Bribes, poor roads hamper supply-chain management

Friday, April 18, 2008 Vincent Lingga, The Jakarta Post, Jakarta

Commercial deliveries are unpredictable because of conflicting local regulations, illegal payments and crumbling road infrastructure, according to a recent survey of domestic trucking costs by the Asia Foundation and the University of Indonesia's Institute for Economic and Social Research (LPEM-FEUI).

The study, conducted in Sulawesi, East Java, North Sumatra and East Nusa Tenggara, found truck drivers and transportation firms made regular payments to the police, officials at weigh stations and to local thugs at checkpoints along their routes.

Adding to trucking costs are the poor road infrastructure and cumbersome route licensing procedures imposed by regional administrations.

The reasons the roads are in such bad condition include the widespread practice of overloading trucks and inadequate maintenance work. Truck drivers simply bypass weigh stations by paying a noncompliance fee to the local officials.

These problems make the overall vehicle operating costs for trucks US$0.34 per kilometer, as against $0.22 in Vietnam, Thailand, Malaysia and China, the survey concluded.

The findings validated a complaint made earlier by the Food and Beverage Industries Association that hauling cargo from Jakarta to Surabaya required the payment of almost Rp 450,000 in illegal levies to officials at 14 scaling bridges between the two cities.
But it is like an egg and chicken game. Truck drivers claim they have to overload their trucks to be able to cover all the illegal levies they have to pay along the highway.

The findings of the survey show how seemingly hopeless the conditions of our road transportation services are and how incompetent the central government and regional administrations have been in coping with illegal levies on the highway.

Yet more damaging is how ignorant the government has been about the strategic role of efficient road transportation in logistics, as almost 70 percent of the country's cargo is hauled by trucks, and how crucial is superior logistics management to create efficient supply chains.

A 2005 study by LPEM-FEUI of 75 large export-oriented industrial companies at four of Indonesia's largest seaports in Java, Sumatra and Sulawesi concluded that logistics services accounted for an average 14 percent of total production costs, among the highest in Southeast Asia.

This finding confirmed what many businesspeople have long complained about; a high-cost economy that makes the country's exports less competitive in the international market.
The study found the high logistics costs derived mainly from poor infrastructure, illegal levies and arduous bureaucratic procedures.

International studies also have shown that logistics arrangements in Indonesia are still grossly inefficient, as evidenced by the high portion taken by distribution and logistics in the free-on-board prices of goods.

All these problems make Indonesia's logistics capability miserably low and consequently its supply chain grossly inefficient.

This is quite worrisome because efficient logistics -- low transportation costs, short transit times, reliable delivery schedules and careful handling of goods in cold storage chains -- are vital for trade and the smooth distribution of goods.

Globalization requires greatly increased coordination of transportation by road, rail, sea, air and lately also by an entirely new route to market -- the Internet. This makes logistics vastly more complex. The job of ensuring that all these things work together is known as supply chain management.

A study of 150 countries by the World Bank in 2007 concluded that facilitating the capacity to connect firms, suppliers and consumers is crucial in a world where predictability and reliability are becoming even more important than costs.

Being able to connect to global markets is fast becoming a key aspect of a country's capacity to compete, grow, attract investment, create jobs and reduce poverty, the World Bank said.
It is no coincidence that the most competitive economies also rank very high on the Logistics Performance Index drawn on the basis of the study. Most developed countries and Singapore, South Korea, Japan, China, India rank high on the index.

Many companies have reengineered their supply chains to gain a huge competitive advantage. What has made such giant retailers as Wal-Mart and Carrefour highly competitive is their superior logistics management. The market leaders all have supply chains that are more responsive to customer demand.

Things like transportation, purchasing and warehousing, once considered merely part of the cost of doing business and often managed as separate entities, are now seen by most managers as a strategic agenda.

Industrial companies cannot manufacture goods without the inputs they need and in the case of Indonesia most manufacturers still rely on imported materials and parts and components. Hence, if delivery times are expedient and reliable, manufacturers should not hold large inventories of inputs, thereby cutting their inventory costs.

Superior logistics management is the key to making Hong Kong and Singapore efficient shipping hubs for their neighboring countries. Besides their highly efficient port-handling systems, their auxiliary services like customs and freight forwarding are also smooth.

