Nov. 22, 2004

Waiting for economic action

It is now already a month after the inauguration of President Susilo Bambang Yudhoyono's United Indonesia Cabinet and the market is still waiting for what has long been promoted as Susilo's first 100-day action plan to fully restore investor confidence.

In Susilo's speech on Wednesday evening to mark his first 30 days in office it was expected he would reveal the detail of this agenda. His prepared address to the nation instead was mainly aimed at warning the people against having too high expectations, arguing it would be impossible to solve all the country's problems in 100 days and that final judgments on the success of his administration would best be made at the end of his term in 2009.

No one has been so insensible as to expect Susilo's administration to resolve all the nation's problems in three months. But we at least want to see a set of concrete measures planned regarding the President's promised "shock treatments" in top priority areas of his program.

In his first week in power Susilo did make the right remarks and the right, if symbolic, moves. He conducted working visits to the Attorney General's Office and the National Police Headquarters, conveying a strong message about his determination to fight corruption as his top priority.

Susilo then made working visits to the tax and customs directorate generals, which are not only among the most corrupt public institutions, as perceived by the public, but also among the most important targets of reform if his Cabinet is to improve the country's investment climate.

In a move demonstrating his awareness of the vital importance of good coordination between monetary and fiscal management, the President also met early on with the board of governors of the central bank. The series of introductory meetings he made in the first week of his administration included, also for a strategic and symbolic reason, the leaders of the House of Representatives and the business world.

However, such symbolic moves, though needed, are not enough to maintain the momentum of market confidence and the credibility of his administration.

The announcement of the so-called 100-day agenda is not an end in itself but it is nevertheless important to allow the market and investors to make further judgments on policy direction and to assess how the measures will be implemented. For only consistent and effective implementation will make the government's policies credible.

Businesspeople won't expect instant results in all areas. What they really want to see is steady progress along the right path; a consistent reform process and not a one-off event. Everything does not have to be fixed at once.

For sure, Susilo does have his stumbling blocks. Vital instruments such as amendments to the 2005 state budget, which require approval from the House of Representatives are unlikely to proceed quickly, given the adversarial relationship between the government and the majority factions in the House.

However, there are many changes to law enforcement and to the economy that do not need House approval or an additional budget.

The government can do a lot to change the taxation and customs directorate generals, the two public institutions most-maligned by business, without having to wait for the House to enact the three new bills on taxation, which are still being finalized at the State Secretariat.

Moving firmly and consistently to make tax audits more transparent and accountable, expediting the procedures for tax refunds and cutting the number of procedural steps to get merchandise cleared at air and seaports would go a long way to cutting the costs of doing business here.

This in turn would reduce business risks and transaction costs and strengthen the nation's competitiveness. This virtuous circle would continue -- bank lending would increase and new investment would get a boost.

Likewise, cutting the red tape in business licensing and other rules regulating the movement of goods between provinces or islands would be a strong boost to new investment. Just look at how a recent survey by the International Finance Corporation, the World Bank private-sector arm, ranks Indonesia among the worst places to do business because of so many regulatory burdens, policy risks and a high incidence of bureaucratic corruption.

It takes about 160 days to get a business started in Indonesia due to numerous bureaucratic procedures and regulatory requirements and sadly, most of these procedures do not help or protect anyone at all.

The government doesn't need an additional budget to remove all these constraints, nor does it require House approval. What is needed is the political determination to consistently enforce policy measures until they are strongly institutionalized in the system.

It is therefore most imperative that the 100-day action agenda should include only concrete measures that are bureaucratically, economically and politically feasible and, most importantly, can be enforced consistently.

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