S

tructural reform (SR) is difficult to implement, but it is worth the effort. A study by the APEC Policy Support Unit in 2011 shows that SR is far more important to creating a return to reform efforts than border trade reforms.

Another study by the OECD shows that fiscal consolidation when combined with SR will increase economic growth, reduce gross government debt share of GDP and reduce global imbalances by more than fiscal consolidation alone. SR is also needed because the 2008 Global Financial Crisis (GFC) has reduced potential outputs in many countries around the world.

In Chinese, the word “crisis” consists of two characters: Wei means “danger” and ji means “opportunity” or “critical point”. For Indonesia, the GFC is a “good crisis” because it may learn some lessons from the crisis without having to go through an austerity policy conditionality as in Greece or Portugal. However, “there is a risk in not undertaking reforms as seriously as if we were the ones in crisis, because those who are in great crisis also have great opportunities to reform,” said Mahendra Siregar in his article, “Indonesia’s SR,” printed in The Indonesian Quarterly’s September 2011 issue.

Indonesia itself can testify to the statement from its experience in 1997. The 1997 Asian Financial Crisis (AFC) had brought a great albeit painful reform. Under the IMF Letters of Intent (LoI), the “stick-and-carrot” mechanism worked, although such a reform lacked domestic ownership. Starting in 2004, when the first of a series of Inpres (presidential instructions) was passed to further regulate domestic reforms, from debt management to investment climate, Indonesia’s approach to SR has been a “hybrid approach”, according to Siregar, between international benchmarks and domestic initiatives. However, unlike 1997, there is a lack of discipline because there is “no stick” to push reforms.

What are Indonesia’s national and international commitments to SR? Many have criticized the RPJMN (Medium-term Development Plan) II, 2010-2014, for lacking a clear sense of priorities. Baird and Wihardja, in “Survey of Recent Developments,” published in the Bulletin of Indonesian Economic Studies in August 2010, stated that it was “easily dismissed as excessive rhetoric, with little impact on budget or policy decisions.”

The Master Plan on Acceleration and Expansion of Indonesia Economic Development (MP3EI), regulated under Perpres (presidential regulation) No. 32/2011, comprises major investment projects on infrastructure, connectivity and other economic sectors and sub-sectors with a total worth of Rp 4,000 trillion (US$460 billion) until 2014. There are nine national laws, six government regulations, five presidential regulations/presidential decrees/presidential instructions, nine ministerial regulations and a number of local regulations and permits including the provincial spatial planning to be reviewed, revised, removed, or issued to ensure the success of MP3EI. However, there are many critiques of the MP3EI, including its unrealistic target dates for its pledged regulatory reform and the absence of “green development” strategies.

As an ASEAN member state, Indonesia has a (loosely) binding commitment to the ASEAN Community Blueprint 2015. The blueprint will not achieve its aspirations unless reforms as outlined in the blueprint are internalized into domestic reforms. For example, the ASEAN Economic Community’s (AEC) first pillar has successfully opened up the ASEAN trade borders. However, this needs to be strengthened by tackling behind-the-border issues or non-tariff barriers that account for 90 percent of trade costs by accelerating efforts on trade facilitation, custom integration and standardization.

Indonesia’s commitments to SRs in the development area at the G-20 include accelerating infrastructure development to also strengthen national food security, domestic connectivity, national energy security, water resource management and flood management, issuing Presidential Regulation No. 13/2010, strengthening government guarantees or government finances for infrastructure, creating PT Indonesia Infrastructure Finance and establishing a social safety net program.

Other areas subject to SR are fiscal, financial and macroeconomic sectors. No less important is Indonesia’s co-chairmanship in the Anti-corruption Working Group, which is represented by the Corruption Eradication Commission (KPK).

In November 2011, APEC Leaders will sign an SR pledge under ANSSR (APEC New Strategy for SR).
Indonesia’s approach to drafting the pledge is looking for reforms that are regulated by existing laws to secure political support.

Two reforms are identified. The first reform is bureaucratic reform (BR), regulated in Presidential Regulation No. 81/2010. Despite this regulation, existing old regulations continue to impede its implementation. For example, the civil service regulatory framework based on the National Law No. 8/1974.

The second reform is regulatory reform. Indonesia is plodding behind in its regulatory reform, compared to the international benchmark. Regulatory issuance is often fee- and fiction-based. There are a lot of vertical and horizontal inconsistencies. Moreover, only seven out of 70 proposed bills were issued in 2010.

What are the strategies to turn words into good deeds? First, we need to know our true national priorities. The RPJMN II does not help much because of its lack of a clear sense of priorities (“everything” is not a priority). Second, there must be a national peer review of everything that we have pledged on the international tables. Third, generate results to help progress, track good (and bad) records and get the ball rolling. SR is a long-term (if not a never-ending) process.

Fourth, involve stakeholders and gain domestic support. International assistance must be combined with domestic ownership. Gain regional support such as capacity-building and forums to share experiences, or even establish a support unit policy for independent national policy reviews. Use transparent domestic forums to allow vested interests’ views to be challenged by pro-reform champions to help reformers win domestic political battles.

The writer is a researcher at the Centre for Strategic and International Studies in Jakarta and a lecturer at the University of Indonesia’s School of Economics.