War-room leadership needed to end crisis

Vincent Lingga, Senior Editor, The Jakarta Post, Jakarta

The government and economic players in the real sector seem to live in different worlds.

While the economic crisis is entering its fifth year, the government is still talking about concepts, mulling over a recovery plan.

Vice President Hamzah Haz said last week the government would launch early next month a new package of integrated economic- recovery programs to boost the real sector and the financial services industry.

Earlier in October, chief economic minister Dorodjatun Kuntjoro-Jakti talked about the need for a new package of emergency measures to prevent the economy from total collapse. But nothing came of his statement.

Businesspeople, however, don't see any need for a new package of ambitious measures, reiterating instead what they repeatedly suggested last year: An effective crisis management center.

In their view, the diseases that caused the economic bleeding have been accurately diagnosed, and the right medicines have been prescribed. What is really needed are quick decisions and action programs to stop the economy from bleeding.

But for such a spirit to envelop the government, the president and the whole Cabinet should work in the spirit of a nerve center or a "war-room" where problems can quickly be fixed by executive fiat at the highest level.

Rapid bureaucratic action is possible only when the government is truly aware that it is faced with a critical situation and accordingly professes a real sense of urgency.

However, Hamzah's and Dorodjatun's remarks only strengthen the public perception that the government does not have any sense of crisis at all, nor does it see any need to act quickly, firmly and decisively.

Thinking and acting as if the economy is by no means mired in a critical condition, while thousands of small, medium and large- size businesses are crippled by bad debts, more than 40 million people are either wholly unemployed or under-employed and almost 50 percent of the assets of all major national banks consist of illiquid government bonds is a fatal self-delusion.

It is this attitude of perpetual denial that prompted then president Soeharto and his successors, B.J. Habibie and Abdurrahman Wahid, to backtrack on emergency reform measures sorely needed to cope with the crippled economy, thereby destroying their credibility.

Saddening to note, Megawati Soekarnoputri's government, instead of learning from the fatal mistakes of the previous administrations, appears to be deluded by the same mindset. The whole game now is "business as usual".

The well-designed, correctly-sequenced, and internationally- endorsed reform measures, as stipulated in its latest reform package launched last December, seemed to be formulated only to impress the International Monetary Fund.

No wonder the credibility of the Megawati government is now at its nadir after only seven months in power. The virtual absence of any confidence-building action has put it under constant public suspicion regarding any major decision or measure it intends to make or has taken.

The government cannot even change the management of its own companies without setting off employee revolts or prompting analysts to cry foul.

It is not clear what Hamzah meant by a new package of measures as his statement was short of details but long on recounting the costs of the economic crisis.

But whatever the new package might be, anything short of the 53-point reform measures stipulated in the December 2001 package would be unable to stop the economic hemorrhaging, or help generate a sustainable recovery.

Without significant progress in bank and corporate debt restructuring, the reform and privatization of state companies and the recovery of assets currently managed by the Indonesian Bank Restructuring Agency, and legal and governance reform, the macroeconomic situation will remain fragile and the recovery process will never gain a strong footing.

As analysts have often argued in this newspaper, a faster pace of asset recovery will reinvigorate thousands of companies through the infusion of new capital and new management and will help plug the budget hole.

An accelerated process of corporate debt restructuring will enable thousands of businesses to regain access to new working capital loans. The government can also sell these restructured loans to the banks or exchange them with the bonds issued to recapitalize those banks. This in turn will reduce the bond interest cost, which has been one of the main causes of the large budget shortfall.

Equally positive impacts will accrue from the privatization of selected state companies as proceeds from the sales will help cover the budget deficit and new investors will improve the efficiency of the companies.

The reduction of wasteful subsidies and more vigorous tax collection would enable the government to set aside larger appropriations for the social safety net programs and other labor-intensive projects for economic pump priming.

All these measures are the essence of the December reform package. They are also by and large the kind of emergency measures implemented by other crisis-hit countries such as Thailand and South Korea, which have now seen a much stronger economic recovery.

What is fatally missing in Indonesia is a sense of urgency among the three branches of the government -- the executive, legislature and judiciary -- as reflected in the "business-as- usual" manner in which the government is managing the economic crisis.

While the other crisis-ridden countries have acted quickly and firmly by mobilizing all their political, social and economic resources to attack their economic woes, Indonesia has been embroiled most of the time in political bickering, scapegoating and the blame game.

There have been no measures or deals significant enough to spur a virtuous circle and rebuild confidence in the political and technical capability of the government.

Just look at the rupiah exchange rate. It has been hovering at Rp 10,500 to the dollar since last September.

Even though Indonesia's situation is admittedly much more complex than the other countries in that the nation is having to learn about democratic practices in the midst of its economic crisis, it could have done much better, had the government and all political and social organizations put aside their respective group interests and firmly united in addressing the economic crisis.

However, such an overall supportive climate is possible only if the government is capable of building up a favorable public opinion environment. This in turn can be created only if Megawati is able to provide effective leadership and her Cabinet ministers are capable of providing the proper management and coordination of all the reform measures.

Herein lies the rationale of the businesspeople's demand that the government set in motion a crisis management mechanism directly under the president where well-coordinated action programs can quickly be decided and any problems in their implementation can be settled at the highest level.

Instead of being embroiled in public squabbles over policy decisions, Cabinet ministers should be united in pushing through any policy measures that have been taken.

A united stance, a quick but highly-accountable decision making process and well-coordinated action programs will lend credibility to the government and create bureaucratic and legal certainty, a prerequisite for reinvigorating national investment and wooing foreign direct investment.

The blunt fact is that the economy is now in such a dire situation that it will never be able to recover strongly without a heavy dose of foreign capital injection.

It is worth remembering that foreign direct investment brings in higher standards of accountability, transparency and corporate governance.

One should also remember that it was corruption, collusion and the miserably low standards of accountability within the public and private sectors that were primarily responsible for destroying the foundations of the economy.