Amid the byzantine twists and turns of the recent legal cum political cases, one must not forget that money continues to circulate and people still turn up for work.
In short, the economy continues. And we are at a cusp of economic policy after the global economic crisis.
In this country, following the election, we are now ready to work. For this we need three things: the policy, the initiative and the team.
Urgent economic policies need to be made now, if we are to take advantage of the global economic recovery. Standing still in a changed global financial landscape risks Indonesia becoming a backwater quite soon.
The policy itself must be coherent, comprehensive and credible. Initiative is equally important to take advantage of the momentum.
Once lost, regaining momentum can be very difficult or even impossible. And most important is a credible, strong and clear-headed team to formulate and implement the strategy in a timely fashion.
The team may be more important than any given policy as the landscape keeps on changing. Alas, we are now in danger of losing all three.
Do not forget that a semblance of order in economic policy making only started about seven years ago under the leadership of Boediono in the Megawati administration. His elevation to the vice presidency underscores the impression that economic policy takes priority.
This is the natural reaction given that in the first Yudhoyono administration economic policy started to become more rational.
Especially after the reshuffle in 2005 when Boediono became the economic policy czar and Sri Mulyani took the finance portfolio.
Sri Mulyani not only brought credibility, clear direction and strong leadership, but also transparency and accountability into the fiscal sphere.
More than that she also started the important and wide-sweeping organizational changes which often times were challenged by entrenched interests.
These reforms were in such important areas as debt management, the capital market, tax and customs. Her bureaucratic reform measures are now a model other ministries should follow.
In four short years economic policy has now been steered to a much better and sustainable platform.
But a lot more needs to be done.
An economic system which was shattered in the crisis of the late 1990s cannot be completely overhauled in just four short years.
And unfortunately in Indonesia, like in many developing countries, a modern, predictable, transparent economic policy regime was never there and is not yet in place.
Who the leader is, in many cases, matters more than what the regulations are.
This is either because a better policy framework is still being developed or simply that the existing one still affords the policy maker too much discretion.
In this regard we are lucky that currently the economic managers are credible and well-known to be so.
Hence the market, both domestic and foreign, looks favorably toward Indonesia.
The capability of the present economic managers was proved last year when Indonesia escaped the global crisis unscathed.
It is true that a confluence of factors were responsible for this, including that we did not rely too much on exports and foreign borrowing. Neither were we exposed to the international structured product market.
But we could have done much worse during the period when the stock market and the currency were under pressure and the banking system was under pressure.
Things turned out to be much less severe than once thought. But remember that in the financial world, perception is everything.
In 1997, the structure that was thought to be strong melted mainly on account of perception. It was only the credibility of the economic managers along with short-term confidence-building measures which helped us avoid the brunt of the crisis and enabled a quick turnaround.
Foreign investors are closely watching the outcome of the battle taking place.
And the stakes are large. A few large foreign investors recently told me that the major risk in Indonesia – appearing out of nowhere – is now political.
With the smooth elections, and the strong mandate the President garnered, political risk was furthest from our mind.
Investors were really looking forward to a better economic policy framework and implementation going forward.
The challenges are well-known: infrastructure, clean government, quick investment procedures, faster fiscal spending, and a more rational labor market policy.
But if we now throw in political risk, the mix immediately becomes volatile. The problem with political risk, especially the kind that we are entangled in, is that there is no easy way to predict the outcome.
Do not forget that economic policy credibility was one keystone in the President’s campaign platform. It is also an important part of Indonesia’s voice abroad.
A nation’s international strength emanates from how strong is the government domestically.
If such an important component of the government’s credibility can be called into question and then discarded so easily, one can question if the government itself is as strong or coherent as it claims.
The investors I talk to warn that losing this economic team would result in a sharp decline in confidence. This will result in a sudden investment pullback both in the stock and the government bond markets.
It is arguable that once this economic team is replaced with equally credible personnel, investors, being greedy as always, will return if their risk-return calculation warrants.
But do not forget that this calculation itself will be compromised by the dismissal of the present team.
The next question is: How long will the next team last?
Remember that investors, once burned, will take a long time to forget. In this regard, I hasten to remind of the examples of Thailand and the Philippines.
Easily abandoning a credible team entails another risk. It has to do with the kind of signal the national leadership sends.
It says that your job is not secure. A strong political wind can easily sweep you aside no matter how well you do your job. In the end this will disincentivize good people to take up policy-making work.
And for those left in the policy-making apparatus, the signal is clear: Do not stir the waters too much.
At the same time it will invite risk-takers who think they can benefit unduly while in office, and have the political wherewithal to withstand the wind at the top.
And at what cost to the government’s overall economic policy-making credibility?
From a cost and benefit perspective, both in the short and the long term, one must be very careful in risking credibility.
This government, which claims to have the benefit of the people as its highest priority must think carefully about letting its credible economic team be sacrificed on the altar of politics.
It not only sends the wrong signal to investors. More importantly, it gives the worse kind of signal to those who want to improve policy making.
Discarding a credible economic team risks a severe economic fallout. And reversing it will take significant effort and time. If at all possible.
The writer is a lecturer at the Faculty of Economics, University of Indonesia. This is a personal opinion.
