Good governance or perish

Good governance or perish

Djisman S. Simanjuntak
Executive Director
Prasetiya Mulya
Business School
Jakarta

Most Indonesians are undoubtedly grateful for the
consolidation of macroeconomic stability they experienced in
2003.

At a time when the growth rate accelerated slightly, inflation
was tamed at an annualized rate of less than 6 percent. The
rupiah gained strongly against the U.S. dollar, although it lost
heftily against the Australian dollar and Euro.

In spite of a diminishing current account, surplus foreign
exchange reserves continued to increase thanks to the resumption
of capital inflow, which in turn pushed stock prices
substantially up.

Notwithstanding the planned exit from IMF's Extended Fund
Facility (EFF), confidence in macroeconomic policy strengthened,
partly because of the credibility of the policy package that the
government adopted to replace the IMF-backed Letter of Intent
(LOI).

The fact that global disinflation and the depreciating U.S.
dollar served as a tailwind to Indonesia's stabilization program
provides no reason to trivialize the accomplishment. However,
there is much more to economic success than the combination of
moderate growth, low inflation, exchange rate gain and a modest
increase in foreign exchange reserve. Besides the early part of
the 21st century is unique in recent history, in that it is
blessed with macroeconomic stability of a virtually global
coverage.

Indonesians who are trapped in poverty or are forced to
survive without a permanent job, or who are even jobless, may
find the song of improved performance and the relative
indifference of politicians toward unemployment increasingly
strange and saddening.

Witnessing Indonesia's share in global output, trade in goods
and services and stock of foreign investment suffering from
erosion is worrying to those who derive national pride from
global competitiveness in interactions, that constitute the core
of human civilization. Only isolationists watch with
schadenfreude Japanese, European and American investors and
traders flocking to China, Vietnam, India and East Europe
reducing their Indonesian presence at the same time.

Infrastructure bottlenecks aggravate the problems of
competitiveness in industries, where tough global competition
prevails. Even the macroeconomic stability has not been as solid
as flow figures suggest.

Against the backdrop of the huge debt of the government, the
dominant role of government bonds and Bank Indonesia's promissory
notes in the earning assets of commercial banks, and dependence
of banks on blanket guarantees in dealing with risks, the result
of the consolidation loses much of its lustre.

The slight acceleration of 2003 is expected to continue in
2004. While the domestic environment is going to get more heated,
in the wake of campaign rhetoric and show of force, no amok is
expected to erupt.

The risk associated with terrorism seems to have abated
following the capture of some of its leading operators.

The consumption-driven growth will most likely continue. Even
investment and export are likely to rise in spite of deeply
petrified obstacles: Lack of legal certainty, rampant corruption,
weakened commitment among politicians and bureaucrats to service
excellence, high cost of doing business, myopic unions, rent
seeking among investors and traders, and the perennial shortage
of entrepreneurs.

However, singing the same song of modest performance
improvement will eventually cease to please the ears -- even
among the privileged wealthy minority who witness Indonesia
drifting farther away, behind the economies it aspires to catch
up with.

The post-EFF policy package is largely silent on structural
issues. Conventional approaches are doomed to fail in attacking
"hypocritical legalism" and shameful corruption. It would be the
greatest irony of history, if the enemies of reform managed to
hide safely in the jungle of an unattended legal system.

The trillions of rupiah that are bound to be sunk in the
elections 2004 would be a sheer waste, if they are contested
among reform-phobic politicians. While craving votes, political
parties should inform people unambiguously of the order of
priorities of their political agenda, and how they intend to
address the core issues.

An economic performance similar to the one Indonesia was
enjoying in 2003, and probably repeats in 2004, is insufficient
to create the number and diversity of jobs that Indonesians are
badly in need of. Major increase in investment and trade is
indispensable for a performance that would help reignite the
realistic hope for a rewarding toilsome wait.

A wide variety of ingredients is needed to fuel such a surge
in investment and trade. They include a new economic
architecture, which is able to unleash the entrepreneurial
potential of Indonesians in business, politics and civil
societies.

Needless to say, drawing such architecture is a political
process with consensus as its crown. It is painstaking, but
easily compared to another indispensable ingredient: concrete
progress in law enforcement and in good governance.

Even a modest reform program looks utopian in the absence of a
consistently enforced law and that of a clean government. A
nation can compensate inadequacy of competence with hard work,
but for a state where corruption rages unchecked, extinction is a
sure destiny.
Therefore, crafting concrete progress in good governance is as
important to Indonesia's survival as the consolidation of
macroeconomic stability. Should elections 2004 fail to give birth
to a coalition that ranks such progress highest as its short-term
program, the current acceleration of growth may soon etiolate.