War-room leadership needed to end crisis

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.