More hardship ahead

We are horrified simply by wondering how the economy, still reeling from the meltdown of the rupiah and punitively high interest rate, will weather the havoc and social turmoil, which is most likely to be triggered by the bold fiscal measures scheduled for next month.

We cringe when we imagine the additional suffering that will fall on the people with the series of price hikes, which will be set off by the planned increase of 30 percent in fuel prices, 20 percent in electricity and telephone rates and 2.5 percentage points in the rate of the value-added tax in the first half of next month.

It does not matter if the painful measures, which were proposed to the House of Representatives on Monday as part of the massive amendments to the 2001 state budget, will accelerate the fall of President Abdurrahman Wahid's government. After all, the present government no longer has anything to lose -- in the way of popularity, credibility and legitimacy -- by recommending such bold moves. What really counts now is how the new government will have enough credibility to ask for public support to manage the implementation of the harsh measures.

No one would argue against the urgent need for preventing the budget deficit from exploding at an unmanageable level. Fuel prices should be raised, otherwise fuel subsidies, which were originally estimated at Rp 41.3 trillion (US$3.6 billion), would balloon to almost Rp 70 trillion, due to the weakening rupiah and higher-than-estimated international oil prices. Moreover, quite a portion of the subsidies is always enjoyed by well-off consumers, and underpriced fuel has been causing a lot of wasteful use and creating lucrative opportunities for smugglers.

The concern here is the severely limited time available for a nationwide information campaign to sell the painful measures to the public and prepare the business sector and bureaucratic institutions for digesting the bitter medicine. One should remember that the budget amendments will also include the reduction of operating expenditures by Rp 5 trillion and investment spending by Rp 3.3 trillion.

The greatest concern though is the social safety net program to help protect the poor from additional pains resulting from the harsh fiscal measures. The Rp 1.2 trillion the government will spend specially on poor families to help cushion them from the additional sufferings incurred by the price increases could be wasted if a foolproof mechanism or system for distributing the funds through social compensation in education, health and rural infrastructure is not put in place.

In fact, the government's failure to establish an effective system to execute social safety net programs was the main reason for the World Bank's decision last December to cancel the disbursement of the second $300 million tranche (Rp 3.3 trillion) of its $600 million loan for poverty reduction in the country.

It is therefore most imperative that the House deliberations on the proposed budget amendments focus on how to phase in the painful measures without creating havoc on the macroeconomic condition and triggering social turmoil and a labor revolt.

One thing, though, is clear. The measures can no longer be postponed, otherwise a larger fiscal crisis will ensue, causing the government to default on its domestic and foreign debts. It should also be realized that no matter how the measures are phased in, they will surely cause a lot of pain. It will therefore be helpful if the public are made to understand that the pains are being shared fairly and to believe that the sufferings will eventually lead to better economic condition.

Here lies the pivotal role of a credible government, which will hopefully emerge within the next few weeks. The role of the House members is equally crucial. Therefore, besides discussing preparations for the implementation of the bold moves, the House deliberations, within the next one to two weeks, should also aim at building a favorable public opinion and creating public understanding.

As the people are now putting up more sacrifices, it is the turn of Indonesia's international creditors, most notably the International Monetary Fund, which is leading a $5 billion bailout program for the country, the World Bank and Japan, to come up with their contribution to help the government and nation navigate through the severe turbulence ahead.

This is surely another highly critical time in the life of the nation, an emergency situation that calls for contingency measures on the part of Indonesia's international friends.