Reform or go bust

Reform or go bust

International donors have reaffirmed strong support for
Indonesia at this extremely difficult time by pledging US$2.7
billion in new soft loans and grants to help plug the state
budget deficit, but again urged a faster pace of reform to lift
the economy out of its five-year-old crisis.

The World Bank-coordinated creditor consortium (Consultative
Group on Indonesia) meeting in Bali once again warned that the
new aid package would simply be wasted if the government did not
make faster progress with its reform measures to improve
macroeconomic efficiency and minimize the state losses caused by
corruption.

The critics of foreign loans who claim to be championing the
common people's interests need to realize that it is the new loan
commitments that have enabled the government to allocate Rp 4.4
trillion ($490 million) to the social safety net, continue
subsidies for utilities and expand poverty-alleviation programs.

Without the new loans, the Rp 34.4 trillion hole in the state
budget this year would have to be plugged either by further
increasing fuel and power prices or unilaterally declaring a
moratorium on our foreign and domestic debt servicing.

The first alternative is politically unacceptable, as can be
seen from the street protests over the past three weeks that
forced the government to roll back the utility price hikes.

The second alternative also spells disaster as Indonesia would
be isolated by the international community. Yet even more
devastating would be the fact that all of the largest national
banks would go bankrupt as they still depend largely on the
interest revenues from the government bonds they hold on their
balance sheets as capital.

It is only the sovereign and multilateral creditors of the CGI
that are still willing to extend grants and provide soft loans to
the government. New borrowing from the international financial
market is simply out of the question as the government is already
burdened with $73 billion in foreign debts and Rp 650 trillion in
domestic debts.

It is futile now to argue that the economic crisis that caused
this huge debt burden is of the government's own making and that
the government would not have to beg for new loans if it could
stop the corruption that costs the state an estimated $28.5
billion a year, as development planning minister Kwik Kian Gie
argued at the CGI meeting.

True, the economic debacle is largely the legacy of the
previous Soeharto government. Kwik's point of view is also
legitimate, but where else in the world could a government wipe
out within less than two years the sort of corruption that has
become deep-rooted in the national body politic for more than 30
years.

Having said that, we don't mean to defend the record of
President Megawati Soekarnoputri's government. Its performance in
building good governance is utterly disappointing and Megawati's
leadership in the effort to bring about reform and ensure justice
has been very weak.

It is therefore most imperative to continue promoting the
national drive against corruption, and all regulatory and
bureaucratic barriers to sound economic activities and law
enforcement so as to ensure justice for all. We should pressure
the entire government to speed up the pace of reform. This is
also the main message conveyed by the CGI creditors who have been
supportive and sympathetic to our plight.

Campaigning against foreign creditors would by no means solve
our problems. Where is our national dignity and probity if we can
so easily blame others for our own mistakes. Likewise, going all
out to topple the present government will only plunge us into a
political and economic abyss.

However, while increasing pressure on all branches of
government to build good governance and ensure justice, we also
need to realize that our overall reform movement involves
changing many minds, systems, ways of being and doing, education
and a wholesale reshaping of institutions on a grand scale.

Any progress we or the government might be able to make can
only be incremental at best, given the multi-dimensional crisis
we now find ourselves in during the current transition from a
centralized, authoritarian government to a democratic,
decentralized one.

The problem, though, is that our economy has been bleeding
since the onset of the crisis five years ago. It urgently needs
blood transfusions, which is where the annual loans and grants
provided by the CGI creditors come in.