Speedier reforms needed after IMF deal

The government has signed another agreement over the US$43 billion reform loan package with the International Monetary Fund (IMF). Economist Kwik Kian Gie says Indonesia needs to accelerate political reform in tandem with the new accord.

JAKARTA (JP): Some people say economics has no bearing on politics. Institutions like the IMF and the World Bank certainly have a tendency to belittle the importance of such relations.

Economic development is linked to other aspects of life, such as culture, security and defense and international relations.

Corruption, for example, may lead to hypocrisy and dishonesty, and people have now come to equate debt with revenue, or even wealth. In other words, prosperity is no longer identified as the added value of creativity.

The accumulation of foreign exchange reserves through foreign capital is no longer distinguished from the surplus of exports over imports. A deficit budget is called a balanced budget if the deficit is covered by foreign aid.

The agreement with the IMF signed June 25 reflects the severity of the Indonesian economy.

In the document "The Outline of the Economic Program for Indonesia", the IMF has been forced to focus its assistance on humanitarian aid, and on keeping the administration running.

In contrast, previous agreements with the IMF addressed monetary, financial and fiscal issues as well as the structural adjustment of the production and distribution sectors with an aim of liberalizing the economy and abolishing market distortions.

The IMF, which has now lowered its estimate on the equilibrium value of the rupiah to Rp 10,000 per U.S. dollar from Rp 6,000 in April, sees the difficulty the government will have in financing its budget due to the fact that the dollar is now hovering the Rp 15,000 level. The Fund, which maintains its financial disbursement in small injections, therefore, is now looking for international support to provide at least $8 billion for Indonesia this fiscal year. A major portion of the money would be allocated for the government's social safety net programs aimed at preventing starvation and medicine shortages.

Because of the deteriorating economic situation and its subsequent impact on the poor, the political elite now must work hard to prepare creative and innovative concepts to bring the country out of the crisis.

But the nation must solve its political problems as well as its economic ones.

President B.J. Habibie, who took over from Soeharto on May 21, for example, is not yet widely accepted as the country's president. The Armed Forces' (ABRI) top brass has disliked Habibie for a long time for several reasons. One of these is that when he served as state minister for research and technology under Soeharto, Habibie controlled strategic industries which should have been under ABRI supervision.

These included PT Pindad, the state-owned weapons manufacturer, and PT PAL, the state-run shipyard. Habibie also took over the coordination of the purchase of Navy warships, a job which the Navy felt it was in a better position to handle. Habibie was also known as a big-spending minister and his preoccupation with the development of the nation's aircraft industry over his ministerial tenure raised questions about the scope of his statesmanship.

The civilian elite, including retired generals, meanwhile are questioning the legitimacy of the People's Consultative Assembly (MPR) and the House of Representatives (DPR). These two institutions exist in formality only, and their democratic substance remains dubious since they do not truly represent the people's aspirations. The civilian elite is too busy thinking about political reform and has given little time to think about economic recovery. Executives of the dominant Golkar grouping are also busy preparing for their congress scheduled for July 9 through July 11.

Politics is indeed important, and it is time for everyone to work to solve our political problems quickly so that the nation can concentrate its attention and resources on economic recovery.

Former economic minister Radius Prawiro in a new book said Indonesia's economic development has largely depended on the flow of foreign loans. No wonder Indonesia's total foreign debt steadily rose from a mere $3.2 billion at the start of the New Order government in 1966 to about $130 billion at present.

The most important agenda for Indonesia is therefore to accelerate political reform and develop creative and innovative strategies to restore the economy.

The economy should no longer be developed using past concepts in which the manufacturing sector relied heavily on imports. Our industry should be developed with domestic resources and geared to meet the needs of the domestic market, at least initially, before expanding it to international markets.