The week in review: Jokowi and childish lawmakers

What a striking difference between the executive and legislative branches of the government. On one side, the House of Representatives has been wasting taxpayers’ money on protracted squabbles less than one month after its installation, with the coalition of opposition parties continuing to pursue the politics of vengeance for the losing presidendial candidate Prabowo Subianto.

Prabowo’s coalition of opposition parties and President Joko “Jokowi” Widodo’s supporting coalition remained deadlocked in a fight for the leadership positions of the working commissions at the House. On the other side, President Jokowi and his Working Cabinet immediately set themselves to work hard at fulfilling the needs of the people.

Vincent Lingga- The Jakarta Post | Editorial | Sun, November 09 2014, 12:49 PM

Early this week, Jokowi launched a newly-designed social assistance program to protect the most vulnerable groups of people from the inflationary impact of a series of painful reforms the government will soon launch to prevent the public sector from going into bankruptcy and to lay a stronger foundation for the economy. The social assistance program has been designed to shift the fuel subsidy from consumptive to productive use and at the same time to promote financial inclusion by using mobile-banking mechanisms to deliver compensation funds for almost 16 million poor households.

The concept is to move away from the commodity-based subsidy to a better targeted people-based subsidy focusing on the needs of poor farmers and fishermen.

Simply lowering the fuel-price subsidy by 40 percent would save billions of dollars that could be allocated for the expanded social protection programs and badly-needed infrastructure development.

Reform is usually difficult during good times when economic growth is robust and the financial market is optimistic because the government and politicians become complacent. This was the situation in Indonesia between 2010 and early 2013 when structural reforms virtually stalled.

But the economic conditions inherited by the government of Jokowi, although not critical yet, are already quite bad, with the state budget and current account being threatened by widening deficits caused by rising oil imports and weak commodity exports. 

Hence it is a good time now to bite the bullet and launch the long-delayed reforms. This is the momentum that the Jokowi government seized by launching the newly-designed social assistance programs to cushion the most vulnerable segments of the people from the short-term pains likely to be inflicted by the upcoming fuel-price increase. 

Earlier last week, only one day after installing his Cabinet, Jokowi launched a national campaign of bureaucratic reform initially focusing on the streamlining of business and investment licensing. He made an impromptu inspection of the Investment Coordinating Board (BKPM) to proclaim his commitment to making things quite easy for doing business in Indonesia.

Earlier this week, the President gathered all provincial governors in a joint working conference with the Cabinet, discussing the vital importance of private investment in reinvigorating the economy in view of the severely limited fiscal capacity.

Jokowi urged the governors to woo investment by establishing one-stop service centers for investment licensing and gave them one year to complete the reform, or face penalties in the form of smaller fund-transfers from the central government.

In the meantime, Coordinating Maritime Affairs Minister Indroyono Soesilo announced on Wednesday that the government would soon grant visa-free entrances for visitors from Australia, China, Japan, Russia and South Korea to woo more tourists to Indonesia. The government also is fine-tuning a government regulation to expedite the licensing process for yachts and international cruise ships to Indonesia to one or two days, also to attract more tourists to spend their money on boosting the Indonesian economy.

Likewise, Indroyono added, he is also reviewing the arduous licensing process in the fishing industry to enhance the role of Indonesian companies in the marine-resource industry and at the same time prevent illegal foreign poaching of the fishery resources. These programs will bolster tax and non-tax (license fees) revenues for the government for reinvestment in human resource and physical infrastructure development.

More funds for the provision of the people’s basic needs will be available immediately after the government launches its fuel-energy reform within the next two weeks. 

While we feel encouraged at seeing the high pace of the government program, it is quite discouraging to see how the process of selecting the leaders of the House and its commissions has led to a bitter division in the legislature into two seemingly irreconcilable camps. 

We had expected high-quality debates on government policy in the House after the opposition parties repeatedly affirmed their intention to play the role of an effective check-and-balance mechanism. 

What we instead observed is a misguided political fight between the party elites to maintain their privileged positions at the expense of the common people’s interests. The coalition of opposition parties seemed intent only to harass the Jokowi government. We are flabbergasted to see how the six parties within the opposition coalition have allowed themselves to be used for the egotistical agenda of their leaders.

Fortunately, though, the common people seem indifferent or simply cynical about the childish squabbles in the House. There is no similar sentiment at the grassroots level. The current conflict in the legislature has much to do with the immaturity of the leaders of the opposition parties.

View Point: Jailing ex-BI governors and deputy governors

Even though over the past 10 years, eight former Bank Indonesia (BI) governors and deputy governors have been jailed for corruption or other forms of wrongdoing, I beg to disagree with the Jakarta Corruption Court’s panel of judges which decided on Wednesday that the November 2008 bailout of Bank Century (renamed Bank Mutiara) was made in bad faith and motivated by corruption.

