Vital economic signs

It is too premature to link the highly positive vote of the financial market immediately after the June 7 elections -- reflected in the rise of the Jakarta Stock Exchange index and the rupiah exchange rate to new highs in the past eight days -- to the likelihood of which party will take over the government later this year. The market bulls were set free mostly by the discounting of one component of the country's political risk premium, the great concern that the balloting would descend into widespread violence, which thankfully did not occur.

As the preliminary vote count puts the Indonesian Democratic Party of Struggle (PDI Perjuangan) as the front-runner which could later become the leader of a coalition government, the main question is how the new government will deal with the country's economic woes. Unfortunately, a cohesive economic platform was not high on the campaign agenda of PDI Perjuangan, nor of the other 47 parties contesting the elections.

Nonetheless, since PDI Perjuangan's main economic thinkers, noted economist Kwik Kian Gie and former bank director Laksamana Sukardi, happen to be among the most popular analysts in the mass media with opinion articles and interviews, one can accurately gauge the main principles that will guide the party's policy direction. A clearer outline of PDI Perjuangan's dominant economic thinking also emerged in a series of inter-party economic debates organized by private television stations in recent weeks.

Apart from Kwik's controversial remark about the need to restore a fixed-rate currency system, which he later characterized as mere musing aloud, the basic policy outlines espoused by both party leaders appear to be market-friendly, the most important guideline sorely required by businesspeople. PDI Perjuangan does not believe in special treatment of small and medium enterprises, as trumpeted in the "people's economy" concept currently promoted by the Habibie administration. The party instead focuses on a free market with fair and open competition under the rules of the Antimonopoly Law.

The most soothing point of view is PDI Perjuangan's full realization that the International Monetary Fund will remain a pivotal member of the economic policy-making team. This means that a PDI Perjuangan-led government would firmly stick to the reform programs already agreed on with the multilateral institution although, as Kwik often asserts, fine tuning will be made as circumstances require.

This is a rational and pragmatic stance for now. Continued cooperation with the IMF is imperative because the fund, irrespective of its shortcomings, remains the most influential catalyst and opinion leader for foreign creditors and investors who will play a crucial role in helping lead the country out of its economic quagmire.

Indeed, given the economic woes the country now faces, whichever party heads the new government will have no other choice but to initially focus on crisis management within one year or two. Top priority will have to be placed on economic stabilization and consolidation through the reform agenda, as agreed upon with the IMF: the social safety net, fiscal and monetary reforms, bank restructuring and its attendant loan collection and asset recovery measures, as well as legal, regulatory and institutional reform.

The fact that the currency and stock markets reacted positively every time a political risk was removed clearly indicates that businesspeople are comfortable with the current economic programs. Were it not for the remaining political risks related to the announcement of the final election results next week and the presidential election in November, economic stability would be much stronger now.

Still, good policy measures are one thing, but effectively implementing them is something else. Here lies the biggest challenge for the new government. The basic requirement for effective policy execution is good governance -- a clean and competent government with a clear division of power between the executive, legislative and judicial branches.

With severely limited budget resources and huge servicing burdens imposed by about US$75 billion in foreign debts and the $45 billion in domestic debts (treasury bonds), the new government will face major hurdles to meaningful civil service reform, the cornerstone for building good governance.

Another uphill challenge is the democratization process itself. Crisis management often needs fast decision-making, rapid judgment to deal with a particular problem promptly and efficiently. The new government, deprived of majority support in the House of Representatives, will have to tread carefully between efficiency and democratic orientation. Deliberation in the House will likely be slow moving, bogged down by discordant voices, disparate interests and conflicting points of view. It will be the government's daunting responsibility to ensure that the advance of democracy is not sidetracked by the clamoring to have one's voice heard.