Waiting for economic action

Waiting for economic action

It is now already a month after the inauguration of President
Susilo Bambang Yudhoyono's United Indonesia Cabinet and the
market is still waiting for what has long been promoted as
Susilo's first 100-day action plan to fully restore investor
confidence.

In Susilo's speech on Wednesday evening to mark his first 30
days in office it was expected he would reveal the detail of this
agenda. His prepared address to the nation instead was mainly
aimed at warning the people against having too high expectations,
arguing it would be impossible to solve all the country's
problems in 100 days and that final judgments on the success of
his administration would best be made at the end of his term in
2009.

No one has been so insensible as to expect Susilo's
administration to resolve all the nation's problems in three
months. But we at least want to see a set of concrete measures
planned regarding the President's promised "shock treatments" in
top priority areas of his program.

In his first week in power Susilo did make the right remarks
and the right, if symbolic, moves. He conducted working visits to
the Attorney General's Office and the National Police
Headquarters, conveying a strong message about his determination
to fight corruption as his top priority.

Susilo then made working visits to the tax and customs
directorate generals, which are not only among the most corrupt
public institutions, as perceived by the public, but also among
the most important targets of reform if his Cabinet is to improve
the country's investment climate.

In a move demonstrating his awareness of the vital importance
of good coordination between monetary and fiscal management, the
President also met early on with the board of governors of the
central bank. The series of introductory meetings he made in the
first week of his administration included, also for a strategic
and symbolic reason, the leaders of the House of Representatives
and the business world.

However, such symbolic moves, though needed, are not enough
to maintain the momentum of market confidence and the credibility
of his administration.

The announcement of the so-called 100-day agenda is not an end
in itself but it is nevertheless important to allow the market
and investors to make further judgments on policy direction and
to assess how the measures will be implemented. For only
consistent and effective implementation will make the
government's policies credible.

Businesspeople won't expect instant results in all areas. What
they really want to see is steady progress along the right path;
a consistent reform process and not a one-off event. Everything
does not have to be fixed at once.

For sure, Susilo does have his stumbling blocks. Vital
instruments such as amendments to the 2005 state budget, which
require approval from the House of Representatives are unlikely
to proceed quickly, given the adversarial relationship between
the government and the majority factions in the House.

However, there are many changes to law enforcement and to the
economy that do not need House approval or an additional budget.

The government can do a lot to change the taxation and customs
directorate generals, the two public institutions most-maligned
by business, without having to wait for the House to enact the
three new bills on taxation, which are still being finalized at
the State Secretariat.

Moving firmly and consistently to make tax audits more
transparent and accountable, expediting the procedures for tax
refunds and cutting the number of procedural steps to get
merchandise cleared at air and seaports would go a long way to
cutting the costs of doing business here.

This in turn would reduce business risks and transaction costs
and strengthen the nation's competitiveness. This virtuous circle
would continue -- bank lending would increase and new investment
would get a boost.

Likewise, cutting the red tape in business licensing and other
rules regulating the movement of goods between provinces or
islands would be a strong boost to new investment. Just look at
how a recent survey by the International Finance Corporation, the
World Bank private-sector arm, ranks Indonesia among the worst
places to do business because of so many regulatory burdens,
policy risks and a high incidence of bureaucratic corruption.

It takes about 160 days to get a business started in Indonesia
due to numerous bureaucratic procedures and regulatory
requirements and sadly, most of these procedures do not help or
protect anyone at all.

The government doesn't need an additional budget to remove all
these constraints, nor does it require House approval. What is
needed is the political determination to consistently enforce
policy measures until they are strongly institutionalized in the
system.

It is therefore most imperative that the 100-day action agenda
should include only concrete measures that are bureaucratically,
economically and politically feasible and, most importantly, can
be enforced consistently.

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