Wed, 23 Aug 2000

New Cabinet in for tough challenges

JAKARTA (JP): The new Cabinet will be confronted with five formidable tasks that must be solved immediately to bolster the ailing economy and ensure social stability, according to senior economist Emil Salim.

Emil said on Tuesday that the challenges included the completion of the current 2000 state budget and the implementation of regional autonomy in January.

"Whoever sits in the upcoming Cabinet will face tough challenges that must be settled immediately," he told a seminar on economy.

Emil, a former Cabinet member under the previous administration of authoritarian president Soeharto, is head of the National Economic Council (DEN), charged with providing a second opinion on economic issues to President Abdurrahman Wahid.

However, Emil's current position appears to be tenuous since it was reported on Monday that the President is planning to dissolve the 10-month-old DEN following strong criticism of its performance.

The lineup of a new, smaller Cabinet is expected to be announced by the President on Friday.

Emil said the first challenge facing the new Cabinet, would be completion of the April-December 2000 state budget, including the realization of the planned increase in domestic fuel prices.

The government will significantly cut fuel subsidies in October allowing fuel prices to rise in a bid to ease pressure on the state budget.

Fuel is a politically-sensitive commodity in the country. The last general fuel price increase in April, 1998 sparked unrest that became a catalyst for the riots that toppled Soeharto from power one month later.

"The economic team must also deal with the (recent) increase in the salary of civil servants so that it doesn't widen the budget deficit," Emil said.

In a bid to curb corruption, the government has raised the salaries and allowances of civil servants.

Emil said that the target for the Indonesian Bank Restructuring Agency (IBRA), a unit under the finance ministry, to raise Rp 18.9 trillion (US$2.28 billion) for the current budget year would also be a tough challenge for the new finance minister.

So far, IBRA has raised only some Rp 7.9 trillion from the sale of assets and loan payments. The agency must still raise another Rp 11 trillion in the remaining four months of the current fiscal year.

The revenues from IBRA will finance half of the interest costs of the government bonds issued to finance the government's bank recapitalization program.

Implementation of regional autonomy will present challenges of a different nature, requiring additional skills.

He said the regional autonomy policy would affect the finances of the central government through the new fiscal balance between the central and regional governments.

But decentralization will be accompanied by "institutional problems" that must be dealt with, including how to deal with the massive number of central government employees currently working in the provinces, Emil explained.

The third challenge, according to Emil, for the new economic ministers will be to prepare the 2001 state budget.

He said the government must sharpen the priorities of the next budget because of the implementation of regional autonomy and the government's higher debt burden.

Emil said the fourth challenge was to push the banking sector to resume lending to the real sector following the recent completion of the recapitalization program of the country's largest private and state banks.

"The government must create a conducive, competitive climate (for businesses)," he added.

He said that the fifth challenge would be to make preparations for future talks with multilateral lending institutions and regional and international trade groups, notably the International Monetary Fund, the World Bank, the Consultative Group on Indonesia, the World Trade Organization, the Asean Free Trade Area, and the Asia Pacific Economic Cooperation.

Emil said that negotiations and discussions with those organizations must focus on accelerating the country's economic recovery.

Emil said future policy making processes would be different because of the greater role of Vice President Megawati Sukarnoputri, now charged with running the day-to-day activities of the government.

Meanwhile Sri Adiningsih, a noted economist at the Gadjah Mada University in Yogyakarta, warned political parties not to pressure the President to include their candidates in the Cabinet line-up.

"It's okay if their presence in the Cabinet is politically unavoidable, but we just hope that political parties do not insist on the government accepting their people in certain posts in the next Cabinet. Let the government decide the final composition because the government should have a professional and solid team, particularly the economic team," she told The Jakarta Post in Yogyakarta on Tuesday.

She acknowledged that the government faced a difficult task in adjusting the country's economy to a new structure in accordance with the development of regional economies, as stipulated in the law on regional autonomy.

The adjustment process, she added, would probably take five years.

Adiningsih said that the economic team would not be able to work effectively if it was immediately attacked by many political parties with harsh, emotional criticisms.

She also warned the next Cabinet's economic team to set aside their respective political party interests and follow only the government's agenda as set by the President and Vice President. (rei/44)