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.