Nevertheless, the plan to put military-operated business under the control of state is causing uneasiness among military top brass.

With such diverse political power centers, it is very difficult to get a cohesive political orchestra to facilitate rational economic policy. Actually, the political elite, both at the central and local level, are generally not against economic liberalization, especially as it relates to foreign direct investment, as long as they get direct benefit from it. However, this goes against principles of good corporate governance and business practice. The situation could well become more complicated for negotiations of lucrative contracts that are currently underway, such as Exxon oil contract in Cepu, Central Java.

Ironically, in this democratic political climate, decisive moves in the economic or legal fields, such as investigation into the Bank Mandiri case, very much depends on the bold moves of the President himself. It is hard to expect that ministers would be able to coordinate themselves to solve interministerial problems.

However, to expect the president to act as a "powerful" leader, as Soeharto did in his era, is certainly unrealistic. Nevertheless, better political consolidation between the President and his VP, no matter how odd the relationship, with the support of Golkar that is supposed to have wider representation in the new cabinet later on, should give a very strong political base for sustainable economic policies.

The support of smaller political parties, especially the Democratic Party and PKS, will add to the political weight of the government. Meanwhile, as local administrations are no longer subordinate of the central government, a reasonable strategic cooperation with at least certain local administrations, especially with strategic economic resources, would certainly help to create conducive environment for investment.

The writer is chairman of CIDES (Center for Information and Development Studies), and a senior fellow at the Habibie Center.