The benefit of the doubt

The Jakarta Post ,  Jakarta   |  Thu, 03/09/2006 7:37 AM  |  Opinion

He didn't say it in so many words but chief economics minister Boediono, at his first meeting with members of the Editors Club Monday evening, asked the public-opinion makers to give his three-month old economic team the benefit of the doubt and appealed against being too hastily pessimistic about his economic management.

Even though the rupiah did appreciate 8 percent against the American dollar between December and February due mainly to the inflow of foreign portfolio (short-term) money in the wake of a rising confidence in the government, Boediono has no significant achievements to boast of as yet.

In fact the business community and most analysts gave a lukewarm reception to his latest reform package, launched last week, covering business licensing, regulatory reform, tax, customs and labor reform and the empowerment of cooperatives, small and medium enterprises. That is the second comprehensive set of reform measures introduced after his joining President Susilo Bambang Yudhoyono's Cabinet early last December. The first, launched last month, lists 153 policy measures in the development of infrastructure, scheduled to be completed this year.

Investors, having already heard so many policy pronouncements and having seen so many measures failing to materialize, tend to wait and see how these measures will really be implemented in the field and whether the new economic team really has a sense of urgency.

Boediono is fully aware he is racing against time to meet the expectations of the market, which is getting impatient with the mediocre economic performance of the first directly elected president now already 16 months in office.

But to be fair to Boediono and his economic team, three months are indeed too short a time for us to make a performance appraisal. And judging from his comprehension of the challenges he is encountering, the reform policies he said he would pursue and the institutional capacity he will build to execute all those measures, we are willing to give him the benefit of the doubt. But on one condition: That if necessary he shall call a spade a spade before the President, who is still often too inordinately obsessed with the political risks of economic measures, however rational and urgent they may be.

We rest assured by Boediono's realization that the fundamental asset of his economic team is the public trust in its integrity. Building upon this asset will make it much easier for the economic team to sell its policy reforms to the market and to gain national political consensus at the House of Representatives.

Experience indeed has shown that the lack of business trust in the government is causing many problems in policy making and implementation. Even in business transactions commercial laws and contracts, though necessary to make the market economy function properly, are not sufficient and should be supplemented by trust to make the whole process highly efficient.

The presence of trust as an additional condition to relations can increase economic efficiency by reducing the costs of transactions as there is less need to draw up lengthy contracts, less need to hedge against unexpected contingencies, less need to litigate in case of dispute.

Boediono rightly chose macroeconomic stability, reform measures, successful completion of high-profile projects and lower costs of finance for cooperatives, small and medium-scale enterprises, including micro-finance development, as the main pillars of his economic management.

True, macroeconomic stability is not everything, but without a minimum level of macroeconomic stability nothing else in the economy will happen because businesses will find it almost impossible to make reasonable risk calculations.

His economic team truly needs to provide confidence-building blocks for its policy implementation capability and this can be realized only through the successful completion of high profile projects such as the development of the Cepu oil block in East Java, which is still being hindered by the unnecessary dispute between Pertamina and ExxonMobil.

Boediono also rightly includes smooth implementation of the 91 major infrastructure projects, which have been on offer to private investors since January, 2005, as a showcase for confidence building.

Infrastructure deficit has indeed become one of the biggest hurdles to investments in Indonesia. Poor infrastructure impairs the competitiveness of the economy as production and distribution costs are made much higher than those in other countries. Inadequate infrastructure such as poor roads also hinders access to public services such as health, education and market facilities, thereby hampering poverty alleviation.

Also encouraging is Boediono's assertion that the National Team for Export and Investment Promotion, which is directly chaired by the President and managed by the chief economics minister, will soon be reorganized and empowered to make it a truly operational center for economic decision making and policy oversight.

This inter-ministerial team could become a much-needed business solution center that brings the country's political leadership face to face with representatives of the main economic agents, all bent on translating political resolve into real action by the bureaucracy and the business community.

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