Uncertainty spooks market

Uncertainty spooks market

While everybody agrees that it is President Abdurrahman
Wahid's constitutional prerogative to appoint and replace his
Cabinet members and that his economic team did require a
realignment, his sacking of Industry Minister Jusuf Kalla and
State Minister of Investment and State Enterprises Laksamana
Sukardi on Monday spooked the market. The Jakarta Stock Exchange
tumbled 2 percent on Tuesday but was up 1 percent on Wednesday.
The rupiah weakened steadily and breached the Rp 8,000 mark
against the dollar as investors became jittery.

The reason behind the negative market reaction is quite
obvious. As the reshuffling appeared to be based only on the
President's discretionary power and not on clear-cut performance
parameters, the move sparked a new element of uncertainty, the
number one enemy of business. The absence of clearly defined-
yardsticks further fueled rumors that the positions of other
economics ministers, notably Coordinating Minister for Economy,
Finance and Industry Kwik Kian Gie and Minister of Finance
Bambang Soedibyo, were also on the line.

The fact that even leaders of the Golkar Party and Vice
President Megawati Sukarnoputri's Indonesian Democratic Party of
Struggle (PDI-Perjuangan) were in the dark about the real reason
behind the firing made businesspeople jittery. The threats by
these two major parties to pull out their other ministers from
the Cabinet further shook up the market, fearing that the
coalition Cabinet was on the verge of unwinding.

In fact, the firing of the two ministers, notably Laksamana,
did not fit in with the basic principles of good governance that
Abdurrahman likes to proclaim as one of the top priorities of his
administration. The latest reshuffling was strikingly different
from the previous sacking of two ministers (Hamzah Haz and
Wiranto) as the reasons behind the earlier move were clearly
understood and accepted by the public.

Simply stating that the two ministers failed to build up good
rapport and strong teamwork with other economics ministers not
only unnecessarily raised questions but was also
counterproductive to the President's original objective of
increasing the credibility of his economic team.

True, Cabinet members are top assistants to the President and
Abdurrahman has every right to get ministers whom he fully trusts
and who fully share his vision. This does not mean, however, that
ministerial appointments or dismissals -- notably those related
to economic portfolios where technical competence is one of the
basic prerequisites -- can be made arbitrarily without
accountability acceptable to the market.

Whatever the vision Abdurrahman asks his ministers to
understand and pursue, the stark reality as the market perceives
it, is that the main task of his Cabinet is managing the economic
crisis. And the procedures and the targets of the economic crisis
management are clearly and completely stipulated in the
government's Jan. 20 Letter of Intent regarding reform programs
to the International Monetary Fund.

True, assessed against the parameters set forth in the
document, the performance of the economic team of the Cabinet is
rather poor as the economics ministers have so far failed to meet
many of the reform deadlines, prompting the IMF to postpone the
second disbursement of its loans for almost two months until late
May or early June. The problem, though, is that if the reform
agenda is used as the benchmark for the performance of each
member of the economic team, one could not find enough evidence
to prove that Kalla and Laksamana were the poorest performers or
the least cooperative members of the team.

As the President might again have to tinker with his coalition
Cabinet members, one great lesson Abdurrahman should learn from
the controversial reshuffling is that the reasons and rationale
for such a move should be clearly understood in order to gain
political support and market acceptance.

But most importantly, the President would be well advised to
first thoroughly review the political feasibility of the reform
agenda and the government's capability to implement the reform
measures as these two factors, and not the personnel of his
economic team, might be the root causes of the woes besetting his
economic-crisis management team.