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.