Mengatasi keraguan luar negeri

Mengatasi keraguan luar negeri
{Pengunduran diri mantan Presiden Soeharto tidak secara langsung disusul oleh pembukaan
kembali “keran” pendanaan dari IMF. Salah satu sumber opisisi terhadap dukungan
kembali kepada Indonesia adalah Parlemen Amerika Serikat. Dampak dari perpanjangan
“musim kemarau” dukungan keuangan dinilai cukup berat}
Ada kesan di Indonesia bahwa DPR/Senat Amerika Serikat belum yakin akan manfaat
mendukung dimulainya kembali bantuan keuangan internasional kepada Indonesia.
Anggota DPR/Senat dari beberapa aliran pikiran termasuk kelompok kesejahteraan
sosial/HAM dan pemela gerakan demokrasi dari belahan kiri serta pendukung kuat
pasaran ekonomi bebas dari belahan kanan meluncurkan kritik yang tajam terhadap
pendekatan Dana Moneter Internasional (DMI) di Indonesia dan negara Asia lainnya
selama 10 bulan terakhir ini. Khususnya mengenai Indonesia kedua kelompok ini
serta kaum konservatif Kristen dari belahan kanan menaruh perhatian mengenai
perkembangan prasarana dan pranata sosial di Indonesia. Hal yang menarik perhatian
mereka antara lain termasuk:
• Prilaku tata usaha ekonomi dalam negeri yang terlalu diwarnai oleh struktur pasar
yang bersifat monopoli, oligiopoli, monopsoni, oligopsoni serta tingkat korupsi,
kolusi dan nepotisme yang tidak sehat;
• Ancaman terhadap rukun keagamaan nasional yang dianggap nampak dari kurang
perhatiannya pihak wajib terhadap prilaku diskriminasi sosial dari pihak agama
majoritas terhadap pihak minoritas (terutama oleh pihak Islam terhadap pihak
Kristen/Katolik);
• Pranata negara yang dianggap tidak cukup diwarnai kedaulatan rakyat,
sebagaimana dicerminkan oleh lemahnya daya kuat legislatif, kurang merdekanya
lembaga hukum, kurang bebasnya lembaga non-pemerintah misalnya lembaga
serikat pekerja, pers, serta pembatasan hak sipil terhadap tokoh-tokoh yang tidak
sependapat dengan Kepala Pemerintah.
Inti perlawanan ketiga kelompok DPR/Senat Amerika Serikat ini terhadap
penyampaian bantuan keuangan kepada Indonesia adalah bahwa bantuan ini bisa
disalahgunakan oleh kelompok yang berkuasa di Indonesia serta memperkuat posisi
mereka dalam kerangka politik negara. Pikiran politikus AS ini adalah pengeringan
kesempatan main uang dalam negeri akan menjadikan kepemimpinan sistem politik
lama hancur. Pendeknya dukungan keuangan kepada pemerintahan Soeharto,
menurut mereka, akan menghambat berjalannya pembaharuan luas dalam negeri
Indonesia.
Mundurnya Soeharto sebagai Presiden dan digantinya oleh Prof Habibie dianggap
oleh kalangan tertentu di AS sebagai perubahan tanpa pembaharuan, yang bisa
menjadikan Orde Baru bertahan lebih lama. Anggapan ini sebenarnya berdasarkan
asumsi yang secara fundamental salah. Presiden Habibie tidak memiliki kemampuan
untuk menentukan nasib kebijakan negara seperti pendahulunya. Gelombong sejarah
serta tuntutan masyarakat sedang berkiblat kepada pembaharuan, dan Presiden
Habibie, kalau berani melawan gelombong ini, dengan tegas akan memendekkan
kepresidenannya karena kekurangan keabsahan kepemimpinnya secara politik

