Indonesia: New Economic Policy Equations

1999

Dr Hal Hill

What can we expect from Indonesia's new Cabinet in the realm of economic policy?

The key point to emphasize is that, within the constraints of the IMF-imposed reform packages, economic policy-making is likely to be quite unpredictable. There are likely to be frequent turf wars within the government; the newly assertive Parliament could become quite intrusive; and the civil service is still adjusting to a new regime of increased accountability, more politicized policy processes, and lower real incomes.

During this critical transition phase, the fact that the economic policy environment is significantly defined by international parameters may be helpful. Indonesia is locked in to fiscal, monetary and exchange rate policy commitments as part of the IMF package. Trade policy is hemmed in by commitments under AFTA, APEC and the WTO, notwithstanding the new Minister of Industry and Trade's (Jusuf Kalla) more interventionist proclivities.

But these external constraints can be useful only for a short while. Unless they are quickly domesticated and develop indigenous roots, there will be continual tension and instability in economic policy making. Moreover, as the experience of post-Marcos Philippines showed, negotiations with these international organizations can be a long drawn-out affair, with frequent policy reversals.

The three key economics ministers (Kwik Kian Gie, Laksamana Sukardi and Bambang Sudibyo) are all people of high personal repute and probity. They seem determined to tackle problems of corruption, beginning with the symbolically important public release of the Bank Bali investigation.

Two other appointments have important implications for economic policy. With an able and effective Attorney General (Marzuki Daroesman, former Indonesian Human Rights Commissioner), a start can be made in cleaning up the legal system, though the problems are so immense that no 'quick fixes' are possible. And in the crucially important area of decentralization, the new Minister of State for Regional Autonomy (Ryaas Rasyid) has thought very carefully and constructively about the issues.

Against this, however, the new economic policy team comprises officials with different party allegiances, and it lacks the intellectual vision and unity of purpose of the Widjojo group, which so effectively restored Indonesia's economic fortunes in the decade after 1967. Their intellectual backgrounds - in management and accounting - are quite different from the Widjojo group. In managing the interface with the international donor community, they are obviously untested. One obvious complication here is that several ministers, including those with portfolios close to the action, have large personal stakes in the outcomes.

WATCHPOINT: How quickly will the new Ministerial team tackle the massive task of getting the debt workout process of the Indonesian Banking Restructuring Agency moving again, and keeping it 'politics-free'?

 

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