Faulting the economic record

Most analysts and factions at the People's Consultative Assembly (MPR) criticized President Abdurrahman Wahid for his unsatisfactory record in the economic field and complained that his progress report on Monday was completely devoid of any strategic goals, let alone a viable economic vision.

Even though the economy has started to pick up slowly since early this year, growing 3.2 percent in the first quarter and 4.13 percent in the second quarter from the corresponding period last year, the nascent recovery is seen as quite fragile. It will not be sustainable for long without the new investment activities that remain depressed due to political uncertainty and extreme lack of law enforcement and security.

Enthusiasm about the budding recovery was further dampened by the steep depreciation of the rupiah since May, weakening from Rp 7,400 to the U.S. dollar in January to around Rp 8,700 at present, thereby creating stronger inflationary pressure and forcing the central bank to raise its benchmark interest rate from as low as 11 percent in February to more than 13.50 percent.

Even though the economic achievements are still way below what people expected, given the strong legitimacy of his government, it is really not fair to simply reject Abdurrahman's progress report to the Assembly as wholly devoid of strategic goals to bring the nation out of its current economic predicament. Though an economic vision was not clearly outlined in his report, one can infer clear strategic objectives, which form his vision on how to lead the economy to a sustainable robust growth.

Most importantly, the President reaffirmed his strong commitment to macroeconomic stability, continuation of structural efforts, the market economy as well as autonomy of the central bank.

He demonstrated a full grasp of the fundamental weaknesses besetting the economy by selecting four pillars to underpin sustainable and just economic growth in the future: macroeconomic stability; strengthening of economic institutions; improvement of structural policies; and the empowerment of the poor.

It was obviously impossible for the President to provide in his report all the details on what the government would do as he had to cover all the sectors in the 35-page speech. But then one cannot obtain the right and full perspective on his policies and achievements by perusing only his address. The progress report should be analyzed along with the memorandum of economic and financial policies attached to the government's letter of intent to the International Monetary Fund dated July 31.

The 23-page memorandum stipulates in detail programs and strategic objectives until 2002 in the four pillars of economic development cited in the President's progress report. It elaborates efforts to maintain macroeconomic stability through prudent fiscal and monetary management. Its fiscal policies, for example, clearly address the budget deficit and fiscal decentralization, and clearly set targets with time tables.

The President is fully right in citing weak institutions as one of the fundamental weaknesses that caused the current multidimensional crisis. Empirical studies in many countries have clearly concluded that the quality of institutions also affects economic growth as the institutional framework influences the cost of transactions and transformation (production process).

The memorandum elaborates on programs to strengthen institutions through corporate and banking restructuring and the enhancement of good governance in the private and public sectors. Also integral in these programs are the audits of major state companies with strategic roles in the economy as those operating in utility and upstream industries. No less than 62 state enterprises have been identified to be independently audited by 2001 in view of diagnosing their problems and devising efforts to strengthen their operations.

All these programs, though appearing separate and unrelated to each other, have the same strategic objective of building up strong economic institutions in the private and public sectors, which are crucial for sustainable growth.

But again all these programs and their target timetables are stated policies that have yet to be executed. Hence, the upcoming Cabinet reshuffle, which will predictably cover mostly economic portfolios, should bring in a strong economic team. The market will continue to punish the nation's economy if the new economic team does not consist of highly credible and competent personalities.