Reforming Indonesia

Reforming Indonesia

Indonesia's President Megawati Soekarnoputri is exceeding
expectations left and right. Last week she awarded the most
important positions in her cabinet to well-respected technocrats,
doling out lesser posts to her coalition partners, and the
markets gave their nod of approval. Earlier she expanded the
scope of a human rights tribunal, sending a strong signal to the
military that efforts to hold it accountable for abuses in Timor
and elsewhere will continue under her administration. Yesterday
she was back for more applause, giving reformist State
Enterprises Minister Laksamana Sukardi oversight responsibility
for the Indonesian Bank Restructuring Agency.

It's not an exaggeration to say that Indonesia's economic
recovery depends on the management of IBRA. The agency
recapitalized the country's banks in 1998 by taking over 600
trillion rupiah ($66 billion at today's exchange rate) in bad
loans, and demanded collateral from the country's debt-strapped
companies. Those assets were supposed to be sold off quickly in
order to plug the hole in the central government's finances. But
during the 21-month tenure of President Abdurrahman Wahid, IBRA
made limited progress on this assignment. As a result much of the
economy is still in a kind of limbo.

Part of the problem was that some companies used every means,
legal and otherwise, to drag out the process. But right from the
beginning there was also political interference in IBRA's work,
and that allowed some companies to get better deals than others.
Mr. Wahid bore ultimate responsibility for this state of affairs,
and it was one of the many reasons Indonesians lost respect for
his leadership. It's imperative that Ms. Megawati start out on
the right foot with IBRA.

Choosing Mr. Laksamana is a good way to do so. He was once
aptly described in a U.S. Embassy report as "the champion of
Indonesia's efforts to craft reforms needed to restore investor
confidence." As part of President Wahid's coalition government,
he started out serving as minister of investment and state
enterprises, so he has the benefit of hindsight as he takes up
the job for a second time. More importantly, he has long been one
of Ms. Megawati's most trusted economic advisers, and strong
political backing is exactly what IBRA needs if it is to crack
the whip on Indonesia's deadbeat tycoons.

And it's Mr. Laksamana's track record of doing just that which
makes his appointment an important signal to the debtors. His
career has been a good indicator of the state of Indonesia's
reforms. In late 1999 he argued that "shock therapy" was needed
to change the country's culture of corruption, and showed his
mettle by accusing the Indonesian conglomerate Texmaco of
corruption during the Suharto era, an allegation the company
denies.

However, after just six months Mr. Laksamana lost his cabinet
post, and Texmaco's founder, Marimutu Sinivasan, lobbied
President Wahid and other politicians for support. The attorney
general dropped an investigation of the company, and President
Wahid defended Texmaco. Last September, IBRA cut a deal that
allowed the conglomerate to stay intact. The company has become
one of several notable cases which typify IBRA's failure to put
potentially productive companies into the hands of those who are
willing to bid the most for them, rather than those who ran them
into the ground.

Using his parliament seat as a pulpit, Mr. Laksamana kept up a
steady stream of criticism of the government for failing to make
headway in forcing out Mr. Sinivasan, whom IBRA's chairman called
the "soul of the company." Mr. Laksamana condemned last year's
debt workout deal, which gave Texmaco's founder a role in
management and 12 years to pay back $2.7 billion in order to
regain majority control, as "daylight robbery."

How strictly the new administration holds Texmaco and other
companies like it to their commitments will be an important early
test of the new administration, and by giving Mr. Laksamana power
over the process there can be no doubt what President Megawati's
intentions are. While it's too soon to say that she is going to
succeed where Mr. Wahid failed, there have been some encouraging
signs that have many Indonesia observers pleasantly surprised.

-- The Asian Wall Street Journal, Hong Kong