From authoritarianism to democracy

This is the first of a two-part article, an excerpt from an address by State Minister of Investment/State Enterprises Laksamana Sukardi before an international conference on transition and globalization. The conference was hosted by the Institute of Security and International Studies, Chulalongkorn University in Bangkok, Thailand on Dec 18.

BANGKOK (JP): It is not possible to discuss Indonesia's present and future without mentioning a bit of history. After all, what are "transitions" if they are not the experience of trying to create a new present and future while still deeply constrained by the enduring legacies of the past?

That past for Indonesia, which ended formally only 60 days ago, was a long dictatorship during which our political institutions were shut down, the development of our civil society was retarded or even reversed, our most fundamental trust of government and of each other as Indonesians was badly damaged, and the welfare of our people -- especially those at the bottom of society and particularly women, who have suffered disproportionately -- was neglected for years and then shattered by the onset of the crisis of 1997.

It is interesting that foreign investment, both private and official capital, flourished during the Soeharto regime. Indonesia was a mixture of open economy and closed society. For example, we made the rupiah fully convertible long before many of our neighbors did, and maintained that open currency regime almost without interruption for three decades.

We were cooperative with the IMF and World Bank and even became a "showcase" state for the World Bank by the late 1980s. Indonesia was a place where foreign investors could do very profitable business as long as they knew how the game was played.

The key, of course, was playing the game according to Soeharto's rules. And building a new set of rules and practices -- based on laws, precedent, and nondiscrimination instead of power, connections, and intimidation -- is the challenge facing Indonesia as it pursues this transition. Just because a government has many new names and faces does not mean that the legacies of cronyism disappear overnight and are replaced by rule of law.

Soeharto built a corrupt system with deep roots and a lot of resources available to tempt and coopt people. The Soeharto family and the cronies were the master "franchise holders. " If you wanted to do business in Indonesia, whether domestic or foreign investor, you had few choices but to become a "franchisee. "

Meanwhile, repression and human rights violations were the method for guaranteeing the country's stability. Intimidation of the people was a crucial component of the crony game.

Soeharto himself became the only functioning government institution. The parliament was useless, the economic institutions like the Central Bank and our Securities and Exchange Commission were Soeharto's instruments. The legal apparatus -- our police and court system -- responded to power and money, not right and wrong.

We are living with the results now on multiple levels. We face a gross misallocation of resources, a deep crisis of legitimacy of the Indonesian government, a fragile and hollow developmental boom that was set back two decades in two years, and a setback to our national pride and identity as Indonesians -- something our founding fathers worked so hard to build during the first six decades of this century.

Political and economic transitions can be deceiving because they tend to be identified with moments like the fall of the ancien regime. But it will come as no surprise to the distinguished audience in this room that transitions are not a moment, but rather a movement -- a process made up of several components.

The period after the old order falls is the least glamorous, but it is probably also the most difficult and most important for determining whether any meaningful change will come from the blood and suffering of those who struggled -- some of whom gave their lives so that we would carry on toward something worth dying for.

Stripped to its most basic form, the struggle in a transition, both economic and political, is to establish and lock in new rules of the game. It is a struggle for laws, policy by policy, case by case.

A transition generates a tremendous amount of promise and hope. But at a certain point, talk must be backed up by concrete action. If not, then all the pathologies of the previous system remain in place. They only get repackaged or go underground. But they continue to undermine the political and economic health of the nation.

I want to talk for a few minutes about some of the problems Indonesia has inherited. This is not to complain or to sound overly pessimistic, but rather to be quite frank about the daunting challenges that still lie ahead for a people that has already endured so much. But I promise I will finish on an optimistic note -- which is the only proper way to close a conference that brings together so many who have played a role in the trenches and on the front lines of struggles for changes.

The regime that came before us left a legacy that no sane government leaders would want to inherit. First, the territorial integrity of the country is being challenged by regional demands in Aceh, West Irian, and Ambon -- to mention only the most prominent cases. The only positive thing that can be said about these movements is that, perhaps with the exception of Ambon, the regional autonomy movements do not have the inter-group hatreds that were manipulated so effectively in the Yugoslavia case.

The regional movements are angry with the central government, not with their Indonesian brothers and sisters. This gives us some reason for hope that we can still negotiate a solution to these problems that will still keep the country together.

For years, the people in areas like Aceh were the victims of repression, torture, rape, and killings. This has produced the hatred of the central government. The people in these regions were also treated unfairly in other ways, as seen in the huge gap in prosperity between the center and the regions. The economic resources of the provinces were extorted by the franchise and franchisee system I just spoke of.

The result is undeniable -- Indonesia now faces very strong pressures for decentralization, regional autonomy, and even independence.

A second problem concerns contractual integrity, which is most obvious in the mining, infrastructure, and utilities contracts. On the one hand, Indonesia must maintain a reputation of upholding contracts to the international community. Who will bear the risks of investment if there is no certainty and integrity in contracts?

On the other hand, there is a widespread perception in the Indonesian public that many contracts were the result of collusion and corruption -- that they were unsolicited and handled without transparency. The average Indonesian feels strongly that many contracts in key sectors do not benefit the people, but instead were made at the expense of the people, and only for the benefit of the colluding parties.

It is an enormous challenge to balance international credibility against these powerful domestic political sentiments demanding that contracts be fair, transparent, and untainted by corruption.

A third issue we face is the complex task of corporate restructuring. We have mass bankruptcies across our economy, with the banking system at the vortex. And yet our legal infrastructure for handling settlements is weak and widely viewed as lacking legitimacy. Indeed, we do not have an independent judiciary. This means that the process of restructuring and work outs has been bogged down in delays for nearly two years.