Technocrats dodge economic medicine ball

Technocrats dodge economic medicine ball

James Castle, Castle Group, Jakarta

It has always been a puzzle to foreign observers why
Indonesia's economic technocrats have not done more to socialize
the virtues of the economic principles underlying their recovery
proposals.

Most investors feel that true economic liberalization in
Indonesia began with strategic bank reforms and the removal of
many restrictions on foreign investment in the 1980s.

In fact, the basic principles of the "Berkeley Mafia" which
have provided the core thinking for the economic policies since
the 1960s, strongly support investment and trade liberalization.

It was, after all, the team of technocrats led by the
legendary Widjojo Nitisastro and including such stellar
technocrats as Ali Wardhana, Emil Salim, Subroto, Muhammad Sadli
and many others, which slowly turned the country's economic
regulatory environment away from the socialist principles of
Sutan Sjahrir and Wilopo, and prepared the way for Indonesia's
highly beneficial entry into the global economy.

It is almost as if, having won the intense debate on economic
principles and priorities among Indonesia's elite in the 1960s,
the winners felt their concepts were too complex or confusing for
the Indonesian masses.

Consequently, they preferred to implement economic change by
stealth rather than openly confronting the socialist dogma of the
country's founding fathers.

This is not to attack the social ideals of the Indonesia's
revolution.

A doomed romantic socialism was de rigeur for much of the
anti-colonial independence movements in the first half of the
last century, and has only recently been seriously challenged in
India, the world's largest democracy.

This is not the place for a detailed analysis of the struggle
of economic ideologies in Indonesia's traumatic transition in the
1960's from Soekarno's Old Order to Soeharto's New.

Those wishing to pursue the subject can do no better than read
John Bresnan's excellent, Managing Indonesia: The Modern
Political Economy (Columbia University Press, 1993).

The question is: Why did the brilliant architects of
Indonesia's modern political economy, having vanquished their
intellectual opponents and taken control of the government's
economic planning apparatus, shrink from the task of explaining
what they were up to the people?

It appears they were afraid to communicate their policies and
ideas because they felt if the average Indonesian knew that they
were doing, they would reject the development strategy.

Some of this reticence was probably also due to the Soeharto
style of government. Perhaps it was really necessary, as Bresnan
theorizes, that "Widjojo's long influence with Soeharto [was due]
to his policy of avoiding public exposure."

In any case, the country paid a very high price for this
failure, as the influence of the technocrats rapidly waned in the
1990s.

The economic principles of the Soeharto family and cronies
began to take precedence over the more prudent policies of the
professional economists. This change was a direct cause of the
horrendous impact of the 1997 Asian economic crisis here that
hurt Indonesia so much more than others.

Still, one cannot dispute the success of the policies that
served Indonesia well, far into the early 1990s. Until the crash
of 1998, poverty declined, incomes grew and life expectancy
increased.

These same principles underlie Indonesia's recent Letters of
Intent to the International Monetary Fund, the strong support of
the ASEAN Free Trade Area and the reduction of duties to amongst
the lowest in the world.

And they are fundamentally sound.

These open market principles have brought prosperity to those
countries that have embraced them the most firmly, from the
Americas through Europe into Asia.

Despite the soundness of their views and the demonstrable
positive impact they have had, however, the current economic
leadership still seems to feel that its job is to form an
internal consensus and lead from behind.

This strategy may have been necessary in the cloistered and
autocratic days of the Soeharto government, but it simply cannot
work in a democratic environment with a free press.

Indonesian officials can no longer serve the country well if
they are content to hide behind the gray walls of bureaucratic
indifference and elitist arrogance.

A democratic government cannot rule by stealth. It must
communicate clearly and continuously.

Any government wishing to lead a democratic Indonesia out of
its current economic quagmire must build a public constituency
for the ideas of an open investment and trade regime and a broad
free market orientation where the government concentrates its
resources on basic education and health care for the poor and
leaves most other matters to the private sector.

It must regulate, but not own, essential public
infrastructure.

It is certainly true, as was frequently asserted during the
recent meetings of the Consultative Group on Indonesia, that
physical security, legal certainty and an honest judiciary are
essential to long term economic well-being.

But these are all items that will take years if not
generations to accomplish.

Meanwhile, the government desperately needs to build public
support for its commitment to privatize state-owned enterprises,
seek foreign investment to rehabilitate and expand the country's
decrepit infrastructure, particularly in power and
telecommunications but also in air and seaports.

Indonesia simply does not have the capital formation and the
technical know-how necessary to leapfrog over its current poverty
into the increasingly competitive global arena without
substantial foreign capital.

There are those who resent this imperative and oppose attempts
to respond.

They are wrong, but if they win the current policy struggle,
Indonesia will fall further behind and condemn future generations
to inferior living standards.

Thus, it is imperative that Indonesia develops a climate that
can mobilize private sector funding and foreign direct
investment.

This is not a bad thing.

Foreign investment is not a necessary evil. It is a positive
good. Indonesia's economic leaders have long realized this.

This having been said, it must be recognized that while
foreign investment is a positive good, it does not come without
risks and problems.

Most importantly, it carries an emotional and political charge
everywhere it occurs.

The fact that it is Indonesia's only hope for recovery does
not eliminate the emotional and political opposition it
generates.

The emotional concerns can only be alleviated and the
opposition defeated by a conscious, committed program of public
communication.

It is now time for the economic leadership to trust the
Indonesian people and provide them with clear, concise public
explanations of the principles they espouse privately and which
underpin their policy hopes for economic recovery.

These explanations must emphasize that such policies are good
for every Indonesian who is not a rent-seeker or corrupt
official.

These policies will create jobs for all Indonesians. They will
also create opportunities for education and advancement that
depend more on ability and less on political connections or
powerful relatives.

I believe most Indonesians will embrace these ideas and the
new generation of economic leaders and philosophers will be able
to accomplish the short-term successes that are essential to
rapid economic recovery with the full support of the Indonesian
people.

These short term successes include the sale of state
enterprises, the restructuring and sale of assets under the
Indonesian Banking Restructuring Agency, the reform of the Tax
Department, the establishment of a viable banking system
dominated not by large state banks, but by dynamic private sector
banks both foreign and domestically owned.

These are the economic goals espoused in private by the
country's economic leadership. It is time they fought for them
in the public arena.

Indonesians from all socio-economic strata demonstrated their
fundamental understanding of the principles of democracy,
fairness and equity by their behavior in the free and fair
elections of 1999.

The economic technocrats should have confidence that, if they
explain their principles and their goals to the public as
passionately as they once did to defeat the proponents of
socialists and communist economic theory in the 1960s, they will
truly transform Indonesian society and create the conditions for
enduring prosperity.