dikarenakan keabsahan politik saat ini justru diukur oleh dekatnya calon pemimpin
kepada gelombong pembaharuan tersebut.
Misalnya walaupun Presiden Habibie selama 20 tahun terakhir ini terkenal sebagai
orang Indonesian yang paling berani melawan arus rasionalisasi ekonomi, namun saat
ini penjelmaan visi ekonominya mustakhil karena negara tidak mempunyai dana
cukup untuk membiayainya. Kelihatan anggota parlemen AS belum bisa diyakini
akan keadaan baru ini. Demikian juga anggapan bahwa Presiden Habibie mampu
memblok pembaharuan politik tidak mempetimbankan, secara realistis, bahwa
rindunya akan deregulasi politik yang lama dipendamkan oleh masyarakat karena
kekuatan kepala negara/pemerintah dulu, akhirnya bisa dipenuhi. Kelompok dan
instansi masyarakat ini termasuk gerakan mahasiswa, lembaga legisaltif, lembaga
hukum, dunia pers dan pegawai negeri.
Zaman pemusatan kekuatan negara yang juga bersifat kekuatan jaringan pribadi yang
dikembangkan selama 30 tahun oleh mantan Presiden Soeharto hanya bisa dihidupkan
kembali dalam satu skenario. Yaitu kalau ekonomi tetus menciut sedemikian jauh
sehingga kesatuan sosial dirobek di bawah tekanan inflasi (yang disebabkan oleh mata
uang yang terus depresiasi tajam) dan penangguran (yang disebabkan oleh suku bunga
yang sangat tinggi serta keadaan likuiditas ysng sangat ketat. Dampak dari keadaan
ini akan meruntuhkan sistem kesejahteraan sosial, yang berdasarkan dukungan
jaringan keluarga dan persahatan pribadi, karena terlalu banyak orang dalam jaringan
harus didukung oleh terlalu sedikit orang yang masih mempunyai pendapatan. Dalam
keadaan darurat begini, tidak mustakhil muncul kerusuhan sosial yang lebih besar dari
pada bulan Mei. Balasan dari keadaan anarkis adalah sistem pemerintahan yang
bersifat keras dan tertutup terhadap pendapat luas. Pemerintahaan ini bisa dikepalai
oleh seorang berlatar-belakang militer ataupun agama.
Satu hal yang mutlak harus dilaksanakan untuk mencegah malepetaka tersebut adalah
mulainya kembali pencairan dana bantuan kepada Indonesia. Bukannya dana dari
DMI sendiri bisa menyelematkan Indonesia melainkan dukungan dari DMI akan
memberikan petanda kepada pemain-pemain yang lain termasuk lembaga keuangan
internasional yang lain, donor bilateral serta penaman modal berjangka panjang dari
pihak swasta bahwa mereka juga bisa mulai kembali melakukan kegiatannya di
Indonesia.

Spanners in the works

The first week of the Habibie presidency was considerably smoother than could have
been expected, indeed that he is still President is more than many pundits had
expected. The first tentative steps towards de-Soehartoising Indonesia have also
begun. A reform oriented informal national consensus remains in place. Some
political prisoners have been released, while others have been permitted to speak to
the press for the first time in decades. The need for general elections based on a new
election law, including new party system, are agreed by all making their views public.
The sensitive issue of winding back commercial privilege accorded to the Soeharto
clan and close friends has already begun. Thus far the process has been
extraordinarily smooth.
This appearance of tranquillity does not mean the country's stress fractures have
healed. Far from it. What it means at this stage is that the recognition for substantive
reform of the political system is seen as either desirable (by idealists) or unstoppable
(by realists). While this is all well and good when the country is looking at broad
principles, there are numerous potential pitfalls where differences of opinion, or more
importantly interest, could degenerate into conflict. Matters over which conflict could
emerge include:
• the use of district voting (single member electorates) or proportional representation
(multimember/party electorates);
• What restriction, if any, will there be on political party participation. Will the
electoral system be open to such organisations as the People's Democratic Party
(PRD), Indonesian United Democratic Party (PUDI), or even the Indonesian
Communist Party (PKI). What about ethnic-geographic organisations such as the
Free Papua Movement (OPM) or Independent Aceh (Aceh Merdeka) or some
Maubere (East Timor) independence organisation;
• Will or will there not be restrictions on participation by certain individuals in the
elections either as candidates or even participants such as ex-political
prisoners/guerilla leaders? Would renouncing violence be sufficient to gain
admission?
• Will or will not members of the Armed Forces be permitted a free vote, or will
their leadership continue to seek special consideration for representation in the
legislature as compensation for disenfranchisement at the polls?
• Will the Head of State/Government continue to be appointed by a national
congress, or will this be devolved to a popular vote?
• To what extent will the national electoral institute be independent of
government/executive influence?
• To what extent will other components of the state, especially the civil and military
wings of the bureaucracy, play a neutral role in the electoral process and election
campaign?
• What role, if any, will Pancasila play in determining who or what parties are
eligible for admission to the electoral races?
• What restrictions, if any, will apply to issues which may or may not be raised
during the campaign process?

• What restrictions, if any, will apply to campaign methods which may or may not be
used during the election?