However, an efficient supply chain requires a minimum set of conditions, notably efficient transportation, expedient customs services and production standards to ensure the free flow of goods, services (including labor) and investments.

Without efficient logistics Indonesia will not be able to become part of the global supply chain.

Only credible contingency measures can reassure the market

Monday, April 07, 2008 Vincent Lingga , The Jakarta Post

Finance Minister Sri Mulyani Indrawati told an emergency news conference after an unscheduled limited Cabinet session on the economy chaired by President Susilo Bambang Yudhoyono last Thursday that the Indonesian economy was under control and that escalating inflationary pressures were manageable despite the soaring food prices and fuel subsidies.

In a stronger bid to reassure the market, Sri Mulyani put the government's money where its mouth is, stating the government would buy back in cash its bonds maturing between 2008 and 2013.

However, the market will remain jittery, nervously waiting for concrete, credible measures to maintain fiscal sustainability and check the runaway inflation, which cumulatively reached 3.41 percent during the first quarter alone, as against the 6.5 percent inflation target for the whole year.

Year-on-year inflation in March surged to 8.2 percent, already higher than Bank Indonesia's benchmark short-term interest rate of 8 percent.

No wonder that investors, already skittish due to the global financial turmoil, became more worried over what they perceive as higher sovereign risks of the government.

This is reflected in the increase in the risk premium on Indonesia's international bonds to 300 basis points (over the U.S. Treasury bonds) last month from 130 bp last year.

The government's domestic borrowing costs also have risen, as shown by the increase in the yield on rupiah bonds to more than 12 percent from around 9 percent last year.

This is truly worrisome because the government plans to raise Rp 117.80 trillion (US$12.8 billion) from rupiah and dollar bonds this year to help plug its budget hole.

The miserable failure to get a single bid for its zero-coupon bonds auctioned late last month showed how widely different were the government and market perceptions of fiscal sustainability and economic outlook.

The government claims the economic situation is generally healthy and that the underlying assumptions in the revised budget are not much different from the reality.
However, the market sees things differently.

Market players believe the state budget will not be sustainable as long as it remains helplessly strapped to the nasty roller coaster of increasingly costly oil. How could the government still claim the budget is anchored on prudent fiscal management when fuel, power and food subsidies will take up more than 23 percent of total spending this year?

How could the budget be seen as politically viable when energy subsidies alone will exceed budgetary appropriations for capital investment and social expenditure?

The state budget is a communication system, conveying signals to the market and the people in general about behavior, prices, priorities, intentions and commitments. Budget reforms therefore should take particular account of these characteristics.

Even without so many inimical external factors, the budget system is already adversely affected by multiple, converging uncertainties, entrenched patterns of expenditure, severe inflation and structural imbalances between expectations and resources.

The budget system must be built to cope with these realities.

Unfortunately, most of the contingency measures pronounced by the government focus on austerity and high budget discipline, which sadly have so far been the main weaknesses of the government.

None of the measures is designed to reduce fuel consumption or slash fuel subsidies, thereby leaving the budget a helpless hostage to the wildly volatile international prices.

Another problem is that the fiscal stimulus -- more than US$17 billion in budgetary allocations for capital spending this year -- may again come in fits and starts, ill-timed and beyond the bureaucratic machinery's digestive powers. Last year, for example, almost 60 percent of the budget appropriations for capital expenditures was spent in the last quarter alone.

Without significant progress in budget execution, the economic growth target of 6.4 percent -- as against 6 percent forecast by the ADB and the World Bank and 6.2 percent by Bank Indonesia -- will not likely be achieved because private and government consumption remains one of the main drivers of economic expansion, besides investment and exports.

How the government maintains its prudent fiscal management and implements more concerted efforts to bolster exports and investment to offset the impact of the weakening global economy will determine the government sovereign risks and investors' risk appetite regarding its bonds, which in turn will influence the costs of its borrowing.

Cash is king, money laundering is the game

Tuesday, March 25, 2008, Vincent Lingga, The Jakarta Post, Jakarta

Profit, according to auditors, is an opinion, a matter of definition. You can state profit as gross earnings or net income, after-tax profits or earnings before interest and depreciation, depending on which of your stakeholders you want to impress.
But cash is real, which makes it the king.

