It is the crucial '70 days' program

Kahlil Rowter, Jakarta

In a frank admission President Susilo Bambang Yudhoyono stated that solving the nation's multitude of problems is going to take more than 100 days.

This shows awareness of the high expectations attached to his administration to achieve a lot quickly. And it shows understanding of the vexing nature of problems faced and the huge amount of work needed to achieve the many (and sometime conflicting) objectives that are demanded of him. But it should not be an excuse to be lax in working toward these goals.

Particularly since the challenges are steep, the stakes are high and the time is short.

That the challenges are steep are evident even before he took office. Forming a Cabinet used to be done secretly. But with today's degree of transparency, who are called for interview is broadcasted minute by minute. And the lag between action and reaction has dwindled to mere hours. Such is the power of concentrated media attention.

This in itself poses a challenge. Whatever he does, decides or even mulls becomes public discourse which limits the president's degree of freedom. In macro-economics, the well-known policy ineffectiveness adage essentially says that when proposed policies are known by rational agents they will adjust their behavior which makes the proposed policies themselves ineffective. It is therefore advisable for this government to heed this adage.

Indonesia's economic problems are well known and proposed solutions abound. Take unemployment and poverty. The solution must somehow revolve around growing faster than now. And in this lies another challenge: Investment. And the proposed attack on impediments on investment is on the right track.

The three most often cited problems are with labor market flexibility, legal certainty (which includes central and local government regulatory streamlining) and corruption. All three and a host of other issues raises the cost of doing business in Indonesia and in many cases makes it almost impossible to invest with a certain degree of certainty in the continuity and profitability of the venture.

Hence a strong hand is need to combat these problems. It cannot be expected that all of these challenges can be surmounted in the short-term, let alone in 100 days. But a signal that the government is aware of the problem and an identification of what steps will be done, along with a schedule, prioritization and most important a self-punishing mechanism will be needed.

As regards the choice itself -- in the economic part of the Cabinet -- shows a combination of backgrounds and paradigms. The choices for coordinating minister for economy and minister for State Owned Enterprises were taken from the business sector. The ministers for planning and trade were taken from academics.

While the position for finance, energy and industry were taken from the bureaucracy. This mix reveals a desire to combine talents from several sources while at the same time keeping protests at bay and keeping most sources of support happy. Also, the elimination of several names reveals the tendency to change directions under pressure.

As Shakespeare puts it: "All is well that ends well." Hence, although the process might be less than ideal, as long as the new government comes up with well accepted optimal strategy in the coming weeks, this will be forgotten. Otherwise this process will be remembered as the beginning of something other than a successful journey.

Forget the so called "100 days' program." Between now and the end of the year, a mere 70 days, the main challenge is to re-work the state budget. The proposed state budget, a legacy of the previous government, left a glaring discrepancy between assumption and reality: The oil price. Although the impact of putting in a more realistic oil price assumption of, say, US$40 per barrel, only adds about Rp 3 trillion to the budget deficit, this number would make the fuel subsidy to at least Rp 63 trillion (using this year's budget number).

This is close to 16 percent of total expenditure. Between paying debt interest and maturing principal, financing fuel subsidies (and other subsidies related to this) and allocating monies to regions there is not much room for the government to invest. Unless the new government can quickly raise domestic fuel prices, there will be limited funds from the budget to finance the multitude of plans that the president desires.

Do not forget that the new budget will be a compromise between the government and the new House of Representatives. And with so much riding on the budget, this 70-day period will quickly run its course. Institutionally, the new Cabinet with new faces and the new House, also with many new faces needs to start working on their relationship chemistry, start turning plans into numbers and arrive at a compromise very soon.

Before the government proposes a unified budget plan, the ministers will have to work together to also arrive at a compromise, because there is only so much money in the budget. This is where the background of the ministers come into play and the leadership of the president and vice president is really called for.

As an example from the revenue side: Ministers from the business sector will certainly want to lessen the burden for business, while those from the academic and perhaps bureaucratic background will want to maintain a prudent budget which means maintaining or even raising revenues.

An example on the expenditure side: Businessmen will want to see projects, especially infrastructure projects and do not mind raising budget deficit, inflation and interest rates. But the more prudent academics will want to maintain the present low deficit, low inflation and interest rates. It is paramount that the budget process inside the government

be completed before presentation to parliament and not have groups of ministers with similar background separately lobby the House factions to favor their particular agenda. And all these compromises will have to reached in the next 70 days. And whatever is agreed upon, next year's budget will bind the financial action of the government for the next 12 months.

Compromise attempted after the budget has been signed into law will be more expensive.

It is true that the government budget is not something set in stone. Changes occur and can be catered to in the amendments. But only those changes supposedly beyond the control of the government, not due to tweaking with variables well within the government's influence. If this is done, then the whole budget integrity will breakdown.

Using military parlance, the three elections have been open battles. Susilo won all three. The Cabinet formation is a semi- open battle. And he won this too, although somewhat wounded. The next battle, also semi-open will be the 2005 budget. And then after this has been won, the more important series of battles will begin.

These are the battles against corruption, waste, inefficiency and all the other problems afflicting this country. They will not be open but more of a guerrilla style fighting. Only after winning these will Susilo-Kalla be declared the winner in this war. And it will be a victory for Indonesia.

The writer is the Head of Research at Mandiri Sekuritas. This column was written in a personal capacity to enhance public debate.