Former BI deputy governor Budi Mulya did deserve severe punishment for his unethical borrowing of Rp 1 billion (US$86,095) from Robert Tantular, the former owner of Bank Century. 

Even though the loan was personal and had been repaid, it was still a serious conflict of interest because, at the time, BI (the central bank) was still the supervisor of the banking industry.

But deciding that the $670 million bailout policy was made in bad faith and motivated by corruption would cause long-term damage to the government’s policy and decision-making capability, destroying the capacity and morale of policymakers, especially at the central bank and Finance Ministry.

If politicians could dispute or even attack a policy judgment made in good faith and in compliance with proper procedures, senior officials would not have the courage to take any economic or financial decisions, however urgent or imperative they may be.

The 3,700-page indictment of the prosecutors failed to reveal and prove who the main beneficiaries of the bailout measure were, as they could not find a single cent of the bailout funds flowing to then finance minister Sri Mulyani Indrawati (now a managing director at the Washington-based World Bank) and then BI governor Boediono (now Indonesia’s vice president).

If corruption was the motive, the big question then is who was so powerful that they were able to pressure Sri Mulyani and Boediono, both well known for their impeccable integrity and long careers within government, to abuse their authority in such an important, high-profile policy decision.

The court decision would only satisfy the ill-advised and corruption-infested House of Representatives that in March 2010 decided to order the government to conduct criminal investigations into the bailout process.

The main bone of contention with the House on which prosecutors built their indictment was that Bank Century was not qualified for BI emergency liquidity credit and was not a systemically important bank, thereby not entitled to be bailed out by the Deposit Insurance Corporation (LPS).

The Financial Sector Policy Committee (KKSK), chaired by Sri Mulyani and including the BI governor and deputy governors, argued that the financial system in late 2008 was so fragile due to the fallout from the 
global financial crisis that began in New York, that allowing even a small bank such as Bank Century to fail at that time would have a domino effect on dozens of other similar-sized banks.

The financial crisis in the last quarter of 2008 was certainly not as severe as that in 1998 but the financial market was indeed in deep distress, as shown by the following developments:

The government decided on Oct. 12, 2008 to increase the ceiling amount of bank deposits covered by the LPS by 20 times, from 
Rp 100 million to Rp 2 billion, to prevent capital flight as neighboring countries such as Singapore and Australia implemented a blanket guarantee on deposits. 

The government issued a regulation in lieu of law on the establishment of the framework of a financial safety net that authorized the finance minister to lead the management of a financial crisis, indicating emergency conditions. 

The rupiah melted from Rp 9,500 to the dollar to Rp 12,500, capital outflows reached $9 billion, more than 20 mid-sized banks suffered severe liquidity problems while the interbank market dried up. 

Even the largest state banks in the country begged a liquidity injection of Rp 15 trillion from BI. Share prices collapsed and the stock exchange was closed for a few days in early October, 2008.

Given the critical condition, it was within the full authority of the BI board of governors and KKSK, based on the law on the financial safety net framework, to take such a contingency measure as changing the threshold for Bank Century to make it qualified for BI emergency liquidity credit, to prevent a full crisis. 

After the bailout of Bank Century, Indonesia did escape the global crisis unscathed and the economy began to recover strongly in 2009 and expanded by around 6 percent a year until 2012.

However, Boediono and Sri Mulyani’s defense of the Bank Century rescue was made very weak after the discovery of the massive cost overruns of the actual bailout, the questionable massive withdrawal of deposits a few days before and after the bailout, as well as the discovery of banking crimes by the bank’s owners and management.

The situation became murkier after vested-interest groups at the House jumped in and exploited the bailout issue to hold the Susilo Bambang Yudhoyono government hostage. 

But there is a caveat of debating now, that the situation has returned to normal and stable, as to whether Bank Century did pose a systemic risk to the banking industry. It is simply impossible now to reconstruct precisely the psychological condition of the policymakers and the national and international financial situation prevailing in November 2008. 

Any decision involves a choice from a number of alternatives. Decisions can be a choice of complex admixtures of facts and values especially in a critical situation.

The consequence of the court’s verdict on Mulya is that as the bailout was based on a collective decision of the BI board of governors and KKSK, all executive members — including Sri Mulyani and the seven members of the then BI board of governors — should also be brought to court.

In another twist that could also rock the stability of the financial system, Muliaman Hadad, chairman of the Financial Services Authority, currently the sole supervisor of the whole financial services industry, was a member of the BI board of governors in 2008.

The writer is a senior editor at The Jakarta Post.