So when senior state prosecutor Urip Tri Gunawan allegedly wanted a bonus for a "job well done" he demanded it in cash and in American dollars. Gunawan was arrested by a special team of the Corruption Eradication Commission (KPK) early this month with US$660,000 in $100 bills in a carton in his van as he exited the home of Sjamsul Nursalim, the former controlling owner of the now defunct Bank Dagang Nasional Indonesia (BDNI).

Two days before Gunawan's arrest the Attorney General's Office decided to clear Nursalim of all charges of corruption and other crimes related to the Rp 28.4 trillion ($3.05 billion) in liquidity credits BDNI obtained from Bank Indonesia during the banking crisis in 1998.
Gunawan led the team investigating Nursalim.

Earlier in September, Irawady Joenoes, a member of the Judicial Commission, was arrested by a KPK team at a house in South Jakarta with $30,000 cash in his pocket and Rp 600 million in bank notes stashed in a bag. The South Jakarta District Court ruled last week the money was a commission from businessman Freddy Santoso who had just sold a piece of land worth more than Rp 46 billion to the Judicial Commission.

Joenoes was sentenced by an anti-corruption court last week to eight years imprisonment.
In March, 2007, a joint team of the KPK and the AGO searched the home of Widjanarko Puspoyo, former chairman of the National Logistics Agency (Bulog), who was then facing corruption charges, and found hundreds of millions of rupiah stashed into a big bucket covered with wet laundry in a bathroom.

The South Jakarta District Court sentenced Puspoyo to 10 years in jail in February.
In 2003, after Bank Indonesia's (central bank) board of governors decided to give about Rp 31.50 billion to the House of Representatives to "facilitate" the deliberation of a central bank bill and to fund a public opinion campaign to improve the central bank's image, the money was delivered to House members in rupiah notes.

A senior central bank executive carried the cash in a big suitcase to a room at the Hilton (now the Sultan) Hotel.

Bank Indonesia Governor Burhanuddin Abdullah and two other senior executives of the central bank have been declared corruption suspects in relation to the case.

These are just a few examples of big cash transactions that we know about. Numerous other huge cash deals involving ill-gotten money derived from corruption and other crimes remain unknown or simply ignored by the authorities.

Welcome to the land where big cash transactions are still the rule rather than the exemption and money laundering is the big game in town.

Cash deals are one of the most popular modes of transaction for corruptors and other big criminals because the anonymity of cash limits exposure, does not leave a paper trail and cannot be uncovered by tax officials.

But how can all these huge cash transactions have continued after the enforcement of the 2002 law on money laundering, which restricts big cash withdrawals and scrutinizes other forms of dubious dealings?

Indonesia's anti-money laundering efforts have remained feeble due to a lack of cooperation from the National Police and AGO. Even though the Financial Transaction and Report Analysis Center (PPATK), which in other countries is commonly known as the financial intelligence unit, has reported thousands of suspicious transactions to the National Police, only two or three people have been brought to court on charges of money laundering.

The PPATK has spent almost six frustrating years practically fighting single-handedly against money launderers with little support from law enforcement bodies such as the National Police and Attorney's General Office.

The corrupt mentality within the law enforcement agencies, such as the National Police, rather than inadequate technical competence to investigate complex financial transactions, is mainly to blame for the weak enforcement of the law on money laundering.

Cooperation between law enforcement agencies and financial service companies and other government institutions such as the customs and tax services and the stock market watchdog is vital for effective enforcement of the money laundering law because information sharing is the brain of the anti-money laundering drive.

PPATK chairman Junus Husen came out with a major disclosure in August, 2005, saying there were strong indications of money laundering involving hundreds of billions of rupiah related to the personal accounts of 15 non-commissioned officers and generals of the National Police.
But not a single case has reached the court.

The problem is the PPATK is only authorized to analyze reports on suspicious transactions from financial institutions and to submit money-laundering cases to the police for further investigation and prosecution.

President Susilo Bambang Yudhoyono should act firmly to strengthen cooperation among all law enforcement agencies in the anti-money laundering drive. This campaign is truly an important component in the fight against corruption, tax evasion and numerous other crimes. The crimes covered by the law on money laundering are quite diverse, hitting almost all major sources of dirty money including corruption, drug trafficking, smuggling, bribes, banking crimes and human trafficking.