Indonesia: looking ahead

Most people have grossly over-discounted Indonesia. The currency, for example, has
fallen 50% further than say the Thai Baht. Economic fundamentals alone can not
account for this. One of the important contributing factors is political uncertainty.
Simply put, market players have no idea what a post-Soeharto Indonesia would look
like.
Free market (especially financial) reforms only began 10-12 years ago (although basic
market re-orientation commenced 30 years ago). During this 10-12 year period, Pres.
Soeharto was unchallenged. Analysts have not had to look, with any seriousness, at
countervailing or alternative forces in Indonesian society. Consequently they actually
do not know what the bounds of the plausible contain. This means that they have to
consider the most radical options, which are pretty uninspiring, as indeed they are in
any society at it extremes.
A triangle of probability
The future of Indonesian society is not, to me, a mysterious black hole. I gain
comfort by being able to put edges around the improbable.

A small step for Indonesia, The first step for reform

The Habibie presidency will be a transitional phase. There is a possibility, ever so
remote, that he might seize the opportunity and transform himself into the national
hero of reform. This will be a tall order for this leader. His elevation to the
presidency, even on a transitional basis, will mercifully break some of the tired old
cliches surrounding the presidency, namely that the President has to be a Javanese
military man. Habibie is a civilian and of Sulawesian background by birth and early
development, although his mother is Javanese1.
The country is nowhere near the end of its political crisis. The announcement by Pres.
Soeharto to resign on Thursday should not be seen as ending Indonesia's political
problems. His resignation does however represent an important step along the path to
moving Indonesia to a substantive Post-Soeharto era.
His replacement by Prof Habibie in a hasty but relatively well orchestrated and
mildly dignified ceremony at the State Palace was met with great relief from elements
of the Indonesian middle classes and international stakeholders in Indonesia.
Nonetheless not all are satisfied. The mood of the students in and around the
Parliament House remains defiant. They do not see Habibie as a credible or
legitimate leader2.
Key issues of legitimacy remain unresolved. The dignified little ceremony will, in
hindsight, be seen as altogether too hasty. Why were there no leaders of the
Parliament invited to the ceremony? Is it really possible to say that “I will relinquish
all of my presidential powers at the end of this speech?” There was something of a
shotgun wedding atmosphere to the ceremony.
The Parliament should be expected to continue to demand that they have the right to
anoint the President. In this regard the Parliament has the support of the students.
The Parliament, however, has its own problems with legitimacy. The students do not
see this Parliament as a legitimate reflection of the will of the population, and remain
quite suspicious of the reform credentials of leaders of this institution. For elements
of the elite outside the Parliamentary structure, particularly the Megawati faction, the
use of this Parliament to undertake this succession function is also problematic. Like
the students they do not see this Parliament as legitimate. Unlike the students they
may not wish to take the expedient approach that the students may seek to take.
1 The issue of “Javanese” has to me, over the years, become increasingly less an issue of “genetics”
and increasingly more one of “cultural connectivity”. For example try as he might, Prof Amien Rais,
who hails from Central Java, has very limited appeal to fellow ethnic Javanese, while Megawati
Sukarnoputri, who is mostly non-Javanese by ancestry has a much deeper appeal and support base
among ethnic Javanese. Perhaps those old clichés about Javanese being obsessed with harmony and
refined tranquility even at the expense of clarity hold some relevance certainly in terms of political
connectivity.
2 This was certainly my impression as I walked around the Parliament building that momentous
Thursday morning. While they were all pleased that he had resigned, some held the view that it was
really a political trick and they he would rule from behind the scenes. Others felt that he was indeed
gone, but that his replacement was, as it were, merely a “different bottle, but same wine” or similar
words to that effect!! Others believed it may be possible to start moving ahead but that sustained and
serious pressure must be maintained to counterbalance the resistance to reform from the vested
interests that would continue to populate the commanding heights of the political system.

