Faulting the economic record

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.