Jury is still out

Jury is still out

The financial markets were not overly enthusiastic about the
economic lineup in President Susilo Bambang Yudhoyono's United
Indonesia Cabinet. But neither did they punish the new
government. Both the Jakarta Stock Exchange's composite price
index and the rupiah remained rather flat on Thursday and Friday,
waiting for positive new factors to rekindle enthusiasm.

Encouraging, too, is the fact that there were no completely
thumbs-down responses to the new economic team. The markets have
apparently taking into account the multitude of political
compromises and competing interest groups the new President has
been required to take on board.

The reactions so far have mostly been reasonable -- a wise
stance of giving the new Cabinet the benefit of the doubt. It is
obviously too early to judge the effectiveness of the new
economic team, even though many had expected bolder moves by
Susilo given his strong political mandate from the public.

For one thing, the President should have demonstrated greater
political courage in abolishing the ministry overseeing state-
owned companies, especially in the light of the enactment of the
State Finances Law in 2003, which stipulates that all state
assets, including state companies, come under the jurisdiction
and management of the minister of finance.

Maintaining a special ministerial portfolio overseeing state
enterprises will only serve to increase the layers of bureaucracy
the executives of state companies have to deal with in making
managerial decisions, thereby making state companies more
vulnerable to interference by vested-interest groups. There have
been numerous complaints by CEOs in the state sector of far too
many interventions from the so-called representatives of the
shareholder (government), who by definition can be officials of
the ministries of state enterprises or finance, and of the other
line ministries that act as the regulatory authorities in the
fields in which the state companies operate.

In reality, the country's 160 state companies could be
overseen by a director general at the finance ministry based on
their business plans. Most important, however, is that their
directors and commissioners be selected based on their
capabilities and achievements.

Susilo should not have split the trade and industry ministry
into two separate entities as this will lead to an unnecessary
waste of the time that the new government simply does not have.
It will take at least six months to complete the bureaucratic
procedures and arrangements for the establishment of two separate
ministries, and perhaps another six months for the realignment
process to be completed.

Trade and industry are deeply interrelated. In fact, trade,
whether it involves importing, exporting or selling on the
domestic market, is simply the end of a long, chain of processes.
Take manufacturing exports, for example. These represent the
products of a series of activities that start with the
importation of basic raw materials, and include port handling,
customs clearance, transportation to factories, production
processes in plants, etc. Each link in the process influences the
competitiveness of the export or the product.

That is why teamwork and coordination is so crucial for the
economic team. A misconceived fiscal policy could immediately
kill an otherwise good agricultural measure or an excellent
industrial policy instrument. Inefficient port handling can
nullify the efficacy of low interest loans for export financing.

Some may doubt that the rich mix of businessmen, technocrats,
politicians and bureaucrats who make up Susilo's economic team
will be able to deliver good teamwork and coordination. On the
contrary, we see this wide variety of professional skills and
approaches as an advantage that will enrich and enliven
discussions around the Cabinet table.

We should not forget that Susilo, himself an economist with a
fresh PhD in agronomy, will also set up an economic council of
advisers from various disciplines to help inform him of all the
policy alternatives that are available.

As an economist, the President will not likely content himself
with merely looking at the grand design. He will conduct tight,
hands-on management of economic policy-making, digging into the
nitty-gritty of every policy alternative before making a final
decision. Not a single major economic policy will see the light
of the day without Susilo's fiat.

In any case, the first official remarks made by the economics
ministers immediately after their appointments give us even
stronger grounds for giving the economic team the benefit of the
doubt. The chief economics minister and the ministers of
finance, state enterprises, industry, trade and development
planning said all the right things about the most pressing
economic problems the country is facing.

Moreover, the effectiveness of whatever economic policies are
adopted will depend largely on law enforcement. In this regard,
the fact that the Cabinet includes a team of credible ministers
and officers in the legal sphere is most encouraging.