RI's recovery without governance reform?

RI's recovery without governance reform?

HS Dillon and SR Tabor, Jakarta

This morning, representatives of countries and institutions
comprising the Consultative Group on Indonesia (CGI), which have
been with Indonesia through thick and thin will be convening in
Jakarta. This time around, they will be focusing on support for
our medium-term development plan.

No doubt attention will be given to assessing the needs of
developing a new Aceh, free from conflict and injustice. Reading
the nation's dailies, one is struck by the fact that the central
bureaucrats and politicians seem to be reverting to the Soeharto
style of management. As if the 1997 "tsunami" (economic crisis)
that swept the region so mercilessly never happened.

To lend a note of sobriety, and place today's deliberations in
perspective, we should pose the question, what are the lessons we
have learned from the crisis?

After all these years of muddling along, even skeptics will
have to admit that some progress has indeed been made. However,
we also have to admit that Indonesia is still very much limping
ahead on borrowed time. While the massive debt overhang due to
past excesses has been restructured and pushed into the future,
it is still very much out there. Accordingly, Indonesia's destiny
is still at the whim of its creditors.

Investors, however, are not so cavalier -- they know that the
bell does toll at one point or another, and that debt mountains
are no fun to climb. Moreover, the big foreign investors have
many other pastures to play in, such as China, India, Malaysia,
and Thailand.
Now that it is finally dawning upon us that economic progress
requires good institutions, governance and politics, there is
literally no shortage of domains on which Indonesia's development
partners can advise. And they do. As a result, stocks of good
ideas accumulate and a few of the elite hang their stars on the
Washington consensus agenda.

No doubt the experts are extraordinarily articulate, but the
real lesson is that homegrown and home-owned reforms need to be
grounded in domestic realities to be really effective.

Interestingly enough, Indonesia has evolved its own rather
unique pattern of reform, which we might term as "the make-a-
mess, clean-up-a-mess" reform path. Think of the commercial banks
-- prudential regulations were tightened to the point at which
they were bankrupted; then they were recapped; then they were
plundered; then they were nationalized; and then they were sold
back for a few cents on the dollars to those who had helped
plunder them in the first place.

Decentralization is another case in point. First one just
shifts power to the kabupatens (regencies), knowing well that
they possess neither the skills nor experience nor the discipline
to make a go of it. Then, after a few years of slow-motion
balkanizaton, the baton is passed over to the provincial
authorities. Similar stories abound in other sectors, and the
persistent theme seems to be that when the mess is really bad, it
gets cleaned up.

What message does this convey to Indonesia and our development
partners?

Perhaps five conclusions and recommendations could be drawn:
First, remember that those who pontificate don't rule. Be humble.
Government, the vocal non-governmental organizations (NGOs) and
the development partners all have their own ideas and views, and
it would be best if these were put out front clearly and
candidly, with no punches pulled.

Second, get the legacy out of the way. No matter whose fault
it is that Indonesia now has a debt mountain, having it in the
path of future development is an obstacle that makes the future
look pretty gloomy. No, for heaven's sake, do not play upon the
enormous international goodwill toward Indonesia in the aftermath
of the tsunami.

Third, stop the rot early on. People make messes, and
Indonesia's "make-a-mess/clean-up-a-mess" pattern of development
is certainly vulnerable to that. Two messes are clearly coming
down the pike quickly. The first is the proposed tax amnesty. Why
reward those who have fleeced the state for so many years? We
should trust these fat cats to be good citizens in the future
after they have not paid their fair share all these years.
Really. Global experience tells us that tax amnesties reward
crooks, encourage people to line up for the next dose of
forgiveness, and makes a mockery out of the rule of law.

Let us call a tax amnesty what it really is -- legalized
money laundering. This is not something to be proud of.

Another mess that is coming down the pike is the proposed
mega-expansion of infrastructure. Yes, the country needs much
more and much better infrastructure. It is fair to say that, in
many parts of the country, infrastructure is the binding
constraint to progress. But let us not repeat the same problems
of the past -- handing out crony contracts at inflated costs to
every friend of a politician.

Fourth, call rot rot. Now that Indonesia is recovering, that
it is an ally in the war on terror, and is led by a man's man
that even George Bush feels comfortable with, the government
technocrats and the development partners may start talking-up
"progress" and ignore pretty serious problems.

We might call this a "regression to the Soeharto years"
pattern of government-donor behavior. That would be a pity, for
one can't solve a problem unless its properly diagnosed in the
first place. Some things are a big mess -- the judiciary and
indeed the entire human backbone of the legal system continues to
be dysfunctional -- and little piddling reforms here and there do
not amount to much in the end.

Finally, let us become normal. After five decades of
government-development partner affairs, its time to rethink how
we want to get along. The issue is not one of dumping money into
the budget to finance a poverty strategy, adding new layers of
external conditionality, trying to finance a comprehensive
approach to solving all problems at once, or even doing the
millionth new project. It is also not realistic to say, go-to-
heck with your aid, and boot the more recalcitrant donors out of
the country.

What is needed, however, is to change the way that the
partnership works in practice. Let the donors and the external
financiers be more like normal banks. Let them set financing
rules, and react and respond to proposals that are developed and
prepared by Indonesians -- the government, civil society and the
private sector.

Indeed, after five decades of development partnership, the
country certainly has an abundance of people who know how to
formulate and design useful projects and programs. The advice to
the development partners is do not crowd out that capacity; don't
rush in to push money; and don't finance initiatives that simply
do not make sense just because it is a good process or the newest
initiative. Let us call this the "get your small business in
order" proposal.

Everything said and done, this might be the best time to
strike a grand bargain. The government arrives at a national
consensus with politicians, the corporate sector, and civil
society on the way forward. It should then table a time-bound
schedule promising progress in dealing with five areas:
Corruption, environmental conservation, poverty, human rights,
and terrorism for a phased reduction in the sovereign debt.

Anyone in the house with the courage to stand up and really
make a difference?

HS Dillon is Executive Director of Partnership for Governance
Reform in Indonesia, Jakarta and S.R. Tabor is chairman of EMSI,
Leiden.