Such are the dramas of a political system seeking to re-invent itself behind the fig leaf
of constitutionality. Indeed we will all have to get used to such public political
squabbles as they will become a fact of life under the more deregulated political
system that is about to emerge.
The role of the military has been most interesting. Almost wholly absent from the
street barricades has been any Kopassus troops. In full view have been marines,
military police, and air force strike force. This begs the question of why the core
support base of Lt Gen Prabowo has been kept away from the public3.
For the students and Amien Rais, Prof Habibie lacks legitimacy, but a compromise
with Habibie being seen as a “transitional” leader could be a way out.
For the students and NGO leaders, an important issue now includes the calling of
Soeharto and associates to legal account for their economic “successes”. Calls for
this received very strong rounds of support from the masses at the Parliament.
Habibie is not immune to these calls. The statement by military commander Wiranto
that Soeharto would not be “chased around” will put him and his organisation at odds
with the substantive reformists. This will be a tricky test of the political acumen of
leaders as they navigate through this emotional mine field.
In terms of the political give and take, the process of establishing which institution
will have authority for developing and passing the new political laws will remain an
issue of core debate4. This is even before substantive debate about the potential
contents of these laws becomes an issue. Ultimately I would expect the Parliament to
win this one.
On economic policy, it was very important to identify that the new Administration
will fully implement its agreement with the IMF5.
3 Interestingly the recently released book by former Pres. Habibie hints at possible concerns about the
constitutional loyalty of these forces to the new Commander-in-Chief.
4 The implications arising from this statement actually set a major change in course for my life. Since
1996, when I first set pen to paper to seriously conceptualise what a post-Soeharto Indonesia would
actually look like and demand, it was my fervent conclusion that any post-Soeharto era elections
would be genuine, competitive, free and fair. Given the extraordinarily over-regulated system in place
at the time, it was clear to me that the highest priority nationally would have to be given to changing
the so-called 5 political laws of 1985 (that dealt with parties, elections, the legislature, referenda and
mass social organisations). My view, given the essentially constitutional nature of the political
transition, was that the only appropriate place to look for the drafting of these new laws would be the
Department of Home Affairs. At the time I had a great concern that the “market” was so negative
towards Indonesia that it would miss the great advantages in terms of stabilization that democratic
elections would provide. In “market-speak” this suggested a “buying opportunity”. I realized that for
me to waffle on to market players internationally about the absolute likelihood of free, fair and
therefore acceptable elections would be meaningless in terms of shifting entrenched opinions, so I had
to find these legal drafters and use their own words to boost the legitimacy of my convictions.
Through the good connections of one of my favourite lecturers, Prof Bob Elson, I was introduced to
Prof Ryaas Rasyid. After an engaging and at times animated two hour chat about the proposed new
laws, Reformasi and history, he promptly asked me to meet the rest of his team, known eventually as
“Team 7”. Remarkably we all clicked and to my surprise they asked me to come back the next night, a
process repeated every night for the next few months! So during this period it was the financial market
for me by day and the political market by night! Eventually Prof Ryaas asked me “to get a real job”
and work with them full time. It was here that I was introduced to that wonderful organisation,
UNDP, that agreed to recruit me to help the team.
5 I think this comment simply reflected the fact that I was still working for a merchant bank!

Jockeys for reform

all developments. The following comments and sketchy analysis incorporates some
information and details, (in what I believe to be chronological order) known by the
writer at the time of dispatch.
Monday 18 May
• Students from assorted campuses plus leaders such as Amien Rais and Ali Sadikin
move into MPR/DPR. Military attempt meekly to resist at one point but did not
press the point to the limit.
• Students demand to meet MPR/DPR Speaker Harmoko to convey views.
• Students surprised that Harmoko agrees to meet and agrees to support the calls.
• Latief1 tries to resign, announced by Mursjid, State Secretary.
• Harmoko announces the he wishes for the President to resign. Calls for special
plenary session of the DPR (not MPR it seems)
• Gen. Wiranto, following an emergency meeting with Soeharto, calls press
conference.
• Gen. Wiranto, flanked by top brass, including head of KOSTRAD and BAKIN,
announces that Harmoko's views were personal and not institutional. No questions
taken.
• Everyone assumes Wiranto's views represent military opposition to succession. I
think the view is correct, even if it remains an attempt by ABRI at fence sitting.
Tuesday 19 May 1998
• Harmoko is understood to be wavering a little. Perhaps a few thousand students in
his office might put some more steel in his back!
• Soeharto press conference turns into confusion when only Muslim leaders are
allowed to stay. The meeting is behind closed doors. Leaders include
representatives from most Islamic streams except Rais'. Included were Gus Dur,
Cak Nur, Emha Ainun Najib, Dr Ali Yafie. Also Dr Yusril Mahendra and Saadilah
Mursjid. Not included were Hasan Basri and, of course, Amien Rais.
• White collars yuppies gather at Stock Exchange for a protest at 12.00. Tanks and
personnel sent to JSX too.
The establishment of a plethora of reform supporting organisations over the past 5
days represents both an attempt by people to have influence over the direction of
these organisations, as well as attempts to trumpet their own initiatives and interests
(perhaps even ambitions) in this regard. In general all are opposed to the looters and
all support the student moves.
I think the ABRI leadership is still trying to threaten the opposition movement by
issuing statements such as “Harmoko's view was only personal” just to see if the
parliament subsequently weakens its resolve. I do not believe this resolve will
weaken, and is more likely to grow as new groups come out to loudly proclaim that

