Safeguarding reform

The latest package of economic stabilization and reform measures agreed on by Indonesia and the International Monetary Fund last week should be welcomed, especially ahead of the June 7 general election and after the ruling Golkar Party's nomination of the incumbent B.J. Habibie as its sole candidate for the November presidential election.

The reform package, with clearly set schedules for the implementation of its various programs under the watchful eye of the IMF, can serve as a safeguard against any populist measures the incumbent government might take to woo voters at the expense of the long-term stability and viability of the economy.

Significant improvements in the country's key economic indicators over the past few months -- deflation over the last two months, a steady decline in interest rates, a steady appreciation of the rupiah and a slight recovery in the gross domestic product -- surely augur well for strengthening public confidence in the IMF-designed reform programs. These economic improvements should also convince any newly elected government of the merits of the reforms, thereby helping to secure their sustainability.

As in many other countries facing an election year, there is no doubt a great temptation or even inclination on the part of the ruling administration to backtrack on or delay painful reform measures in order to avoid short-term political costs, even at the expense of the long-term good of the economy. This is particularly true in Indonesia, where political institutions are not able to properly exercise effective checks and balances on the government.

However, the clearly defined reform programs and their implementation schedules should function as a built-in supervision mechanism to guard against short-sighted actions aimed solely at luring politically uninitiated voters. To put it bluntly, the IMF-designed package makes it extremely difficult for Habibie, as a presidential candidate, to manipulate the levers of power to advance his ambitions. In fact, this could occur only if Habibie and his ruling Golkar Party were so hungry for power as to make them totally unconcerned about the future of the nation.

Any tampering with or backtracking on the restructuring measures would destroy the buds of confidence which have started to grow among domestic and foreign investors, along with the encouraging signs of economic improvement during the first quarter of this year. Further delay in the restoration of business confidence would worsen the economic crisis and severely threaten the political stability expected after the June elections.

Given the uncertainty over the transition from an authoritarian to a democratic system -- understandable given that the upcoming polls will be the nation's first multiparty elections in more than 40 years -- the strong macroeconomic policy and reform programs provide a sense of certainty about the future direction of the economy, irrespective of which party or parties win the elections.

The latest reform package rightly focuses on rebuilding the battered financial system and developing good governance in the public and corporate sectors through five interrelated measures: bank and corporate restructuring and loan recovery, currently the main obstacles blocking economic recovery, as well as the promulgation of new commercial laws.

Barring any major disruptions of the elections in June, the implementation of the restructuring program within the next few months would further strengthen the process of economic stabilization so that by the time a newly elected government assumes office in December, the process of economic recovery could begin immediately.

Recapitalized banks would be able to resume lending to pump fresh blood into the real sector. Production plants would reopen or increase capacity utilization, new jobs would be created, giving consumers new purchasing power. An improved economy would help eliminate the huge corporate bad debt overhang. All this would in turn further strengthen business confidence, especially because the framework of laws and rules ensuring a level playing field in the market is already in place. Better and stronger laws, such as those regarding good governance, monopolies and competition, bankruptcy proceedings and the independence of the central bank, would help make the country an even better place to invest.