Stalemate prevents recovery

By James Castle

JAKARTA (JP): Businessmen are normally hesitant to make their political views public, but there is little doubt that the long running political stalemate between President Abdurrahman Wahid and the House of Representatives (DPR) has had severe economic consequences.

While the economy performed relatively well last year, this was primarily due to a benign international environment and a continuation of the V-shaped rebound which usually follows such large drops like Indonesia's economy experienced in 1998. It is fair to say that last year's growth was not due to improved policies and performance.

It happened despite the lack of attention to economic policy in either the administration or the DPR because of the intense focus on the political struggle between the President and his opponents.

This year the global economy has slowed dramatically, revealing the lack of a clear national economic policy or any serious attempts to pursue such a policy. Indeed, how can any policy continuity or effective implementation be expected, given the ministerial merry-go-round to which the country has been subjected over the past several years.

Since May 1998 there have been four coordinating ministers for the economy, five coordinating ministers for political affairs, four finance ministers, five heads of the Indonesian Bank Restructuring Agency (IBRA) and an equal number of changes in posts of critical importance to business and economic recovery such as the minister of energy and mineral resources, minister of manpower, President of Pertamina, etc.

It is clear to business as well as the public at large that these frequent changes have not been made on performance grounds but rather in response to the various political imperatives, as the government struggles to survive attacks from its numerous political foes.

The effects of this stalemate can be felt everywhere. The man in the street feels the economic decline most directly in rising prices and the decline in job opportunities. Unemployment increases and social tensions rise. Government planners and politicians suffer because they have been forced to watch their carefully-crafted 2001 budget fall apart under the onslaught of rising prices, higher interest rates and ballooning government subsidies.

The collapse of the government's original budget has also increased tensions between the country's policy planners and the International Monetary Fund (IMF) and now threatens the entire international bail-out package.

At the beginning of this year, the IMF agreed to fund a budget deficit equal to about 3.5 percent of gross domestic product. Once it became clear the deficit would exceed 6 percent of GDP, or more than US$8 billion, the IMF balked.

Not only did it indicate it would not increase its financial support to fill the wider gap, it also said it would not supply the amount originally agreed upon because the government did not deliver on its promise to limit the deficit to 3.5 percent.

The passage of a new budget by the DPR has removed this roadblock and renewed talks with the IMF are underway at this moment.

To business observers, it seems like the country's leaders have gotten themselves into a deadly trap. Because the economy is not recovering, political tension has increased and support for the current government has declined.

Conversely, the increase in political tension and the decline of support for the current leadership both in the administration and in the DPR has further eroded economic confidence, causing investors to defer activities.

The breakdown in communication and, more important, the loss of respect between the DPR and the President has made it impossible to implement the few policies the government has tried to pursue, even those agreed upon with the House.

Routine decisions, well within the scope of executive authority, taken in implementing policies approved by DPR, are subject to review, renegotiation, vicious attack and de facto vetoes. The most glaring business example in this regard, is the inability of investors to close deals with IBRA even after they have paid their money. Cases like Manulife insurance and the Guthrie plantation deals have poisoned the atmosphere. The current lack of interest in the sale of BCA shares is a clear indicator of the real cost of the political intrigue and policy stalemates which have plagued IBRA since its inception.

Meanwhile, business watches helplessly while politicians trade accusations and parliament threatens to remove the President from office. While individual businessmen have their favorites, there is no consensus in the business community as to whether President Abdurrahman Wahid or Megawati Soekarnoputri would be the better person to lead the country and promote economic recovery.

One suspects this political agnosticism is primarily because the current political struggles seem more based on the desire for power for its own sake and the right to name colleagues and cronies to important and powerful positions, rather than to promote any particular policy agenda or economic ideologies or principles.

In the wake of such an uncertain political climate, investors are keeping their money in their pockets. Businesses are reducing spending to absolute minimums. The biggest worry in the business community is that the current leadership struggle will end in yet another stalemate rather than produce a decisive result.

Many observers talk about seeking a win-win situation. Unfortunately, politics rarely offers win-win solutions. It is in the nature of democratic politics that one side wins and the other loses, at least until the next election when a past loser may indeed become a winner. It is vitally important for the current political struggle in Indonesia between the President and the DPR to produce a clear and decisive winner.

It is also important that the loser acknowledge and accept defeat, knowing that it may be his or her turn again in 2004 or an earlier election should the People's Consultative Assembly (MPR) so mandate. If a clear winner does not emerge, it is highly unlikely that any new government formed in the wake of this debilitating process, be it a new Megawati government or yet another revised Abdurrahman government, will have the necessary power and support to pursue a strong economic recovery program.

If a new stalemate results, one can expect more economic drift, a further decline in the rupiah value, higher inflation and increasing political dissatisfaction, insuring that the next government will have an equally short life. On the other hand, if a decisive winner is produced with a clear mandate to attempt to lead the country out of its economic morass, we can anticipate a market honeymoon, a strengthening rupiah, a decline in interest rates, a contracting budget deficit and an ultimate turn around of Indonesia's devastated economy.

There is little the investor can do at this point. The initiative and the power is now in the hands of the politicians. It is time for them to put the nation's interests ahead of their own.

The writer is a technical advisor at PT Jasawenang Citrasempurna, a subsidiary of the Castle Group.