Looting and pillaging

The student protests have now been overtaken, temporarily at least, by looting and
pillaging by swarms of people, essentially the army of the unemployed.
The degeneration of section of the capital on Thursday into rioting and looting
followed indirectly in the wake of the shooting to death of some 4 Tri Sakti
University students on Tuesday. A couple of interesting points should be made about
the riotous behavior. This behavior consisted of 3 separate but related forms of
action:
• the theft of private property from shopping centres, retail outlets, warehouses and
storage centres, and private homes;
• the destruction of private and public property including vehicles (cars, trucks,
motorcycles and public transport like buses, metro-minis), fittings and fixed
properties, and some of the stolen booty;
• the resort to extortion particularly against vehicles using toll roads such as those
heading to the airport.
Targets
As long expected the prime targets for destruction have been the Sino-Indonesian
business community as well as property linked to the First Family such as Timor1 cars
and Bimantara2 cars and toll roads3.
Prime targets appeared to have been firstly commercial shopping regions
(commencing in the Chinatown region but fanning out to other commercial regions).
The process of theft was followed some time later (while the theft was still ongoing)
with burning of the facilities. Large scale deaths have occurred in these places as
looters continued seeking produce as the flames were burning.
Other targets have been strip commercial centres along major roads. While the
mantra of “pribumi” or “pribumi Muslim” or “pribumi Betawi asli”4 may have saved
some premises, it was not cause for total immunity. Flying flags at half mast have
been another way to seek to differentiate the owner from Sino-Indonesian interests.
Inscriptions in favour of reform, while sometimes successful, fundamentally miss the
point, which in essence is that the looters and pillagers are a world away from the
protesting students.

Game over

The student protests have now been overtaken, temporarily at least, by looting and
pillaging by swarms of people, essentially the army of the unemployed.
The degeneration of section of the capital on Thursday into rioting and looting
followed indirectly in the wake of the shooting to death of some 4 Tri Sakti
University students on Tuesday. A couple of interesting points should be made about
the riotous behavior. This behavior consisted of 3 separate but related forms of
action:
• the theft of private property from shopping centres, retail outlets, warehouses and
storage centres, and private homes;
• the destruction of private and public property including vehicles (cars, trucks,
motorcycles and public transport like buses, metro-minis), fittings and fixed
properties, and some of the stolen booty;
• the resort to extortion particularly against vehicles using toll roads such as those
heading to the airport.
Targets
As long expected the prime targets for destruction have been the Sino-Indonesian
business community as well as property linked to the First Family such as Timor1 cars
and Bimantara2 cars and toll roads3.
Prime targets appeared to have been firstly commercial shopping regions
(commencing in the Chinatown region but fanning out to other commercial regions).
The process of theft was followed some time later (while the theft was still ongoing)
with burning of the facilities. Large scale deaths have occurred in these places as
looters continued seeking produce as the flames were burning.
Other targets have been strip commercial centreI would say we are now at the end of the game for the Soeharto Administration1. This
Administration, like others which based their legitimacy upon “economic
performance“, obviously runs into difficulties when the economy stops growing.
Often these “developmentalist“ administrations are also authoritarian and indeed
usually argue that authoritarianism is a “pre-requisite“ for development to succeed.
The downside is that legitimacy is lost when economic growth falters. In modern
Western systems legitimacy comes from demonstrated popular support shown
officially through general elections and more unofficially through regular opinion
polls. When Administrations under these systems lose legitimacy, a new group with
greater support replaces them, either through general elections or via a recasting of
loyalties in the parliament.
Unfortunately such Administrations as here in Indonesia2 also tend to try to blur the
boundaries between the Leader, the Administration (national leadership), Government
(the state), and the Nation. This is often reflected in the way the administration will
resort to legal sanctions or bullying accusations against opponents when these people
criticise policy. The flow of this convenient flow of logic for the powers-that-be is as
follows: criticism of government policy = criticism of Government leaders = attempt
at undermining national unity = act of subversion. The population often fails to
disentangle the various elements and therefore have difficulty differentiating personal
view from official policy too.
The problem that arises here when legitimacy fails is that it becomes very hard to
remove the de-legitimised leadership as they will continue to define their own
survival with that of the country. Rarely do they leave gracefully. The biggest
problem is that there is no agreed or legitimate process for replacing the de-legitimate
leadership. This adds to the complication and tension. One more problem in a
system, which offers no place for losers and where the winner takes all, is that should
they fall, they also lose all. The modern Western system is rarely so unkind to its
losers.i Muslim” or “pribumi Betawi asli”4 may have saved
some premises, it was not cause for total immunity. Flying flags at half mast have
been another way to seek to differentiate the owner from Sino-Indonesian interests.
Inscriptions in favour of reform, while sometimes successful, fundamentally miss the
point, which in essence is that the looters and pillagers are a world away from the
protesting students.

