The economy wavers
The economy wavers
The verdict of independent analysts is unanimous. Even though
the political situation this year is much more stable than it was
in turbulent 2001, economic growth is likely to remain stagnant
at last year's 3.3 percent, lower than the 4 percent target, due
primarily to weak government leadership in managing the economic
crisis.
Still more discouraging, there are no indications that the
outlook might be more promising next year, especially after the
October 12 terrorist bomb attack in Bali, which has increased
security and, therefore, business risk in the country.
The government failed to achieve most of the targets in key
economic indicators. Except for the budget deficit that was set
at 2.5 percent, the targets for the rupiah exchange rate,
inflation and interest rates could not be achieved. The
government, stupefied by its lack of credibility, failed
miserably to build up political consensus on vital reform
measures needed to remove the root causes of the economic crisis.
Many structural reforms, which were effective in helping other
crisis-hit countries resolve their economic debacles, were held
up by controversies and allegations of malfeasance as the
government, perceived to be lax in combating corruption,
collusion and nepotism, was constantly under public suspicion.
Restructuring of the business sector, one of the core
components of the reforms, was hindered by an extreme lack of law
enforcement, corrupt and incompetent courts and indecisiveness on
the part of the government.
The government's agreements with the largest debtors to
resolve their huge debts, which were hurriedly concluded in 1998
and 1999 under the then B.J. Habibie administration, remain
mostly unenforced, while the value of the assets, pledged by the
debtors to settle their obligations, has been falling steeply.
The absence of legal action against recalcitrant conglomerate
debtors, who were seen by the public as partly responsible for
the economic crisis, deeply hurt the public's sense of justice.
This stalemate has severely damaged the state of the hundreds
of large companies surrendered by the debtors to the government
as they remained deprived of access to new credit lines and were
unable to operate at full capacity. The greatest losers in all
this debacle are the government, and consequently, taxpayers.
No significant improvement was made either in the business
environment due to very slow progress in law enforcement,
uncertainty about labor regulations, radicalization of trade
unions at both private sector and state companies and anti-
business policies introduced by narrow-minded local
administrations to raise revenues.
This inimical business climate has not only forced most
investors to put on hold their business plans but has also
prompted quite a number of existing businesses to close their
plants and move to other countries.
Certainly, the banking industry, which was bailed out using
tens of billions of dollars of taxpayers' money in 1998 and 1999,
could not recover under such adverse business conditions. In
fact, many banks would have had to go bankrupt had not the
central bank eased its soundness requirements.
As banks are still the main pipeline of financing for the
economy and, in the absence of a deep financial and capital
market, are supposed to be the most efficient means of resource
allocation, a fragile banking industry will obviously hinder
economic development. This, in turn, will threaten the already
huge pool of unemployed and underemployed, to explode into social
unrest.
Such an unsettling situation is especially worrisome next year
when the national agenda will be heavily politicized as almost
100 political parties gear up for the 2004 general election.
Needless to say, next year will be the last chance for
implementing most of the core reform measures to provide a
stronger foundation for economic recovery, especially because our
agreement with the International Monetary Fund (IMF) will end
next December and public opinion, so far, has mostly been against
renewal of the IMF program.
The government and all the factions at the House of
Representatives should realize that failure to carry out all the
most vital structural reforms next year will not only impair the
nation's credibility with regard to its capability and political
cohesion in managing the crisis. Yet more frightening is that a
fragile economy may not be able to weather the political
turbulence expected in 2004.
They should therefore unite their interests in the reform
drive to lead the economy into a sustainable, strong recovery,
fully aware that a wobbling economy would cause endless political
instability, irrespective of which political party might win the
2004 election.