http://www.atimes.com/atimes/Southeast_Asia/FK02Ae02.html
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. 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