The government needs to reassess how it formulates, coordinates and socializes government policy. The end result is not only public confusion, which weakens policy effectiveness, but more damaging, it diminishes government credibility.

Early in the year, it was ACFTA (the ASEAN-China Free Trade Area) that the business community objected to.

This in itself is not unusual, but not after the agreement was signed and was to become effective. Then, more recently, it was the PLN (state electricity company) tariff hike, which the Coordinating Economic minister, a day later, publicly told PLN to recalculate and cut the tariff. The ultimate compromise was an 18 percent maximum tariff hike.

Coordination was an issue with some ministries not towing the line on some issues. Internal debate is healthy, but once a decision is made, there should be one voice.

Now, it is Bank Indonesia's rupiah's redenomination plan that has raised fears of devaluation and subsequent inflation, leading to a temporary move into US dollars.

The next day, central bank governor Darmin Nasution quickly addressed public concerns and explained that the redenomination exercise was still a plan and would take several years to take effect. This helped ease market concerns, but not after the Indonesia Composite Index dropped 3 percent in one day from 3,097 to 2,974.

But what is currency redenomination? Darmin assured the public that it is simply changing the currency denomination by cutting three zeros from our currency notes and coins and is not meant to alter the value of the currency.

The exercise makes sense, especially in our increasingly digital world, where having more digits in your currency makes processing in large rupiah denominations more costly and inconvenient.

There is also a positive psychological impact, where having Rp 9 equals US$1, gives a perception of a stronger rupiah and more incentive to keep inflation low.

But there is a negative side as well, if the transition process is not managed well.

When one is used to large denominations, a Rp 50 change, under a new denomination where the three zeros are deleted, sounds deceptively small, but it actually is Rp 50,000 under the current system.

The concern is that price or salary changes could spiral up more than need be. There are also bad memories of past redenomination, which Darmin addressed. He took pains to distinguish between the redenomination done during the end of president Sukarno's era in 1965 and the current situation.

Forty-five years ago the rupiah redenomination was done as a result of hyper-inflation that added too much zeros to the currency and made it worthless, so the government had to revert to redenomination by eliminating several zeros from the rupiah.

Now, inflation is at single digits and even with inflationary pressures from food prices with Ramadan coming and the hike in electricity tariffs, most feel it would remain in the single digit zone.

The central bank governor further explained that the redenomination plan was projected to be socialized next year. Then the new denomination would be introduced, but used in parallel with the current denomination.

So, both would be used with a rate of 1,000 current denomination to 1 new denomination. This adjustment period will take about two years before the current denomination would be gradually removed from the market.

The draft of this plan has yet to be presented and reviewed by the government and then it would be submitted to parliament for review and ratification.

The government's plan looks familiar to Turkey's redenomination exercise back in 2005.

In Turkey's case, the new Turkish lira (TRL) coexisted in the market place with the old Turkish lira (TRY) for several years. The statutory exchange rate of TRL to TRY was fixed at 1,000,000 to 1. It was only in 2009, that the old Turkish lira was removed from the market.

Redenomination is not without cost. Changes need to be made in price list from catalogs to restaurant menus, then currency amounts in laws and regulations, accounting statements and computer software all have to be adjusted accordingly.

Going forward, it is crucial that the government improves its policy formulation processes and the way it prepares the public and the market before introducing them. Engaging the public doesn't come naturally to a government with a strong authoritarian past.

In those days, policy announcements and the few policy discussions were largely one-way in direction (top down), followed by limited response and queries.

Understandably, old habits die hard, but in a more open environment, the failure of socializing policy can politically be very costly.

The need to improve might come sooner than expected. With the strong economic performance, domestic gasoline consumption has grown larger than expected.

So much so, that the resulting gasoline subsidy in the government budget is rising to uncomfortable levels.

The decision to raise prices would still depend on the world oil price moving up more than 10 percent above the $80 per barrel assumption used in the government's budget.

However, the government is considering some sort of rationing on gasoline consumption to reduce the demand pressures. The latter option has raised concerns, given the difficulty of implementing administrative measures, even with an efficient bureaucracy.

Unfortunately, socializing is the relatively easy part of policy. Implementation is much harder and given our weak infrastructure, both soft and hard, it will be quite an uphill track.

We don't expect miracles, but let's hope the government better appreciates the importance of selling, as opposed to instructing, its policies, so the uphill climb, at the execution phase, will be less tortuous.

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