Indonesia's thinking general urges
action By Bill Guerin
Indonesia's new president, Susilo Bambang
Yudhoyono, dubbed the "the thinking general", has been
hard at work making the rounds of key ministries to lay
down the law, as it were. Since taking office on October
20, Yudhoyono - or SBY, as he is commonly known - has,
at least by his words and actions, conjured up an
apparent sense of urgency, one conspicuously lacking in
the previous administration.
The president needs
to prove very quickly that the confidence with which the
public voted him in to power is not misplaced. His
administration is expected to adopt liberal economic
policies to boost the economy, create employment and
reduce poverty as well as undertake measures to attract
foreign direct investment and increase non-oil
exports.
Critics have claimed that despite being
a former military commander, Yudhoyono can be
indecisive, preferring to consider all perspectives and
opinions before making up his mind. But during his first
week in office, Yudhoyono proceeded to act in line with
his campaign promises. Key issues include achieving
stability, growth levels sufficient to alleviate poverty
and transparency that will encourage foreign investors
to put money back into Indonesia. Investment has long
been held back by a poor political, regulatory and legal
climate.
"Corruption and injustice are
everywhere. Our legal framework is weak, law enforcement
does not work well," the president said last Tuesday,
adding that the country was "being ridiculed" abroad
because of its poor image and that rampant corruption
and poor law enforcement were scaring off foreign
investors.
He wants politicians and officials
found guilty of graft, Indonesia's most common crime, to
be sent to the country's own "Devil's Island", the
infamous high-security jail on Nusakambangan Island in
Central Java, whose most famous inmate is Tommy Suharto,
youngest son of the former president. Attorney General
Abdul Rahman Saleh, a Supreme Court judge with a
reputation for honesty handpicked by Yudhoyono, is
reviewing all outstanding corruption cases as a matter
of priority.
Foreign and domestic businesses as
well as the International Monetary Fund (IMF) have long
called for tax reforms to improve Indonesia's investment
climate. Though not commenting on reforms, the president
last week ordered a major hike in tax revenues over the
next five years. He wants the tax ratio to be increased
by 5% now and is targeting a ratio at 19% of economic
output by 2009.
Analysts blame the corrupt tax
administration system for the low level of tax
collection. The government is targeting tax revenue of
Rp272.17 trillion (US$29.9 billion) this year,
increasing to Rp297.51 trillion in the 2005 state
budget. But tax officials have claimed the government
could lose up to Rp676.5 trillion in potential tax
revenue this year alone.
Indonesia's decision to
leave the IMF means the country is no longer eligible
for the debt-rescheduling facility from the Paris Club
of sovereign creditors. From the outset of the 2004
fiscal year, it has cost the government almost one-third
of the state revenue to service both domestic and
foreign debts.
The most diligent corporate
taxpayers are foreign multinationals, who fear that the
new administration, squeezed by larger than expected
budget shortfalls and continuing high levels of debt,
could make up the shortfall by raising already high
corporate taxes. The top corporate tax rate is 30%,
higher than those imposed in neighboring countries such
as Thailand and Malaysia.
Last year's new labor
laws have made it too costly for businesses to compete
with countries such as China. A World Bank study
estimates the cost of firing a worker in Indonesia
averages 157 weeks of pay, a fact that ensures
businesses take a long, hard look before recruiting
employees at a time when unemployment is soaring out of
control. The lack of new jobs and economic opportunities
has highlighted weak institutions, bureaucratic
obstacles and limited government effectiveness, but the
Indonesian Chamber of Commerce and Industry (Kadin) by
has come up with a master plan geared to help
businesses. Kadin, led for years by Coordinating
Minister for the Economy Aburizal Bakrie, presented
Yudhoyono last Wednesday with a roadmap, "Revitalizing
Industry and Investment".