Indonesia's political and economic prospects

Executive summary
Currency Board
The most significant wild card issue which can influence the medium term political
and economic situation is the currency board proposal. Its success will ensure the
socio–political situation remains under the President's control. For the President a
currency board offers the hope of containing inflation and basic food market
instability, and therefore sustaining political stability. If this does not go ahead, or
worse still fails after having been adopted, the socio–political fall out may well be too
much for the President to sustain his position.
Prof Habibie as Vice president
In relation to March's elections, President Soeharto's support for Prof Habibie as his
Vice President provides him with a buffer between himself and anyone who may seek
to use the vice–presidency to roll the President. Ambitious military leaders will
support Habibie as they see him as an implausible President and therefore someone
over whom they can leap frog to the presidency.
Succession scenarios
I have identified some 9 possible succession scenarios1. They come under 3 broad
categories, namely constitutional, quasi–constitutional and unconstitutional. Most of
the constitutional outcomes contain one inherent weakness, which is that community
pressure for real change and participation can't be contained when the anchor of the
status quo (President Soeharto) has gone. This means the new leadership may
crumble in the face of this pressure leading to a more substantive reform process
commencing. Quasi–constitutional outcomes include something of a re–run of the
process led by President Soeharto against President Sukarno (an ultimatum to leave
gracefully). If at the end of the day no succession takes place and polite ultimatums
are not taken up, more radical and uncontrollable scenarios will unfold.
An effective new coalition can be fashioned
The best scenarios in terms of seeing Indonesia back on the road to prosperity and
stability are those which involve a coalition of military and opposition civil groups, as
it provides some semblance of order and also releases the potential for long overdue
reforms to commence.
Minimalism will not provide the answer
I believe it will most difficult for any post–Soeharto successor to try and sustain the
existing status quo in terms of political infrastructure. Support for that system will
simply be too insignificant to provide a basis for a stable and effective governance.
Reform will therefore be a very high priority within the community. To deny that
reform will be to invite a failure to garner sufficient support for the new leadership.
This is a weakness in the “smooth” scenarios which can be found within the
constitutional series of scenarios.

Why the New IMF package will also fail to restore confidence

The new IMF package for Indonesia has just been announced. The reform measures
cut away almost all remaining vestiges of monopoly, market distortion and blatant
favouritism which had long been criticised within and beyond Indonesia for over 25
years. Included too were assorted marketing arrangements which had long fallen
from the front pages of newspapers and from the rhetoric of permanently indignant
Government critics.
Included were tacit admissions of mistakes particularly from the IMF that trying to
depress domestic demand through fiscal tightness was an inappropriate option in an
economy already heading towards contraction. The agreement to permit a budget
deficit should, therefore, have been welcomed. Announced greater monetary policy
autonomy for the Central Bank should also have been read positively. To be frank
this package went further than anyone could have expected.
Yet the forex markets has fallen back below their pre-announcement highs. It could,
and no doubt will, be argued that expectations had been raised too high from the
depression of the week before. However this seems at complete odds with the fact
that this package went further than anyone had expected. So dashed expectations can
not adequately answer the lack of sustained enthusiasm post the announcement. This
suggests other factors continue to way down peoples'; sentiment towards Indonesia.
The scale and nature of Indonesia';s external debts represents one such factor. Indeed
it is accepted as common knowledge that Indonesia';s excessive (unsustainable)
foreign debt represents the Achilles Heel, which has led to the undoing of Indonesia';s
quarter century of economic advance. There can be little doubt that once the fact of
secure exchange regimes was breached, the rest of the external and then internal
structure began to crumble.
At the risk of being labeled a willing and deliberate heretic, I would suggest that the
whole debt issue is merely one manifestation, albeit the most profoundly
destabilising, of a more important flaw in the modern Indonesian political economy.
This flaw is not the quality of outcome, which even under the IMF Plan mark 2 is
impressive. Rather it is the quality of process. This refers to the quality of the
mechanisms which come together to produce the outcomes, including the impressive
outcomes. Regardless of what is now unfolding, it is an undeniable fact that the
economy grew by 7% per year for over 25 years. It is also an undeniable fact that the
standard of living of Indonesians have never been higher, nor life expectancies longer,
nor education opportunities so extensive. Upon the basis of these outcomes, we may
be tempted to ask; “so what';s wrong with the processes if they achieved such
outcomes?”
The answer to that question is revealed if we ponder the following series of questions:
1. What is Indonesia';s real level of external debt, public and private?
2. Upon what basis are these figures calculated?
3. Why is there such heated controversy over the simple arithmetic question of how
much is there?