It is also easier to construct criminal cases through the law on money laundering than the anti-corruption law, because the former legislation puts the burden of proof squarely on those suspected of involvement in suspicious transactions.

Entrepreneurship key to sustainable high growth

Monday, February 25, 2008, Vincent Lingga, The Jakarta Post, Jakarta

Entrepreneurship, hardly a popular subject of scientific study at universities here, was the central theme of Djisman S. Simandjuntak's oration at a ceremony inducting him as professor of economics at the Prasetiya Mulya business school in Jakarta last week.

Djisman cited the acute lack of entrepreneurial firms from 1997 to 2005, when the number of companies decreased by 1.1 percent a year, as one of the main weaknesses of Indonesia's economy.

From 1977 to 1996, the economy grew robustly (over 7 percent annually), and the number of enterprises, small, medium and big, increased by an annual average of 6 percent. But the pace of economic growth fell sharply from 1997 to 2005, along with the financial crisis and the decrease in the number of entrepreneurs.

Studies by the World Bank and various business institutes in Europe and the United States have found a positive correlation between a broad base of entrepreneurship and economic expansion.
Entrepreneurs contribute greatly to producing and commercializing high-quality innovations, spurring productivity growth and enhancing employment creation and dynamics, because creativity and innovation are at the heart of entrepreneurial behavior.

Entrepreneurship is important for the continued dynamism of the modern economy because it is entrepreneurs that are capable of identifying business opportunities and staking out their capital in business start-ups, against all the risks.

Yet many countries like Indonesia erect regulatory barriers that make it extremely difficult to start up a new firm. Costly regulations hamper the creation of new firms, especially in industries that should naturally have high entry rates, and consequently force new entrants to be larger.
Little wonder many SMEs in Indonesia continue operating in the informal sector (underground economy), thereby denying them easy access to low-cost bank financing and other public services and facilities.

The Jakarta city government, instead of creating an enabling environment for micro and small enterprises, has been working hard since early this year to kill the entrepreneurial spirit by evicting sidewalk entrepreneurs.

The Doing Business 2008 report from the World Bank, which rated 178 countries according to their performance in 11 categories for the ease of doing business, ranked Indonesia at 123rd. Among ASEAN countries, our performance was among the worst, better only than the Philippines.

Regulatory and administrative costs obviously hinder entrepreneurial activity, dampen investment and research and development, and stunt firm growth. They can push firms out of business by absorbing too much time and resources.

Even difficult exit conditions that make it costly for firms to wind down, such as lengthy creditor claims on assets or too rigid labor regulations on severance allowances, can discourage business start-ups.

Culture is another important factor for building up an entrepreneurial society, influencing career preferences and shaping attitudes toward risk-taking and reward.
Djisman cited an important role for the government in nurturing entrepreneurship, through formal education and training (including continued education), and fostering entrepreneurial attitudes.

In major developed countries, business schools at major universities also function as incubation centers for small entrepreneurs, where innovations and creative ideas are developed and converted into commercial products.

But in Indonesia most university graduates are acutely short of entrepreneurial qualities. Hence, they look mostly for paid jobs in the private or public sectors.

A recent survey by the Central Statistics Agency found more than 700,000 university and vocational college graduates remained unemployed in 2007, more than double the number in 2006. But the actual number of jobless university graduates could be much larger because many simply do not bother to register with local manpower offices as job seekers.

Entrepreneurship thrives mostly among SMEs. Even in industrialized countries, SMEs still account for more than 85 percent of enterprises and some 65 percent of total employment, according to the secretariat of the Organization of Economic and Cooperation Development.

The role of small businesses cannot be underestimated. Nor can the challenges they face, particularly in a world where markets are globalizing and large-scale enterprises dominate so much of the government's policy making.

Yet, if the government focuses more on SMEs, so much could be achieved and a broader equity could be improved in the owners of economic assets. By encouraging more SMEs to flourish, we can realize other economic and social objectives, such as expanding worker skills and alleviating local pockets of poverty.

There are lies, damned lies and statistics

Wednesday, February 13, 2008 Vincent Lingga, The Jakarta Post, Jakarta

Conferences on corruption or climate change and political party conventions are all headline-generating events. The National Press Day celebrations, like the event in Semarang last Saturday, are spectacular occasions for media coverage.

