Indonesia: The Dawn Of A Genuine New Era Of Reform?


Dr Ross H. McLeod

Indonesia has just completed an extraordinary political exercise, starting with the first genuinely democratic popular elections of parliamentary representatives for several decades in June, and culminating in October in the election of new speakers of the People's Consultative Assembly (MPR) and House of Representatives (DPR), and a new President and Vice President. Whereas the replacement of former President Soeharto by BJ Habibie in May 1998 did little, of itself, to change the autocratic system of government Soeharto had built up during 32 years in office, successful completion of this process appears to signal the dawn of a new era in which the executive is accountable to the parliament and the parliament is accountable to the people.

The new political leadership includes the three individuals who have provided the main focus of calls for dismantling the old regime, while allowing for evolutionary rather than revolutionary change by leaving the previously dominant Golkar Party with a significant, if much diminished, role. Prospects for civilianisation of government also seem to have improved by virtue of the failure of the Armed Forces to secure any of these four influential positions for itself.

Incoming President Wahid has signalled his intention to adhere to the reform process agreed between the outgoing regime and the IMF. Initial market reaction was strongly positive, with the currency strengthening by some 15% and the share price index increasing by 9% during the week of the presidential election.

Financial assistance from the international financial institutions (IFIs) has been on hold for several weeks because of the Bank Bali scandal. The Habibie government refused to make public the outside auditor's detailed report on the scandal, but this stand was overturned by a Supreme Court judgement just before the presidential election, requiring it to be released to parliament.

The IFIs insisted on action against the guilty parties before they would resume their lending. Punishment for corrupt activity was almost unknown under the Soeharto regime, and little progress was made by Habibie with investigations into his predecessor's wealth. So whether the new government will be prepared to initiate charges against the persons involved in the Bank Bali affair amounts to an immediate test of its reformist intentions. The IFIs would do well quietly to stand by their demands rather than yielding to the temptation to release funds in response to mere promises of action. The remaining amount of undisbursed funds is small by comparison with the burden of accumulated costs to the government of the current crisis. Therefore, the gains from gently encouraging reform by way of stern action against those who have profited greatly from corruption will greatly outweigh the minor contribution additional loan funds can make to recovery.

WATCHPOINT: Will there be a stress on stern reform or a preoccupation with seeking further loan funds?


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