4. The second IMF package was impressive. To what extent will it be implemented?
5. To what extent can lending institutions, including foreign lenders, seek redress
through the legal system to secure their assets held by bad debtors?
6. To what extent should lenders or indeed current asset holders expect impartial and
predictable processing of legal claims and counterclaims through the legal system?
7. To what extent can the existing legal framework and infrastructure cope with a
significant increase in corporate case loads?
8. More basically to what extent will the legislature be involved in either legislating
any of these reforms or in supervising these changes?
9. Indeed were the people';s representatives consulted in developing this package?
10.If not to what extent should we expect public support for this package of reforms?
11.In this regard to what extent should the business community, local and foreign and
investment community, local and foreign, expect a sustained level of support for
the implementation of the package?
12.What kind of popular support does this package have?
13.What legitimate means are there for determining such support?
14.In the absence of support, what approaches will have to be followed to ensure the
program is implemented, if indeed it can be?
15.What kind of impact could such approaches have on severely bruised confidence
levels about this country, domestically and internationally?
16.What kind of approaches are being made to bring community leaders, both formal
and informal, on side to support the reform and restructuring measures?
17.How can we tell if the program is being implemented?
18.In regard to the banks which were closed, what criteria were used to determine if
Bank A would be closed and Bank B would stay open?
19.Who was involved in determining which banks would be closed and which ones
would make it over the threshold?
20.What will the central bank do in future in regard to banks in contravention of
prudential limits?
21.How can we be certain such policies would be applied without fear or favour?
22.What was done before the closures to bring banks into line?
23.Who is responsible for banks continuing to operate when in breach?
24.Are these regulators to be held to account, and if so how would we know?
25.Cancellation of major infrastructure projects was accomplished on the basis of
what criteria?
26.How can project managers, employees, potential consumers and financiers to be
sure that their projects are not also about to be stopped?
27.What compensation can project managers, employees, potential consumers and
financiers expect from the Government/IMF as a result of the material losses
arising from the stoppage of these projects?
28.Who was involved in the process of deciding which projects to stop and which
were to go ahead?
29.Reopening the palm oil sector to foreign investment, what were the reasons for
closing this sector 3 months ago?
30.Why now a sudden about face?
31.Who was involved in making the decision to close this sector to direct foreign
investment, and reversing it?
32.Will anybody be held accountable/responsible for this destabilising policy flipflop?
If not, why not?