President Susilo Bambang Yudhoyono, who attended the press gathering, knew its importance, its ability to generate a vast amount of publicity and TV footage.

But statistics? What a boring and dry subject. Hence, most of the mass media simply ignored the national conference on statisticians, which Yudhoyono opened in Jakarta early last week.

It is glad to know that the President, amid his tight schedule, could still spare some time to open the national conference of the Central Statistics Agency (BPS). Yet more encouraging is that he fully realizes and reiterates the importance of reliable and accountable statistics for the policy and decision making processes.

A statistics office, being a government institution, is often suspected of engineering or tampering with figures to satisfy particular parties. During Soeharto's authoritarian rule the BPS was often accused, though never with any strong evidence, by government critics of fixing data or figures to massage the performance records of the government in all fields.

A fitting aphorism commonly attributed to Benjamin Disraeli states: "There are three kinds of lies: lies, damned lies and statistics."

Even now when the BPS has publicly been perceived to be strongly independent, the agency still often comes under attack from critics. More recently, for example, several analysts rejected the government's claim of a significant reduction in poverty figures as being based on flawed data provided by the BPS.

But Yudhoyono rightly reaffirmed the crucial role of the BPS in gathering reliable and accountable data which is needed for policy making, pointing out that complete, reliable data gathered with a credible methodology represented 50 percent of the whole process of policy making.

"I always believe the data collected by the BPS through surveys or censuses even though the data does not bode well for the government," the President said.

Reliable data indeed underlies our knowledge and hence our actions. The point is that the role of statistics goes well beyond the production of figures. It touches upon people's everyday lives.

When a government prepares a new budget, when businesses decide on investments, stock brokers make recommendations to clients, even when families decide which school their children should attend, all their decisions are mostly based on some sort of statistical information which is converted into knowledge and use to inform their decisions or choices.

Even one of our democratic tools, general elections, depends on statistical data on voters and the reliable counting of ballots.

The main challenge for the BPS is maintaining quality data under heavy demands: The process of defining and gathering the statistics, ensuring relevance, veracity and comparability, supplying the right metadata, such as definitions, sources and disseminating and updating, all in a fast-moving technological environment.

We live in a data-rich world in which ordinary people have become familiar with notions like inflation, imports, gross domestic product, or interest rates.

Statisticians do not take decisions but they do an important job as statistics represent a fundamental tool in developing knowledge, which in turn is vital for making evidence-based decisions.

Needless to say the government should always help safeguard the independence of the BPS and give it adequate resources to improve the quality of its surveys or censuses, which in turn determine the reliability and quality of its statistical data.

Without sound data, advice sounds rhetorical, and policy prescriptions ideological.

Many of our problems -- a sudden steep rise in the prices of certain commodities or services or an unexpected shortage of food -- are often caused by policy measures that were based on inaccurate statistical information which in turn caused an incorrect analysis.

The BPS undertakes methodological surveys and research on various aspects of our economic and social life and produces statistical data on a national, provincial, regency basis for use by the government, the people and businesses in making decisions.

Certainly, a number of critics sometimes wonder whether all of the statistical data work is nothing more than statistical overindulgence. We do not rule out the risk of statistical overload and of attaching too much importance to certain figures to create a perception or impression as desired.

While the importance of quality data cannot be overestimated, quite often it is the handling and interpretation of the data by both users and suppliers that causes problems.

One can see a half-empty glass as a half-full glass or the other way around.

But obviously what counts most is to know how to treat numbers and to develop the knowledge we need to act on them. Good decisions depend on good judgment. But there are too many things, the uncertainties of life, that we do not know.

Corrupt governance damages Soeharto's economic legacy

Monday, January 28, 2008 Vincent Lingga The Jakarta Post Jakarta

Only an economic crisis could bring down President Soeharto, a political analyst once commented in the early 1990s when the authoritarian ruler began serving his sixth consecutive term with an ever stronger autocracy.

President Soeharto's regime fell along with the economic collapse in May, 1998. That showed how crucial his economic achievements had been in maintaining his political legitimacy for some 32 years despite a stunted political system.

In March, 1967, Soeharto took over from Sukarno a bankrupt economy ruined by a decade of mismanagement and succeeded in developing it within less than 15 years into one of the economic miracles in East Asia.

