Stalemate prevents recovery

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.