No reason to be pessimistic about RI's economy: Scholar

Economist and observer of Indonesian economic and political affairs, Dr. Howard Dick, Associate Professor at the Department of Management, the University of Melbourne, believes that the new Cabinet has the makings of a strong democratic government and that it is up to the individual ministers, the president as well as the vice-president, to manage the dynamics of the cabinet.

Question: What do you think of the new Cabinet?

Answer: It looks very good. It is a Cabinet of national unity. The most important thing now is to restore confidence in the new government and in the political process. The coalition Cabinet represents most of the main interests, especially between the Islamic factions and PDI Perjuangan (Indonesian Democratic Party of Struggle).

There are respected figures, and figures who are regarded as honest and incorruptible, such as Kwik Kian Gie, Marzuki Darusman, Bambang Soedibyo, Juwono Sudarsono and many others. These are the sort of people you would want to lead a strong democratic government.

Having a civilian as the minister for defense is a significant achievement. And I think many of these figures are known internationally also. This will establish the credibility of this government as an internationalist government, not just an inward looking one.

The other good thing about this government is the people who are not included. Some of the most corrupt and manipulative politicians from the previous order, have finally been put out to pasture, along with some others who have done their best so deserve some rest.

So I think all round, since we don't live in an ideal world, this is a very good outcome.

Q: Can you see any weaknesses?

A: At this stage I don't see any obvious weaknesses. The question for the future is, okay, it looks good, but will it work? Will ministers who are inexperienced in government, master their portfolios in a short time? Will they employ the best people as their advisors? Will they take advice from the public? How will the president and the vice-president themselves coordinate this cabinet? We have to allow for some mistakes. Any new government in a democratic system which comes to power after a long time out of it, will make mistakes. We should look at the big picture.

Q: Who would you have liked to see in the cabinet who is not there?

A: I don't have a shortlist of people, neither do I think that as a foreigner I should say who should be in the government. What is obvious is that most of the members of this government have allegiances to various political factions. That is quite normal in a democratic system.

Perhaps this is different from the way members of government were selected in the previous order, where technocrats without any political allegiances could be just taken in from universities.

Representing constituencies places them under some obligations, not only to their constituencies, but also to the nation. They are aware that they are both ministers and politicians. They should be more responsible because of that.

Q: So do you think that a technocrat would be less concerned about accountability to the constituency?

A: The view held by the previous government was that technocrats who were in most cases taken from an academic background and who did not have any political loyalty, would as economists or scientists, for instance, be uninfluenced by political interests. To some extent that was true, particularly very early in the previous order.

The difficulty is, when in a politicized system, technocrats produce policy packages which are not politically acceptable, then regardless of how good the packages are, they are not workable.

In most democratic countries, the ministers are selected from parliament. Except in the United States, where the president has the power to appoint a non-parliamentary cabinet.

But the general view now is that when you are designing a policy, you have to be mindful of the political impact and consequences.

We saw in the last years of the New Order, and also during the Habibie government, the difficulties that you get into when technocrats produced good policies that were not supported by the government, even by the people.

Q: Can you name some examples?

A: The classic one would be the issue of bank policies, the dismissal of Mar'ie Muhamad and Sudradjat Djiwandono in late 1997. These were good ministers, and their policies were thought to be soundly based, but they could not survive in a highly politicized environment.

It is different when you have an autocratic government and a powerful president, perhaps upheld by a roomful of technocrats, to push their policies through. In the new system there is not so much elbow room, you really have to be smart on the politics, not just the economics.

Technocrats cannot just say: this is a good policy, if it is not politically acceptable, it is not my problem. A good minister must ensure that he goes to the best people in the field, to the top economists, talks with bankers and top businessmen and representatives of small business. He canvasses the policy options very widely, so that he tests them out intellectually as well as politically, before he finalizes the political package that he takes to cabinet.

