Market will give Cabinet benefit of the doubt

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)