Market will give Cabinet benefit of the doubt

President Megawati Soekarnoputri's Cabinet is an excellent start for the new government to work with, Hadi Soesastro, an economist and executive director of the Centre for Strategic and International Studies, told The Jakarta Post.

Question: How do you see President Megawati's Cabinet.

Answer: The Cabinet is much better than what had been anticipated by the market. What I am greatly impressed with is her bold move to appoint technocrats (Dorodjatun Kuntjoro-jakti and Boediono), whom she has never worked with, to the most important economic portfolios.

Doesn't that decision lend high credibility to her Cabinet?

Precisely. That is what I greatly admire about her; putting aside her political party interests to form a working team that gains market and political acceptance. Previously, most analysts expected that only one or two technocrats would be appointed to the economic portfolios, given the competing political party interests she had to cope with.

Don't you have any reservations about the Cabinet?

Again, I should stress that the market praise of the Cabinet is a good asset to capitalize on. But the Cabinet has to get to work immediately to prove itself. Megawati has just created a garden full of beautiful flowering plants, but one still wants to see whether the plants will be able to bloom in the garden. But I'm quite sure the market will give the Cabinet the benefit of the doubt.

Do you think the accommodation of major party members in the Cabinet will guarantee full cooperation of the legislature?

Theoretically, it should. But then we will have to see whether the political party leaders understand the consequences of their participation in the Cabinet.

The House had intervened too much in the government under Abdurrahman Wahid's leadership. But that was partly because then chief economic minister (Kwik Kian Gie) encouraged the House members to meddle with the technical details of policy measures such as privatization and asset sales. The then ministers did not want to be blamed for any possible mistakes that might occur later.

What's the Cabinet's top priority regarding the economy.

Top priority on the economic agenda continues to be fiscal sustainability, including prudent debt management, bank restructuring and asset recovery.

But will the Indonesian Bank Restructuring Agency (IBRA) be able to meet its tasks of asset recovery and debt and bank restructuring.? I think IBRA itself should first undergo total restructuring. I don't see a high standard of transparency and accountability at the agency. When established, IBRA claimed to be an organization full of highly competent professionals, but it has turned out to be the most backward and non-transparent of institutions. It is understandable that IBRA's highly paid staff want to take advantage of the limited operation period of the agency while trying their best to avoid any responsibility for any actions they make.

What about the role of the central bank, Bank Indonesia?

Bank Indonesia is expected to act as an anchor to provide confidence to the market. But this supposedly independent institution is also rotten; devoid of accountability. It should have been dissolved, replaced with a completely new, clean central bank just like what was done in the Philippines.

Is it a good idea?

Well, this is a matter of organizational culture. IBRA and Bank Indonesia were not well prepared to execute their tasks.

How do you see the privatization program for state-owned enterprises (SOEs)?

The government has so far focused the privatization program on the most commercially lucrative among the 160 or so SOEs. This approach is not correct as it zeros in on raising cash instead of an overall reform to make them competitive. Privatization should also include overall reform of all SOEs, including the small ones, to make them highly competitive and attractive to investors.

The government should act firmly on its privatization, not allowing itself to be held hostage by the House. There were several cases where the House was able to cancel a privatization project. This will scare away domestic and foreign investors.

How do you see the appreciation of the rupiah?

There are two factors why a currency strengthens; conducive climate and intervention from the central bank. The intervention will only work only if it is in line with the expectation. Not all kinds of intervention will work even with an injection of hundreds of millions of dollars to beef up the rupiah rate.

When Megawati took power (July 23), the climate was in line with the market expectation, then the central bank boosted the climate with an intervention of a reported US$150 million.

I would have done the same if I were the central bank governor but for different reasons. The bank governor would have intervened to show that the market was very happy with the fall of Abdurrahman Wahid.

How do you predict the state budget for 2002?

The current budget envisages a deficit of some Rp 54 trillion. The government expects to get Rp 20 trillion in foreign loan disbursements, Rp 27 trillion from asset recovery by IBRA and Rp 6.5 trillion from privatization of SOEs. But like most other analysts, I doubt that the government will be able to achieve the target revenues from asset sales and privatization.

So you see, it will be an uphill task to plan the 2002 state budget. The government will most likely need a month or so to prepare its budget proposal. A lot of things must be considered, for instance, the impact of fiscal decentralization which will affect the central government's revenue, the plan to increase civil servants' wages and how to repay and service domestic and foreign debts. (I. Christianto, Vincent Lingga)