Reform measures need to address main problem

The government last Thursday announced its second massive reform measures recommended by the International Monetary Fund (IMF). Subroto, a former minister of mines and energy and former secretary-general of the Organization of Petroleum Exporting Countries (OPEC), who is now rector of Pancasila University in Jakarta, discusses the impact of the reform measures.

Question: Last week's reform measures have, among other things, abolished tax and monopoly privileges enjoyed by President Soeharto's family. Do you see any political indication of the move?

Subroto: The President has done what he should -- putting a higher priority on the interests of his nation than the interests of his family. Tax and customs privileges for the national car project caused tensions with car producers from the United States, Japan and Europe. The abolishment of these privileges, for example, has prompted General Motors of the United States to reconsider the cancellation of its investment plan in Indonesia.

The abolishment of the clove marketing monopoly, which had created market distortion, will also revitalize the clove-blended cigarette business in the country.

Q: But the reforms have failed to bolster the rupiah's value, which remained weak after the announcement. Why didn't the reforms help restore public confidence?

S: The reform package is OK but market players did not respond enthusiastically because they do not see that any of the massive reform measures will address the core problem that caused the monetary crisis -- the private sector's huge debts.

Q: The government, under pressure from the market and the IMF, has decided to revise its draft budget for 1998/1999 with new assumptions: An average rupiah rate of Rp 5,000 against the U.S. dollar, zero economic growth and 20 percent inflation...

S: Setting the rupiah's value at Rp 5,000 per dollar will probably have a positive impact because it will increase tax revenues from the oil and gas sector. But we must be careful about setting an average crude oil price of $17 a barrel. We may have to review the price projection because the downward trend in oil prices will force Iraq to export more oil to earn $2 billion, an earning level allowed by the United Nations to make it possible for Iraq to buy food and medicines. Iraq, therefore, is likely to increase oil exports to more than 1 million barrels per day (bpd) from the previous level of about 600,000 bpd to 700,000 bpd.

Oil prices will also be under pressure because declines in economic growth in Asian countries may decrease the demand for oil in this region alone by about one million bpd. Furthermore, the mild winter in Europe and North America will also affect demand.

The planned reduction of the fuel subsidy will probably increase the inflation rate, but inflationary pressures can be curbed by making the increases gradual, and the burden of the price hikes on people can be reduced by setting lower price rises on the fuel products that are used mostly by the low-income majority.

The expected zero economic growth will be our greatest concern because of a consequently steep increase in unemployment and possibly social unrest.

Q: The government will dismantle almost all the monopoly rights (except the one on rice) of the National Logistics Agency. Do you think such a liberalization move will affect the nation's food security?

S: Such measures will have a positive impact on the country's food security. In the first phase of the liberalization, there will be a gap in supply and demand, which will slightly increase food prices. But freer competition in the market will, later on, lower prices to levels closer to production cost.

Q: The reform package will also liberalize the country's service sector, including banking and retail trade. How will this measure affect our economic activities?

S: The general spirit of the reform package is abolishing anything that hinders the inflow of foreign investment. Such a move will certainly cause inefficient domestic firms to go bankrupt and this is good for the economy. Freer competition will encourage domestic companies to improve their efficiency and will attract more foreign investors to do business in Indonesia.

Q: After the introduction of that massive reform package, do you think that political reform is still needed to restore public confidence?

S: Yes, because political figures outside the government system are likely to continue pressing for political reform out of their belief that the current economic crisis has been caused by lack of confidence in both the economic and political sectors.

Political reform should start with concerted, firm and consistent efforts to enhance good governance. This means a government system which is fairly efficient, technically competent, highly accountable and clean (not involved in) corruption and collusion with the business community (crony capitalism).

The government should also improve law enforcement, and strengthen the judicial system. The fact that the government has yet to complete processing many legal cases, such as the murder of journalist Fuad Muhammad Syarifuddin in Yogyakarta and labor activist Marsinah, has caused legal uncertainty.

The government should allow for a high degree of social control either through the mass media or other organizations, and improve the transparency of its policy-making process.

The laws on general elections also need revision. The recruitment of the majority of the House of Representative virtually by way of government appointment has made the House insensitive to developments in the society, and subservient mostly to the government. (riz)