Still waiting for bold steps

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.