Few options remain for national economic cure

By Wimar Witoelar

JAKARTA (JP): If you take a look, you will see there is a long downhill slope ahead for the Indonesian economy. Currency traders would not be surprised if the rupiah falls to 7,000 per U.S. dollar this week if the President's annual budget address fails to bolster confidence in the financial market.

Even a Rp 10,000 per U.S. dollar exchange rate figure is seen as not too farfetched if the slide continues.

The question is will it continue, or is there chance for a reversal?

The answer is yes. What comes down must go up, but only if certain conditions are met, because our options have run out. Most economic analysts and currency traders agree that the problem has progressed from being monetary to economic to political.

This implies that the cure must be in the form of strong economic policies supported by political reform.

When the IMF came in, the understanding was that they would insist on macroreforms and we would have to agree that microreforms would ride with the momentum.

Several politically driven national projects, such as the national car, the aircraft industry and other projects with dubious economic value, have been rescheduled.

But the government's political will to rebuild confidence by reforming the financial sector has been questioned. Banks have been liquidated by the same people who run their business in a similar fashion.

Some projects have been rescheduled, but the really damaging ones are continuing. Our leaders have told citizens to act rationally, but these same leaders do not provide us with a good example.

Government credibility is at an all-time low, yet those in power have not indicated a clear way out. This has made the IMF nervous and foreign investors wary of reinvesting in the loan or equity market.

A leading financial analyst said: "The market is more responsive to rumors than stories about positive policies." The reason is obvious. While policies need to be proven in the field, rumors reflect the real direction of the nation's leadership.

The severity of the crisis has brought another implication: that we have a lack of options short of fundamental reversals. Are we capable of such change?

The answer must be a resounding yes. When we have had to, we have done it. We have faced crises before, and the solution tends to build up quietly while political players test out their options.

Our last crisis of this magnitude was in 1967, which developed out of a political crisis involving the prevailing political order and its international isolation.

The New Order brought us out of that low point with skillful national leadership based on a broad coalition.

The solution to the political crisis was a turnaround in economic policies, the ushering in of a market economy with the support of the World Bank, bilateral aid and private sector foreign investors.

To make a very long story short, the Indonesian economic miracle happened, but the price we later paid for strong leadership was an addictive dependence on that very leadership. It has resulted in the decline of democratic practices and the reduction of the New Order's broad coalition into a narrow-based system of near-absolute power.

We now need to go back to our tradition of consensus and get everybody to sit at the table and discuss very openly a common platform crossing all formal political and institutional lines. The only way to rebuild popular support is to listen to the people.

Because of the lack of options, talk of succession is now in the open, with economic pundits, radio interviewers and business papers presenting logical arguments with an unsaid conclusion: when things are all wrong, you have no other options.

We need fundamental change, the kind which comes easy for countries with a tradition of democratic elections. We only have the mechanism but we have lost the spirit of openness.

If and when this is regained by a change in the nation's leadership in whatever form, the markets will reverse for the better, almost instantaneously. The proof shines in South Korea today. President-elect Kim Dae-jung, a lifelong opposition leader who has no formal economic background and is regarded as being even less a pro-business figure, has sparked off votes of confidence by the international business community.

The IMF is accelerating its support package and foreign creditor commitments have strengthened the won and driven up the stock market index. Ironically, George Soros is even coming to meet Kim Dae-jung to help.

Perhaps everybody in the Indonesian elite knows that political reform (i.e. transfer of political power) is imperative, but everybody has a different sense of timing. This includes the nation's top leadership, who are probably aware of the disastrous implications of continuing the current lack of direction.

In the past, a mastery in political timing and strategy have reaffirmed the government's authority. That is why even now no rival factions have identified themselves.

However, things will be different because there are no alternatives to change. Our political crisis this time is caused by a very real economic crisis. Distress signals are not being engineered by political activists to stir up unrest.

Everybody is hurting, poor and rich, regular businesspeople and foreign investors. The Salim Group was reported yesterday by the Wall Street Journal to be abandoning its planned relocation of Indofood to Singapore.

Originally, the company's acquisition by QAF was to make it the region's largest food distribution company. But due to its sharp decline in stock prices, the QAF rights offering became infeasible. When everybody realizes that even the Salim Group has felt the pinch, the country will realize it has other options.

Is this all bad news for business? Not necessarily for those who seek active strategies. People have plenty of options in positioning themselves for the upturn. Conventional wisdom says you must invest in a downturn. Invest in assets, in payments, in people.

Businesspeople should secure their market position by showing loyalty to customers, employees and partners. They should reschedule corporate spending and make rupiah expenditures now, while delaying dollar spending. They should find the strength to roll over customer debt accounts and be visibly optimistic. This is a time of competition, not in getting new projects and incurring expenditures, but in investing for Indonesia's future.

It will be a good future, because change is bound to come sooner or later, if only because there are no other options.

When it happens, it will be like Korea or like Indonesia in 1967, in which political reform brings forth business fundamentals which are strong in an Indonesia which trusts its leadership.

In the next round, we should hope democracy will clear the way for honest businesses to build a stronger and gentler economy.

The writer is a communications expert based in Jakarta.