Krismon in slow motion

Krismon in slow motion

By the time our readers read this editorial, the government,
following its Tuesday night Cabinet meetings, should have
announced its latest policy package aimed at rescuing the ailing
rupiah.

Given the situation that has evolved over the past several
weeks, this package will need to be bold and insightful for it to
have an immediate impact upon the sinking currency.

We are nevertheless hopeful that what ever policy decisions
are announced that the package will produce a firm foundation
towards a medium-term recovery.

Given the gravity of the situation even a weak policy response
is better than no policy response.

The present predicament reminds us very much of the events of
mid-1997 that led to krismon -- an Indonesian abbreviation for
Krisis Moneter, or monetary crisis -- which resulted in the
meltdown of the Indonesian economy and eventually led to massive
political upheaval.

Both situations were permeated with unfavorable external
conditions that were beyond the control of domestic forces. In
1997, it started with the free fall of the Thai baht; in 2005, it
is high oil prices. It was, and is, exacerbated by local
conditions and a government that seems impotent to stem the tide
of global challenges.

During the initial phase of krismon, Indonesian policymakers
repeatedly insisted that the fundamentals of the economy were
sound. Only after it was too late did we realize the hollowness
of their remarks.

Over the past fortnight government officials have been busy
scampering about from one meeting to another, making one
announcement after the other, but with little apparent success in
boosting the economic situation. Time will tell if history
repeats itself.

While the economists may debate technical remedies, what is
most worrying to us are the similarities in the socio-political
environment of mid-1997 and mid-2005, in particular a growing
distrust in the government's ability to meet economic challenges.

The difference in nuance was that eight years ago it was
further fueled by deep-rooted political discontent.

Irrespective of the external economic conditions, when the
rupiah drops 1,000 points in a matter of days to hit a four-year
low, it is obviously a sign of panic.

Combined with the perceived inability to provide a sustained
supply of staples, such as gasoline and electricity, mediocre
welfare management, the escalating panic could be a harbinger for
a crisis in the making.

Though the impact of events in the global economy are
unavoidable, the government could have undertaken preventive
measures to avoid putting Indonesia in such a vulnerable
position.

When Indonesia completed its presidential elections in late
2004 the country was in an elated mood, and this optimism carried
through into the following year.

Gradually however, the economic indicators began showing
signs of rumbling discontent brought about by a lack of concrete
measures to build a sound economy.

Four months into the year, inflation was rising, exports were
going down, public consumption was showing signs of stagnating,
while unemployment went on unabated.

The rise in gasoline prices at petrol pumps, albeit necessary,
was not accompanied by appropriate welfare programs that would
have alleviated some of the burden on those hardest hit.

The government had a golden opportunity to inject some
confidence into the economy in mid-August when it unveiled its
draft budget. However, the draft was universally criticized for
being unrealistic.

All the while the President Susilo Bambang Yudhoyono has
continued with the platitudes that have now become rather stale,
if not a tad boring. The situation is not helped by the lack of
any significant economic achievements that the President can
point to in his first year in power.

Everything the President has done so far has turned out to be
a dud. The infrastructure summit was one such undertaking which
failed to give even mildly positive indications that it would
usher in significant investment.

Despite his very presidential public persona, we must remind
the President that leadership is action, not just position. The
nation needs clear leadership now, Susilo!

The implementation of new economic initiatives does not
necessarily have to be audacious, as long as it is thorough with
clear timelines and proof of its progress.

Simple, straight-forward priorities that everyone can focus
their hopes on.

A Cabinet shake-up may or may not be necessary to improve
market confidence, but what must not happen is a reshuffle just
for the sake of appeasing political forces who are exploiting the
President's weakened bargaining power. Horse-trading for Cabinet
seats will satisfy certain political parties, but it won't help
the economy.

We do not wish to see a repetition of the glum disappointment
that prevailed when Susilo initially unveiled his Cabinet last
year. Controversy can be overcome, as long as the changes are
incisive.

This nation has come too far to again undergo the ordeal of
1997/8.