Now the challenges

Now the challenges

The political and social stability ushered in with a new
government led by two respected, popular figures is predictably
moving rallies from the streets to the foreign exchange and stock
markets. Businesspeople foresee an immediate end to the violent
outbursts in several cities of the past few days and expect a
clean break from the corrupt past.

It is obviously too early to judge the capability of the
Abdurrahman Wahid-Megawati Soekarnoputri government in coping
with the crippled economy. Their Cabinet has yet to be formed and
it is expected to be a long, delicate process of power-sharing
negotiations to accommodate the interests of the various
political factions in a bid to soothe political tensions. But the
new administration possesses fundamental assets which the
previous one did not have -- legitimacy, credibility and no
relationship to a legacy of corruption and abuse of power. What
all this boils down to is trust, the powerful working capital in
coping with the mammoth challenges ahead.

It is redundant to caution that the postelection euphoria will
be short, with the honeymoon probably lasting only one or two
months before the pains of the economic debacle begin to assault
the popularity and credibility of the administration, with high
expectations of the people beginning to sour.

The first acid test of its credibility will be the new
Cabinet, which is expected to be formed within the next few days.
As both President Abdurrahman Wahid and Vice President Megawati
have no previous experiences in government and the crisis they
are dealing with is multidimensional in nature, they need a
solid, professional working team.

Whatever political debts both leaders owe in bringing them to
their present top posts, they should stand firm in imposing
integrity and technical competence as the primary requirements
for recruitment to the Cabinet. Too much attention to the
political affiliations of the candidate, although good for
gaining cooperation from the various political parties, would
give the wrong signal to the market, especially if the need for
returning political favors leads to the formation of a larger
Cabinet. A Cabinet that is tightly fettered by the competing
interests of political parties is inimical to jump starting the
long, arduous process of building up good governance. Such a
coalition may also compromise the House of Representatives'
courage to exercise effective control of the government.

But early indications are convincing. It is really comforting
to learn that President Abdurrahman's agenda on Friday, only his
second day in office, included a meeting with several economists.
This clearly proves his correct sense of priorities and his
mastery of the right approaches to problem solving -- listening a
lot before making any decisions. Similarly impressive is the
proper sense of priorities shown by the vice president, as can be
concluded from the off-the-cuff remarks made by Megawati on
Wednesday. A few minutes before the presidential ballot, she
responded to the question of what she would do if elected
president. "Oh, quite a lot. For example, first, securing
adequate supplies of basic needs for the upcoming Christmas,
Muslim fasting month of Ramadhan and Idul Fitri celebrations,"
she said.

Obviously, the first tasks of the new Cabinet are to prepare
the state budget, have the complete audit report on transactions
in the Bank Bali scandal published, reopen negotiations with the
International Monetary Fund to release about US$4.7 billion in
loans for the budget currently withheld by major creditors
because of the scandal and start negotiations with creditors for
debt rescheduling.

Accelerating bank restructuring, which is already a few months
behind schedule, is also most imperative. Without a sound banking
sector, the economy will remain debilitated by the lack of
lifeblood -- credit financing -- despite the steady decline in
interest rates.

Similarly crucial are concerted efforts to bolster the working
spirit at the Indonesian Bank Restructuring Agency (IBRA) and at
the office of the ministry of the empowerment of state
enterprises, which were demoralized by the Bank Bali scandal.
Both institutions are tasked to raise over Rp 31 trillion for the
current state budget.

Restoring capital inflow will go a long way in speeding up the
economic recovery but foreign direct investors will likely follow
the step of Chinese-Indonesian businesspeople. President
Abdurrahman, highly respected for his concern and steadfast
defense of Chinese-Indonesians and other minority groups, should
act quickly to convince them to repatriate their capital,
officially estimated at $30 billion, which they transferred
overseas immediately after the May 1998 riots and the fall of
Soeharto.