The document has a
strategy, concepts and recommendations on how to improve
competitiveness of local industries and boost investment
over the next five years. It focuses on five issues -
law enforcement, taxation, labor, infrastructure and
regional autonomy. Elsewhere, Bakrie said the new
government would continue the privatization programs of
state-owned enterprises (SOEs) launched by the previous
government, but with "new ideas and a new style". He
declined to elaborate.
Among the key policies
set out in the White Paper are measures aimed at
achieving and maintaining fiscal and monetary stability.
But a series of debts and liabilities incurred by SOEs
remain the government's liability and threaten fiscal
sustainability. Two of the most outstanding and urgent
of such issues are the interminable dispute between
state oil and gas company Pertamina and US-based energy
company Karaha Bodas Company (KBC), and the lengthy spat
between the government and Mexico-based cement giant
Cemex SA. Cemex has taken the government, the largest
shareholder in Semen Gresik, to international
arbitration. The case could result in a liability for
the government as large as $500 million.
The
private sector also drew interest and attention last
week with the arrival of Peter Woicke, vice president of
the International Finance Corporation (IFC). On Thursday
he started a two-day scheduled official visit to meet
Yudhoyono, Minister of Finance Yusuf Anwar and other
members of Indonesia's economic team. The IFC is the
World Bank's investment arm, and Woicke's visit is
likely to lead to a commitment and support by the IFC
for the new government, particularly for sustainable
development of the private sector.
Just as the
president was proving his word was as good as his bond,
Bakrie chose to announce that though still in hock to
the IMF to the tune of some $9 billion, the new
government would not work to meet the series of economic
reform programs and targets laid out in a September 2003
White Paper already agreed to with the IMF.
Indonesia's weak legal system and a political
culture steeped in corruption and bad governance had
been laid wide open by the regional crisis in the late
1990s when the IMF made its policy recommendations. The
lack of transparency in government and corporate sectors
had then obscured the true state of the economy. The
White Paper was meant to change all that and act as a
policy anchor for international creditors and investors
to base their perceptions and calculations of the
country's economic outlook and investment risks after it
left the IMF at the end of last year.
On
Wednesday Bakrie said a "Government Working Plan" would
replace the post-IMF program monitoring. Still, his
announcement was a clear and positive signal of intent,
unlike that of former President Megawati Sukarnoputri,
who managed to confuse markets and even her own
ministers in August. During her presidential State of
the Nation Address, Megawati referred to the IMF's
"honest and open admission of past mistakes" before
dropping her bombshell. The least the IMF could do,
Megawati said, apparently without tongue in cheek, would
be to initiate debt-rescheduling initiatives to ease the
government's fiscal burden.
Megawati's plea
seemed to be a well-aimed shot in the foot. Given that
most agree her government deserved credit for curbing
inflation and reducing government debt to a manageable
level, projecting an image of a weak administration
unable to handle debt without outside help seemed the
height of folly so close to the September run-off
between herself and Yudhoyono.
Though an
anti-IMF stance during an election year might have
seemed a good tactic, laying most of the blame for the
sluggish growth and stalled reforms under her
administration at the door of the IMF backfired for
Megawati. Yudhoyono soundly trounced her in Indonesia's
first-ever direct presidential elections.
The
pressure on Yudhoyono to make swift progress is severe,
but all in all his first week in office was a lively
one, encouraging for Indonesians and Indonesia watchers
alike. Though political honeymoons are, by their nature,
very short, the new president has given cause for some
optimism that years of weak leadership may soon come to
an end.
It remains to be seen whether or not
Yudhoyono's popular mandate will give him the authority
to overcome obstacles in parliament - which his
predecessor could not. But as Andrew Steer, the World
Bank's country director for Indonesia, puts it, "There
are grounds for confidence."
Bill
Guerin has worked for 19 years in Indonesia as a
journalist and editor. He specializes in
business/economy issues and political analysis related
to Indonesia. He has been a Jakarta correspondent for
Asia Times Online since 2000 and has also been published
by the BBC on East Timor. He can be reached at
softsell@prima.net.id.
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