Laws crucial for effective reforms

JAKARTA (JP): Adequate legal infrastructure and transparent government will be critical to the success of Indonesia's painful International Monetary Fund (IMF) sponsored economic reforms, economist Sri Mulyani Indrawati has said.

The government and the legislative and judiciary bodies must quickly introduce "soft infrastructure" such as antimonopoly and bankruptcy laws, and amend the central bank law to support the reforms, she said in a speech at the 48th anniversary commemoration of the University Indonesia on Saturday.

"Speeding up the availability of such infrastructure is critical to accomplishing the reforms effectively," she told The Jakarta Post after the ceremony.

Sri Mulyani, head of the university's economic and community research center, said the IMF-led economic reforms, which should liberalize almost all sectors of the economy, would especially benefit foreign conglomerates with their large capital, superior technology and extensive networks.

Several local business groups might also gain, she added.

If the government and the House of Representatives do not quickly anticipate the changing market structure then the reforms will not benefit the public, she said.

"New laws relevant to the more liberalized market have become a priority that can't be delayed."

The government has agreed to adhere to the IMF's wide-ranging economic reforms in return for a US$43 billion bail-out.

Sri Mulyani, however, criticized the government for failing to initially provide well-prepared legal infrastructure essential for effective reform.

To accommodate such a lack of initiative, a government credibility and transparent policy would be needed to win the hearts of the public and the international community, she said.

Many people say transparency is critical to boosting the government's deteriorating credibility.

"The national leadership factor and its credibility ... will be very important to winning support and cooperation from the public and market players," Sri Mulyani added.

She cited several academic studies to support a theory that a popular government supported by the masses and sensitive to crisis indicators such as rising inflation, dropping currency, and collapsing production units was important to accelerate the implementation of the reforms.

She argued, however, that although the dominant Golkar won a landslide victory in last year's general election, this wasn't a guarantee of swift decision making.

She said Indonesia took about six months from the start of the economic crisis in July to reach an agreement on the IMF's radical reforms.

"The dominant role of a certain pressure group in the administration has eliminated flexibility in the decision-making process."

She said the government had become a hostage of the economic interest group.

This situation led to the government's lack of sensitivity to crisis indicators, she said.

"This is reflected in various government comments which have appeared to deny the facts of the crisis or refuse to accept the market's signal to implement reforms."

She said the current regime was successful in its past reforms.

This was attributed to the strong executive under the presidency of Soeharto; his strong support for technocrats under economist Widjojo Nitisastro; the government's superior credibility due to its success in delivering high economic growth and lower inflation, and less poverty; a neutral armed forces; and the role of foreign investors.

She said factors such as income disparity, corruption and nepotism had played parts in eroding the government's credibility.

Political reforms were needed, and "at the lower levels it's bureaucratic reform," she said. (08)