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