It is the crucial '70 days' program

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.