It appears that the month of December will not bring much relief as yet for troubled economy, that is, not in government policy terms.  Meanwhile, the economy which has bottomed out is continuing its unsteady climb out of depth of the recession.  The whole East Asia region is recovering and the Indonesian economy is being caught in this upward spiral, in spite of its (un)readiness. 

Conflicting signals are being emitted from the government, from the new National Economic Council, from the brand new Business Advisory Council, from members of parliament, from pundits and from others, through the press.

The chairman of brand new Business Advisory Council, Sofjan Wanandi, a business tycoon, has aired nationalist sentiments.  He cautioned that the government should not let major national assets fall into foreign hands completely.  Many conglomerates, however, have become suspect in the eyes of the public.

The IMF has advised that the next fiscal year budget should not have a deficit over 5% of GDP and that half of this should be financed from the sale of government held assets, i.e., IBRA assets and state enterprises, while the other half could count on foreign aid.  So far such sale of assets has fallen below targets.

There are other policy dilemmas indeed.  One is the perceived dilemma between combating corruption (KKN) by the new economic ministers of Megawati’s party, such as Kwik Kian Gie and Laksamana Sukardi, or not doing things which can disrupt the process of economic recovery.  Too many conglomerate heads may roll if the government tries to make a clean sweep and the economy may suffer.  The latest “example” is the Texmaco case, where many Texmaco subsidiaries, including its Putera bank, fell victim because their normal operations got obstructed.   Can the economy afford the fall of more Texmacos?

The economic ministers are apparently conscious of this dilemma, and chief
economic coordinating minister Kwik Kian Gie wants to consult the parliament about disclosure of the list of culprits.

The chairman of the National Economic Council, Prof. Emil Salim, was reported in the news paper advising the government “not to treat IMF as God”, and finds Kwik Kian Gie too soft to the IMF.

Then there is the public debate whether or not, or how much, the heavily subsidized fuel prices should be raised as to reduce subsidies.  The rise in fuel prices and electricity rates will ignite inflation and will hurt the poor people.  On the other hand, there is increasing recognition that the very large subsidies weaken the government budget much.  The government cannot do much for the plight of the refugees from Aceh, from Ambon, etc.   The normal development budget of the government does not even exist much longer, because most foreign aid goes to “social safety net” programs, which have been called development expenditures.   Some kind of a bargaining process is going on between the government, the parliament, and other parties who like to counsel the government, about the size and the timing of the facing out of subsidies.  As a result, the agreed amounts will become insignificant and becomes largely symbolic.  It needs a strong government who can make decisions for the ultimate good of the country, and the present government is still far from such state.

In the end, the hope is that the IMF can function as the “reason and prudence of last resort”.  IMF, through its Letter of Intent (the newest one will be confirmed around January 15, 2000, in deference to the Indonesian parliament) has a decisive influence on major economic policies, such as macro economic balance, restructuring of banks and private sector debts, and on the deregulation of the economy.  This influence is based on financing of the deficit.  For the year 2000 the anticipated deficit is financeable by foreign aid, but the IMF wants to see best efforts to mobilize domestic funds, which is fair enough.

There is still some bargaining between the government and the IMF, about macro-economic policies and financing the budget, about protective duties (e.g, for rice), perhaps also about prudence with respect to big debtors or obligors (penalize them or what?), but because of accumulated experience in dealing with the Asian crisis we do not expect the IMF sticking to a hard line orthodoxy.

The Bank Indonesia as the central bank will also play a crucial role.  Will it defend its newly won independence, enshrined in the new central bank law, which mandates the bank to defend the value of the rupiah, i.e., keep inflation low (target below 5% a year), or one way or other comply with a government in need of large funds to finance the budget?

The economy may need watchdogs and whistle blowers, in case the government steps out of line.