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

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)