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.