Still waiting for bold steps

There was little to talk about when the widely trumpeted first 100-day economic agenda of President Susilo Bambang Yudhoyono's government ended. It is not even an exaggeration to say that the government miserably failed to capitalize on its strong political mandate to launch bold, if unpopular, measures to accelerate the process of regaining foreign investor confidence.

One may argue that during the past month Susilo's government has been preoccupied coping with the impact of the devastating natural disasters in Aceh and North Sumatra on Dec. 26. Therefore, the government has effectively spent only about two months working on its economic agenda.

But even within the first two months (until Dec. 26), the new government could have launched a real set of concrete measures in the top priority areas to build a higher credibility and stronger market confidence.

It is true that the key economic indicators for last year were quite robust, reflecting significant progress from those in 2003. The economy grew by an estimated 5 percent, as against slightly over 4 percent in 2003. Our sovereign rating was upgraded to B+, not yet an investment grade, but quite an improvement. The government's debt to gross domestic product ratio declined to less than 50 percent and the incidence of poverty decreased markedly. The rupiah strengthened and the Jakarta stock market share price index rose to historic highs of more than 1,000. Investment grew by 11 percent, compared to a mere 3 percent expansion in 2003.

But Susilo's government cannot claim any credit for these achievements. They were mainly the fruits of the previous government of Megawati Soekarnoputri, which succeeded in maintaining macroeconomic and political stability and, most importantly, in organizing three peaceful, free and fair elections, including the first direct election of the president.

Susilo rightly selected four disputes involving the government or state companies and foreign investors: the Cemex-Semen Gresik, Karaha Bodas- Pertamina, ExxonMobil-Pertamina and Newmont Mining Company as high profile cases that he promised would be resolved in first 100 days. But none of them have been resolved.

Early on during his first week in office, Susilo promised a set of concrete measures and what he called "shock treatment" in top priority areas of his programs. He buoyed the market by demonstrating, through discussions and working visits to various state institutions, a clear understanding of the gravity of the country's economic situation and the most pressing problems the country encountered in the business sector.

However, promises and symbolic moves, though needed, are not enough to maintain the momentum of market confidence in his administration. Investors and the market require concrete measures because only consistent and effective implementation will make government policies credible.

Businesspeople don't expect instant results in all areas. What they really want to see is a steady progress along the right path in a consistent reform process and not instead a one-off event. Everything does not have to be fixed at once.

More significant progress and many confidence-building steps could have been taken to deal with problems in top-priority areas. There are certainly many measures outstanding that require approval from the House of Representatives; a process that would require an arduous political consultation.

Susilo could have targeted his shock treatment at the taxation and customs directorate generals, two institutions that top most businesspeople's lists of the most graft-ridden and inefficient state entities, to demonstrate that the government really means business when it says it wants to combat corruption and bolster investment.

Moving firmly and consistently to make tax audits more transparent and accountable, expediting the procedures for tax refunds and cutting the number of procedural steps to get merchandise customs-cleared at airports and seaports would go a long way in cutting the costs of doing business.

What is most important is that the government should show clear policy direction.

Early, decisive action by the government is crucial to anchor and sustain last year's investment recovery since investment is vital to achieve one of the government's primary objectives -- to accelerate quality growth.

The first 100 days, however, have proved largely to be only a symbolic milestone and Susilo's administration cannot continue to spend its political capital indefinitely. It should act decisively and quickly to spearhead much-needed reforms.

Right now, the government needs to generate more political capital and stronger market confidence so it can build up popular support for such bold, unpopular measures such as raising fuel prices, something it must do soon to reform the economy and raise more money for poverty alleviation and welfare programs.