33.If yes, how could you actually tell?
34.More fundamentally what mechanisms are in place to ensure another flip-flop in
policy is not lurking around the door?
35.The introduction of the National Car Policy was in the national interest, so was its
closure. What were the core factors leading to an about face on national interest?
36.Is the National Car project really dead or just hibernating until the spring returns
economic growth?
37.Indeed can we believe that a return to growth won';t see a return to the distribution
of special arrangements in favour of particular groups, all, of course, in the
national interest or the interest of some underprivileged group in the community?
38.Who will be meeting the liquidation costs for the closing of the BPPC?
39.How will it actually be closed?
40.Will a free market emerge between cloves'; farmers, their cooperatives and
businesses, and users of cloves, especially members of GAPPRI (cigarette
manufacturers) emerge?
41.How can we tell if the cement cartel has disappeared?
42.What guarantees are there the APKINDO trade monopoly on plywood will not be
reconfigured to produce a new form of market distortion in this important export?
43.How can we tell if the Reforestation Fund is being used for related purpose?
44.How can we tell if IPTN is no longer in receipt of state subsidy?
45.Where will the funds collected for the 2130 Project now go?
46.How can we be assured that the removal of Bulog from market intervention in say
the wheat flour market won';t be replaced by a market distortion in favour of the
dominant producer? How could such an emergence be stopped?
47.The Central Bank has now been given autonomy to set certain key interest rates,
such as SBIs, presumably without regard to the Monetary Authorities. How can
the application of this authority be verified?
48.What are the key determinants and factors which will be considered by Bank
Indonesia in carrying out this new policy?
49.In regard to the financing measures to support SMEs and exporters, what criteria
will be applied in determining eligibility?
50.What guarantees are there that these funds won';t be misallocated for other
purposes or technically excluded groups?
51.What guarantees will there be that all agreed allocations for particular firms
actually gets to the firms concerned and are not consumed through above realistic
administrative charges?
52.Why is there an IMF official associated with such a high level national policy
making committee? When was the last time an IMF official was elevated to such
high office in a recipient country?
53.At whose desire was this appointment proposed?
54.Does not the perceived “need” for such an outsider suggest something about the
state of the policy making, implementing and supervision processes is not right?
55.What kind of socio-political and ideological response should be expected from the
populace, who have a demonstrated history of nationalist sensitivities? What are
the investment implications, especially for foreign investment, of a possible
nationalist backlash against the whole (allegedly foreign inspired) reform package?

Most of these issues relate to issues of public policy process. Confidence can be most
quickly established if there is some transparency in the way decisions are made. In
this regard, the policy making process could be considered like a step production line.
The decision making process
The first step is formulation, which is a complicated process of a particular group
reaching a conclusion about how to address an issue. It includes issues such as what
pressures have led to a need to have to reach a decision. It also includes issues such
as what factors for consideration will be prioritised, what interests are to be prioritised
as well as the more mundane issues as who will be involved in the decision making
process and what information inputs will be used to reach a decision about action. It
should also include an understanding of the strength of support for the decision, and
upon what bases dissent is based.
The decision is made
The second step is the announced results of these deliberations. The action plan
comes out of the decision making process.
The decision is implemented
The third step is the implementation process. This process should also include
effective supervision to ensure application conforms to procedure and stated policy.
The implementation is evaluated
The fourth step is review of results. Did they meet targets? What were the sideeffects?
Unfortunately in the case of Indonesia the crucial first stage generally takes place
outside the public eye. The whole process is simply too opaque to judge the level of
support for positions announced. Structures appear to be too unregularised to permit
a stable understanding of the decision making process.
While there is usually some clarity in the actual announcements themselves, there
often remain unanswered questions and ambiguities in stated positions. This
undermines the standing of the decision. While ambiguous commitments are
certainly not a trait specific to Indonesia, it is nonetheless a somewhat more common
habit here, and most probably arises from the consensus approach to decision making.

Indonesia Update speech: 1998

{Each year in September, the Australian National University in Canberra, Australia,
hosts the “Indonesia Update”, a gathering of analysts, researchers, policy makers,
officials, academics and students interested in contemporary Indonesian
developments. It is a marvelous and multi–disciplinary series of exchanges. I had the
privilege of being a presenter at the 1998 Indonesia Update – the first to take place
following the resignation of former President Soeharto.}
”There was no real ”lender of last resort”, offering long–term loans for infrastructural
development of the … economy and stabilizing the temporary disjunctions in the
international accounts.
These structural inadequacies were concealed … when vast sums of dollars flowed
out of the US in short term loans to … governments …, all willing to offer high
interest rates in order to use such funds – not always wisely – both for development
and to close the gap in their balance of payments. With short term money thus being
employed for long term projects, with considerable amounts of investment … still
going into agriculture and thus increasing the downward pressure on farm prices,
with the costs of servicing these debts rising alarmingly and, since they could not be
paid off by exports, being sustained only by further borrowings, the system was
already breaking down in the summer …
The ending of that boom … and the further reduction in American lending then
instigated a chain reaction which appeared uncontrollable: the lack of credit reduced
both investment and consumption; depressed demand ... hurt producers of foodstuffs
and raw materials, who responded desperately by increasing supply and then
witnessing the near collapse of prices – making it impossible for them in turn to
purchase manufactured goods. Deflation, … devaluing the currency, restrictive
measures on commerce and capital, and defaults upon international debts were all
the various expedients of the day …”
The reference to the summer was not the summer of 1997. It was the summer of 1928
in the lead up the Great Depression. The Governments were not those of emerging
South East Asia. They were the Governments of emerging East and Central Europe.1