That way, there is still a role for the experts. The difference is they are not in the government. It means there is going to be a more open political process. And these experts can also canvas policies in the media, as is happening already. The experts are much more upfront in the daily press, in weekly magazines and on television programs in canvassing and discussing policy options in quite a sophisticated way.

So everyone will be on a fast-learning curve, and there will be mistakes. Ultimately out of that, you get a better government where everybody has to be responsible.

Q: Now let us look back. Where did the International Monetary Fund (IMF) and the World Bank go wrong in assessing the economic and political situation then?

A: This is a question that one could answer two ways.

The easy way is to say that the IMF, as well as the World Bank, made some bad mistakes. Clearly they did. The main mistakes I think, were to be over-confident with the first IMF package, which was a rather standard dose of castor oil. That turned out not to be the right decision and the IMF backed off from that.

Secondly, in hindsight, they were wrong to support the bank closures in the second half of 1997. But then that move was widely supported by others within Indonesia. At that time, based on what happened in Thailand, it seemed to be good for restoring confidence in the banking sector. What had not been anticipated of course was how nervous the ethnic Chinese already were, that it was taken as symptoms that drove them to begin pulling out their money. I don't think it is fair to blame the IMF for that one.

I think the IMF can, in a way, be blamed for hastening the decline of the Soeharto government. The IMF, nonetheless, had been listening to technocrats from inside Indonesia who had a policy agenda. It was in part a policy agenda of the Indonesian technocrats and respected Indonesian economists.

What was happening was that the IMF, a little too naive in the beginning, became a party to a domestic process. And since the IMF was such a big player, it actually helped to destabilize the political situation.

From a domestic point of view, nobody wants the Soeharto government back again. So in the long run, even if the IMF was a bit clumsy, it was not a bad thing. Though in reality it is not the role of the IMF to bring down governments, it is meant to stabilize governments.

Q: How will the IMF and the World Bank be needed by the new government?

A: The simple answer is money.

The more complicated answer is confidence.

Confidence building in Indonesia has to be multifaceted. Confidence in the political process, within the domestic business community and with the international community, both diplomatically and in terms of business. The IMF and the World Bank come in at that last stage.

As multilateral agencies they are very important. They will help the Indonesian government to restore its international credibility, if it can establish a working relationship with the IMF and the World Bank.

If the new government can persuade the two agencies that its approach to the problems is a sound one, then they can help the government argue its case to the international community. We can now see the IMF and the World Bank as players in the political process, which is now a global one. So the government must restore its global credibility, which has been so badly battered.

Q: Will they help drive the investigation into the Bank Bali scandal?

A: Everybody knows, in Indonesia and outside, that the Bank Bali scandal is terribly damaging. It is widely rumored, but not yet substantiated, that this was not the only bank. Just one that came to the public's attention. To me, that would suggest that the new government should give support to Glen Yusuf (head of the banking structuring agency) to determine the facts, to make this process of restructuring as transparent as possible.

The interim nationalization of the failed bank was not intended to create a nice milk cow for politicians to soak up the funds for their campaign. This was the worst possible outcome you can imagine. So we have to get the politicians' hand's out of this bank.

In overcoming corruption, Indonesia would restore credibility and financial autonomy so it would not be always be dependent on financial aid from the IMF and the World Bank.

Q: What do you think are the strengths and dangers facing this government?

A: The strength is it has begun with a great deal of good will, with the various factions under obligation.

The dangers are if the government shows obvious signs of weakness, if fissures open up between coalition partners or between the civilians and the military, if ministers make too many mistakes, if the cases of gross corruption begin to contaminate this government, if the economy does not begin to recover over the next year, then serious problems will emerge.

The government will have to build up its bank of goodwill before the pressures erode that political capital.

Q: As an economist, do you see the country's economy improving quickly?

A: This economy has so much excess capacity that it is completely feasible to achieve a rapid recovery from this recession. As an economist, there is no fundamental reason to be pessimistic. (Dewi Anggraeni)