Vincent Lingga, The Jakarta Post, Jakarta | Opinion | Sun, July 20 2014, 11:50 AM

The week in review: Grim economy clouds campaign

More bad economic news has clouded the campaign for the July 9 presidential election, two weeks before the campaign period ends. 

That is not because of the shocking statement by presidential candidate Prabowo Subianto last Sunday that the state had lost Rp 7.2 quadrillion due to corruption and inefficiency. 

Almost all analysts, ministers and former ministers immediately rejected Prabowo’s figures as simply groundless, irrational and completely wrong even though he claimed that the number originated from an official statement by Corruption Eradication Commission (KPK) chairman Abraham Samad.

Samad himself denied Prabowo’s statement, asserting that the presidential candidate grossly misquoted him out of context and not from the right perspective.

Prabowo highlighted the huge state losses during a televised debate between him and rival Joko “Jokowi” Widodo on Sunday night, which focused on economic issues. Prabowo said it would be quite easy for him, if elected president, to implement all the grand development programs he had promised because he would simply focus on slashing state budget losses to secure more funds.

But then again, even though the alleged state losses were not as huge as Prabowo asserted in his campaign rhetoric, many things seemed to worsen in the economic sector, especially in the monetary and fiscal outlook.

The latest data shows that Indonesia’s debt service ratio (against export revenues) increased to 46.3 percent in the first quarter from 36.8 percent in the same period last year, much higher than the 30 percent deemed the maximum for a safe level.

Meanwhile, selling pressure pushed down the rupiah exchange rate to as low as Rp 12,027 per US dollar at one time on Wednesday, amid concerns over the country’s trade balance and current-account deficit due to the sharp upward trend in international oil prices caused by escalating tension in Iraq. 

Concerns have also been growing over the significant increase in the private sector’s foreign debts as a default could adversely affect the financial sector’s stability. Bank Indonesia (BI) data as of Tuesday revealed that the private sector’s foreign debts rose by almost 13 percent year-on-year to $145.63 billion as of April.

Even though the latest private sector debt position is not yet dangerous, BI will soon issue new regulations to check foreign borrowing by the private sector. According to the central bank, non-bank companies accounted for 82 percent of the total private sector’s foreign debts. National enterprises accounted for $38.05 billion and Indonesia-foreign joint ventures for $42.76 billion. 

Further bad news from the fiscal sector should worry the new government that will take over in October after the government and House of Representatives agreed on Wednesday to carry over Rp 50 trillion in energy subsidies this year to the 2015 state budget.

The government-House agreement on passing over the fiscal burden to the new government was reached at a plenary session that approved amendments to the 2014 state budget, made necessary by the lower economic growth estimate and consequently smaller tax revenues.

The energy (fuel, gas and electricity) subsidies for the current fiscal year are estimated to increase by 24 percent to 

Rp 350.3 trillion due to rising oil prices, higher consumption and rupiah depreciation. But Rp 50 trillion of this subsidy will be carried over to the next state budget.

The rupiah rate heavily influences the costs of fuel because Indonesia now depends on imports for almost 60 percent of its demand of about 1.5 million barrels a day.

The amended budget for 2014 cut down spending by Rp 43 trillion, derived mostly from capital expenditures. Despite this cut, total spending will still increase from the Rp 1.842 quadrillion set in the original budget to Rp 1.876 quadrillion or 2.4 percent of gross domestic product (GDP) due to the 24 percent rise in energy subsidies.

The budget amendments also slightly changed macro assumptions for the current year, with gross domestic growth set at 5.5 percent, inflation at 5.3 percent, the average rupiah rate at Rp 11,600 to the dollar, the short-term interest rate at 6 percent and the average oil price at $105/barrel.

Finance Minister Chatib Basri therefore warned that whoever won the upcoming presidential election would not have many policy options, unless he slashed energy subsidies.

*****

In a shocking revelation of more details on the dismissal of Prabowo Subianto from the military in 1998, former military commander Wiranto asserted Thursday that Prabowo had been discharged for ordering the abduction of pro-democracy activists between late 1997 and March 1998.

The confirmation could scupper Prabowo’s presidential hopes as many did not question the credibility of the information even though Wiranto is a member of the campaign team for Prabowo’s rival, Joko “Jokowi” Widodo.

Wiranto, who was Prabowo’s superior at that time, said military leaders had not ordered the abductions, emphasizing that the abductions were an initiative taken by officers under the command of Prabowo, then head of the Army’s Strategic Reserve commander (Pangkostrad).

Prabowo’s supporters have long tried to play down his dismissal from the military, calling it a past incident that has no bearing on his suitability as a presidential candidate.

— Vincent Lingga

The Jakarta Post | Editorial | Sun, June 22 2014, 11:40 AM