Few options remain for national economic cure

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.