With the reply of President Abdurrahman Wahid to the first memorandum of the parliament, chances are that at least for some months the political uncertainty will continue. This will certainly affect the economic situation.

The political conflict between the President and a number of parliamentarians and political parties started on the issue of Buloggate and Bruneigate, that is, whether or not the president has violated the new principles good governance, i.e., of transparency and accountability.

Perhaps in the end it will be very difficult to prove violations of the law, in court as the President insists, rather than he being censured by the parliament with political motivations.

But the general public does not much side with the president because they see in the case a gross failure of competence on the part of Gus Dur at the helm of the state and government. For them the issue is not so much morals or violations of MPR resolutions or the Constitution. It is a matter whether the country can still afford to have a leadership not showing competence to solve the many problems of economic, political and social nature.

The alternative is a government more effectively led by the now Vice President Megawati Sukarnoputri. There is absolutely no guarantee of better performance. But people desperate about Gus Dur’s leadership will retort that “Anything will be better than the current status quo”. Much will depend how Megawati later will choose her ministers, and interact with parliament.

Suppose the change in government will come only in August, the scheduled annual MPR session, or in July if a special MPR session is convened after an unsuccessful resolution of the conflict between the President and Parliament. How will the economy fare in the meantime?

For most of the year 2000 the performance of the economy, especially the “real sector”, was effectively “decoupled” from the ravages of political uncertainty. The economy was well on its path of recovery achieving an almost 5% growth. The agricultural and mining sector grew significantly less than thus figure. Hence there was good growth in the more urban sectors of manufacturing, construction, services, and in trade. Exports reached a record of US$62 billion and monthly imports showed a tendency to grow, towards $3 billion month, which is enough for normal consumption imports, intermediate goods and the beginning of capital imports. The “bad” thing was that there was still a large net capital outflow rather than an inflow. This was a result of the political uncertainty.

Question is now, can this “decoupling” of the economy from the politics still continue in 2001 and can we hope for a similar economic performance as last year? The answer cannot be a simple yes or no.

The bad things about the political uncertainty during Gus Dur’s less than two years administration is that the rupiah rate of exchange steadily weakened, from Rp7000 to the US dollar to Rp10.500 now. The gyrations around this trend has been evened out by good monetary management of Bank Indonesia, but nothing could stop the trend. Although exports reached a record level in 2000, the demand for foreign exchange coming from imports and debt servicing of the huge private debts being rescheduled, cannot produce a stronger rupiah without new capital inflows, for investments and otherwise. This inflow has been frightened off by the continuing political uncertainty.

More over, the macro economic conditions in 2001 may not be as favourable as in 2000. Inflation most possibly will be higher than 10%. Last year it was 9.7%. This inflation will be fed by the worsening of the rupiah rate of exchange, but also by the gaping budget deficit (again, not unrelated to a the weakness of the government), and perhaps fanned by expectations.

Exports are weakening because of the slump of the economies of the US and Japan, at least in the first semester of 2001. The month of April will be a very important month for the macro-economy, whether or not there will be a new Letter of Intent with the IMF. Without this, the Paris Club will not give Indonesia further bilateral debt rescheduling, and the CGI meeting will be spoiled by the uncertainty.

At the moment, there is hope that in the end, both the IMF and the Wahid government realize that they cannot afford to prolong this stalemate, because too much is at stake. We will get an agreement acceptable to the IMF, and that will also provide better support for a prudent macro-economic policy and outcome. (SADLI)