From authoritarianism to democracy

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.