29 Maret 2010

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Editorial: Reform capability questioned

Optimism ran high after President Susilo Bambang Yudhoyono’s re-election victory last July because people, notably investors, naturally expected him to use his strong mandate to push through with bolder reform measures badly needed to drive the economy to grow faster than its real potential.
London-based The Economist weekly praised SBY’s re-election as a golden opportunity for Indonesia to convert its real economic potential into prosperity, citing its young population with a low dependency ratio, sound fiscal position, elected government with strong mandate and political stability as the main assets.
Unfortunately, however, the President wasted the reform momentum with a series of political mistakes heaping upon his dithering habit of indecisiveness.

He made his first big mistake by loading his Cabinet with political party representatives, many of them with strong conflicts of interests and having neither competence nor background relevant to their portfolios. The diffident President then wasted his “political honeymoon” by allowing the legal dispute between two leaders of the Corruption Eradication Commission and the National Police and the controversy over the 2008 Bank Century bailout to distract the attention of his Cabinet and to virtually consume the nation for a few months.
The parliamentary vote early this month against the government’s bailout policy was the last straw, confirming the public’s suspicion from the outset that the SBY coalition government would not work and the executive branch would be very weak in dealing with the parliament.
There is now a big risk that the US$2.5 million money laundering case, which implicates a tax auditor and two senior police officers, could preoccupy the nation’s attention and national mass media agenda within the next few weeks.
No wonder, the reform capability of the government came under a big question at the Indonesia Summit last Thursday, which was organized by the Economist media group, publisher of The Economist.
The prevailing view among the around 100 business leaders attending the one-day conference was that SBY, like in his first term, would remain timid in pursuing reform.
The problem though is that boldness, quick decision and consistency are required to take reform measures in the economy, many of which are painful in the short term.
Without wide-ranging reforms and restructuring in the civil service, regulatory framework and fiscal management, the economy will never be able to expand at its real potential of 7 to 8 percent a year.
The scenario under a weak pace of reform will have the economy muddle through with an annual growth of only 5-5.5 percent, which is not sufficient to provide employment to the 2.5 million new entrants to the labor market every year, not to mention the estimated 40 million underemployed.
The most obvious examples are the government’s failure to reform the legal framework for land acquisition for the public interests, notably the building of basic infrastructures, and the timidity with which the government copes with energy subsidies.  Most businesspeople now see the acute lack of infrastructure and the crumbling condition of the existing ones as the biggest barrier to new investment.
But no investors will enter the infrastructure sector if procedures for land acquisition are not streamlined. Likewise, the government has yet to make a long-term program to phase out energy subsidies, now seen as the main cause of energy inefficiency and budgetary restraints in health and poverty-alleviation programs. The plan revealed last week is to stop energy subsidies by the end of the current government tenure in 2014. What incredible a commitment is that.
The President would be well advised to realize that without bold reform measures in the economy, he would fail miserably in the sector most meaningful to the majority of the people — creating jobs and alleviating poverty.
Opini The Jakarta Post 30 Maret 2010