Govt policy: It's hard to be consistent

Govt policy: It's hard to be consistent

Sjahrir, Economist, Chairman, The New Indonesia Alliance (PIB)

Once again the latest draft Letter of Intent (LoI) issued in
November, entitled the Memorandum of Economic and Financial
Policies, uses a very detailed approach beyond the framework of
macroeconomics and macro policy.

This approach includes: monetary and fiscal policies,
decentralization, government debts; and micro aspects such as
bank restructuring, bank regulation and supervision,
privatization and recovery of assets and restructuring of private
debts.

Typical of previous LoIs, the latest draft also strongly
upholds the pretense that macro stability and progress on a micro
level can go together -- even to the point of drawing up main
economic policies until 2003. But what is the general picture of
the economic reality and specifically, the economic policy?

Evidently the Jakarta Stock Exchange Composite Index continues
to fall, even though the Dow Jones and Nasdaq index have passed
the historic figure of 10,000 and 2,000 respectively. The
rupiah's exchange rate has not improved either and until the time
of writing, the rupiah had weakened to Rp 10,400 to the U.S.
dollar, clearly revealing a significant undervaluation of the
rupiah.

Inflation through January to November this year reached over
10 percent, more than the 9 percent assumption underlying the
state budget. The figure might even reach 11 percent to 12
percent throughout 2001. This condition cannot be blamed solely
on the government. The Sept. 11 tragedy has indeed contributed
negatively to the domestic economy. But can we really blame the
factors that have caused the economy to deteriorate on the
outside world?

We must first be able to recognize the impact of domestic
politics on the economy, which is outside the control of the
government's economic team. Continued insecurity, collective
violence in Poso, Central Sulawesi, the killing of Papuan
independence leader Theys H. Eluay -- such incidents surely have
nothing to do with the economic team. Similarly tension in
Ngawi, East Java, is isolated from economic policy. The arrest of
Hutomo "Tommy" Mandala Putra was not a great news story for the
market, which revealed gloomy, unchanging figures for the
composite index, the rupiah value and trading volume on the
exchange.

Yet a number of government policies have also not proved to be
supportive for economic recovery.

First, there is the government resolution on the put option of
Semen Gresik, which according to State Minister for State
Enterprises Laksamana Sukardi has resulted in a win win solution.

The initial suggestion he offered was to give a put option to
Cemex, so that Cemex would control 51 percent stake at the cement
holding company, Semen Gresik. Using the proceeds from the sales
of the stake at the holding, the government would buy back 51
percent of shares of Semen Padang and 51 percent of Semen Tonasa,
so that Cemex' ownership in both firms would be minority -- but
the government would still gain over US$250 million -- a high
figure, though lower than initial expectations of more than $500
million. There are, however, a number of problems with the
government's "win win solution."

First, the government had not consulted Cemex before
announcing its plan -- so while there were two parties engaged in
negotiation, one side had already announced its "terms and
conditions" to the public, after which it communicated these to
the other side. This goes against all norms and theories of
negotiations.

Second, though it sounds simple, the separation of PT Semen
Padang and PT Semen Tonasa from PT Semen Gresik has deep reaching
implications to both companies which are public firms (through
back door listing). The transaction will make them private
companies in effect. In such a transaction, there is the role of
the minority shareholders who must approve it in the
shareholders' meeting, which in reality is not that simple.

Third, the issue of debts among the three cement companies is
still unclear, including how Semen Padang will pay its large
debts to bondholders and ABN Amro Bank. Transformation of public
firms back into private firms and the shift of rights and
obligations regarding assets and debts among the three companies
involved would bring many complications.

The "win win solution" is therefore evidently more politically
motivated, than based on rational economic considerations
regarding the put option and how it would yield revenue for the
state and help cover the budget deficit. But what was the
political reaction?

The East Java Governor wrote to President Megawati
Soekarnoputri expressing his objection to the plan. This proves
that politicizing economic decisions is bound to fail.

There is surely something wrong with this theory against
foreign ownership. As a consequence we would reject Caltex in
Riau, Freeport in Papua, ExxonMobil in Aceh, and other mining
firms in Sulawesi and Kalimantan. Is this what we want?

We must remember that Indonesia is a country in the doldrums,
and needs so many resources to be able to merely survive. We
often blame foreigners, while the main fault may lie with our
corrupt mentality which we fail to improve.

Other, very slow policies include the way the government has
handled state enterprises. In the case of PT Danareksa, two
commissioners have stepped down (Edwin Gerungan and Agus
Harianto), so that the company now has only one commissioner.

The uproar in the press regarding this case also reveals the
directors' inability to guard the confidentiality of the firm's
finances. This had greatly affected the level of confidence of
creditors, just after the restructuring of debts in the period of
the previous directors.

The indecisiveness of the office of the state minister of
state enterprises regarding the new board of directors is
reportedly influenced by the backing of certain legislators for
the president director who was appointed in the last days of
former president Abdurrahman Wahid's tenure.

The announcement of the new board of directors of the state
enterprise concerned, the delayed and troublesome settlements of
state firms such as Danareksa, all fail to reveal transparency,
as mentioned in the draft of the latest LoI. The public has not
heard sound arguments that the decisions taken were really based
on professionalism.

The replacement of directors of a state pharmacy firm without
prior consultation with the minister of health is another
example. The country will face great losses if policies are not
based on professionalism, but involve political motives. This
would reveal the weakness of the decision maker in understanding
political dynamics, particularly at the regional level.

In the future we hope that the economic team will be as
consistent as possible in its policies, in spite of the
continuing insecurity and political violence which is beyond
their sphere of influence.

President Megawati Soekarnoputri must understand the depth's
of this country's crisis. Her reference to observers as "too
harsh" has not helped. If observers do not carry out their public
duty the government will not gain any feedback and society in
turn would stand to lose. Then, we may as well be back in the
days of Soeharto's authoritarian rule, which of course none of us
wants.