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.