Reform must go on

There is great comfort in knowing that none of the core elements of the reform package set in Indonesia's July 31 letter of intent (LoI) to the International Monetary Fund have been changed. The focus of the new LoI signed by the new chief economics minister, Rizal Ramli, and Bank Indonesia's acting governor Anwar Nasution on Thursday remains the same: debt and corporate restructuring, bank reform, asset recovery, judicial reform and good governance in the public and private sectors. Even the slightest change in or backtrack on any of the interrelated basic components of the reform would have spooked the market and could have eventually sabotaged the budding economic recovery.

The consistency could be the main reason the IMF did not make things any more difficult for the Rizal-led economic team to get approval for the new LoI. If allowing the previous LoI to be rewritten into a very slightly revised version proves effective in gaining the full cooperation of the new Cabinet, it is a small price for the IMF to pay for its trouble of having to deal with three different governments -- the Soeharto, the Habibie and the Abdurrahman administrations -- in less than three years.

If this exercise worked well to provide a psychological boon to the members of new economic team and increased their sense of ownership of the difficult and painful reform programs and heightened their sense of responsibility to deliver the goods, the whole process was not, after all, a waste of time. There is no harm in letting Rizal have his ego massaged by claiming that he is the first chief economics minister capable of solely initiating a reform package since Indonesia fell into the IMF-led bailout program in November 1997.

It would nonetheless be entirely unfair not give credit where credit is due. The new document does contain some technical changes, such as extending the LoI period from four months to six months and in the interval between IMF reviews of the reform implementation from two months to three. This change is warranted because the present economic condition is no longer as volatile or vulnerable as it was in 1999 when a review was done on a bimonthly basis, nor as bad as in 1998 when an assessment was done on a monthly basis. The longer interval will give more breathing space for the economic team to work and prepare for the next review.

The new LoI also gives the multilateral executors of the bailout program -- IMF, the World bank and the Asian Development Bank -- a better division of jobs according to their core competence.

The most substantial among the slight changes and the only contribution of the new economic team is the induction in the new LoI of what the team claims to be its own initiative -- a 10- point economic recovery acceleration program. Although the 10 measures were randomly mentioned in the old document, their insertion on top of the LoI could still serve as a clearer signpost for policy direction. Three points of the program regarding the development of subsistence agriculture, rural infrastructure and small and medium-scale enterprises (SMEs) will most likely prove to be not only politically popular but also, if properly implemented, will contribute greatly to strengthening the long-term foundation of the economy. Their outstanding display in the document could also be effective in gaining stronger political support, especially from the House of Representatives.

Our biggest reservation though is that we don't see any convincing signal as to how or why the populist programs, which had been aired by economics ministers under former president Soeharto for more than 30 years, now have a better chance of being executed properly.

The problem is that even though the programs have been declared high-priority tasks of the government since the early 1970s, the government has so far failed to develop adequate institutional capacity to execute them in an efficient and corruption-free manner.

The Habibie administration decided in early 1999 to accelerate farm and small enterprise development by pouring in Rp 8.2 trillion (US$1 billion) in concessional loans to the rural areas. But the credit program turned out to be the distribution of political goodies to canvass support for the June 1999 elections. Only 30 percent of the loans has been repaid and the program is now the subject of an investigative audit at the request of IMF.

The credibility of the new economic team will depend on its ability to deliver on the LoI according to the specified time schedules and the technical details the economics ministers work out concerning how they will go about executing the 10-point economic recovery acceleration program. Despite our reservations, we should give the team the benefit of the doubt.