What political economy?

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.