What political economy?

Meuthia Ganie-Rochman, Jakarta

The fall of the Soeharto regime also saw economists lose their traditional tools to analyze the economy.

Under the centralized New Order system these were the causal relations between the creation of economic policy and interest groups. The newly appointed Coordinating Minister for the Economy, Boediono, once said economic policy-makers needed to be isolated from day-to-day politics (BIES, Dec. 2005). Now we have a much more confusing reality, which requires a new approach to economic analysis.

The New Order system was in retrospect not difficult to analyze. There was a traceable pattern of economic policy -- the Soeharto government oriented it to growth-led economic development. Then there were the few groups of political and economic elites that established relatively stable networks around the government. This kind of economic orientation was backed up by centralized government and its strong economic control made it easier to see the connection between "interests" and policy.

The present situation is more complex, with the traditional areas of interest changing as regional autonomy gives mayors, regents and governments greater power.

With many more leaders competing for a greater share of the economic pie, and with different patrons to satisfy, much of the decisions made are for short-term and selfish reasons.

Regional autonomy has divided the national economy into more confusing layers. As the central government has lessened its control over many natural-resource rich regions, its power to allocate and direct resources has also been curtailed.

Regions and provinces have become arenas for political and economic competition by politicians often inexperienced with the levers of power.

It is true that there is still a great portion of regional budget funds handed out by central government. However, the lion's share -- as much as 80 percent in many regions -- are allocated only for maintaining the existing structures of the bureaucracy. These regional governments need to develop local sources of revenues for other development activities if they want to benefit their communities and get voted back in the next election.

One common feature of a country in transition is the growth of a black economy -- the money funneled away by widespread corruption, the massive destruction of politically sanctioned illegal logging are both examples of non-taxed economies.

This sorry situation means the actual detail -- or dearth -- of policy must become a focus of the national administration. Ministers must put forward intelligent, workable policies to encourage politicians below them to do the same.

President Susilo Bambang Yuhoyono's majority in the House should make the focus on policy easier. But he has to bring his supporters into the fold, otherwise ministers will again start using the ministries to raise party funds. One clean party could also begat another if the opposition realizes its political future depends on good governance.

Bureaucratic reform is vital to this process. Countries that have been successful in improving their economic performance --Singapore, Korea, and China -- all started by reforming their bureaucracy.

Experienced economists, meanwhile, are necessary to guide the country down the road to development -- but leaders need to be more than just technically competent, they also must be tough, smart political operators, and good managers.

Analyses also needs to be made to determine the power and influence of central versus local government in particular sectors. The main power the central government can still exercise over regional administrations is through the allocation of regional grants and through the enforcement of national laws.

Most of the regional governments' budgets, however, are sucked up by their bureaucracy and otherwise misdirected to support leaders' political agendas. There is some hope, however. In some cases, responsible local administrations are actually working with the state government to improve governance and increase education and health infrastructure.

The blank spot here is the black economy. The continued oil smuggling by Pertamina officials in cahoots with regional officials, and the billion-dollar-a-year illegal logging industry that could not go on without the involvement of local leaders has shown how lawless and out-of-control the regions are.

If this country is to meaningfully reform, these mini-fiefdoms and their supporting bureaucracies must be held to account now.

The writer is a lecturer and researcher at the Department of Sociology University of Indonesia.