The conventional explanation for Soeharto's popularity until his miserable fall in 1998 was that his authoritarian rule delivered growth, stability, security and lifted tens of millions people out of absolute poverty, though at the cost of democracy. That was what he mostly did during at least the first 15 years of what later turned out to be his autocratic rule of 32 years.

Soeharto's forceful reassertion of state power was indeed key to restoring order and stability -- the prerequisites to economic development -- because his rise to power coincided with a state breakdown and economic chaos.

But Soeharto left behind an economy in shambles causing one of the most massive destructions of wealth in modern history and plunging almost 35 million people into dire poverty.
Assisted by a strong economic team of like-minded, U.S-educated professionals under the leadership of Widjojo Nitisastro, Soeharto, immediately after taking over from Sukarno, launched what was then termed the New Order economic management and anchored in basic-needs policy measures.

With the full trust and support of the president, the closely knit team designed and implemented the whole sequence of economic policies -- from the stabilization and rehabilitation in 1967-1969 to the development stage, thereby securing policy coherence and consistency.

Soeharto's New Order regime, as his administration was eventually popularly known, succeeded within one year in controlling inflation which exceeded 600 percent in 1966 and restoring some order in government finances and international trade.

The new government regained the confidence of international creditors under the auspices of a creditor consortium called Inter-governmental Group on Indonesia (IGGI) which was later changed into Consultative Group on Indonesia and reintegrated the country into the global economy.

Encouraged by the foreign investment law that was enacted in 1967, foreign capital and technology began flowing in to the country, tapping its rich natural resources, notably oil and gas and other minerals as well as forests and fisheries and import-substitution manufacturing industry.

Luck was on also Soeharto's side. The quadrupling of the international oil prices set off by the political instability in the Middle East in 1973 pumped windfall profits into the state coffers.
With the influx of foreign investment, combined with a surge in oil revenues, steadily increasing foreign development assistance from IGGI donors and, yet more importantly, prudent economic management, the government accelerated infrastructure development and bolstered the pace of economic growth.

With the state coffers flush from the oil windfall and foreign aid and investment pouring in, the government built more roads, dams, power generation, telecommunication and transport infrastructure.

Being himself the son of a farmer and familiar with abject poverty in the rural areas, Soeharto put agriculture and rural development on top of his policies right from the outset when his first five-year development plan was launched in 1969.

He allocated a great portion of the state budget for building irrigation networks, the provision of agricultural extension services and fertilizers, pesticides and the development of high-yield rice strains.

He was honored by the United Nations Food and Agriculture Organization in Rome in 1985 for his outstanding achievements in making largely populous Indonesia self-sufficient in rice supply.
Soeharto poured a similarly huge investment into the development of education by building more schools, into health by building more rural health service centers and promoted family planning to control population growth.

This strategy -- basic-needs economic programs with emphasis on agriculture and rural development anchored by prudent fiscal and monetary management -- generated an annual average economic growth of more than 7 percent from 1968-1980. Growth declined to about 5 percent a year from 1981-1988 due to falling oil prices and a weakening global economy but rose again to an annual average of almost 7 percent between 1989 and 1996.

The broad-based growth lifted tens of millions of people out of dire poverty.
However, Soeharto's economic management began to suffer from market-distortion policies in the mid-1980s as his six children who entered the business world demanded monopolies in various sectors. Assisted by Soeharto's business cronies (mostly Chinese Indonesians), the Soeharto extended family and his relatives built up an economic empire at the cost of prudent economic management.

Corruption, collusion (between Soeharto and his business cronies) and nepotism increasingly seeped into Soeharto's administration as he became even more authoritarian and increasingly depended on a patrimonial power structure.

His economic management further suffered from more bad policies in the early 1990s after Soeharto diluted the role and influence of U.S.-trained technocrats, who quietly showed their uneasiness with the ever-expanding rent-seeking activities of his children and relatives.
He replaced the technocrats with nationalists and technologists led by B.J. Habibie, then notoriously as a big-spending minister behind several high-tech yet commercially unfeasible projects.

The corruption became a brake on growth and a drain on Soeharto's legitimacy.
Yet, the economy was still able to continue growing amid all the bad governance practices due to the steady flow of foreign soft loans from sovereign and multilateral creditors and foreign direct investment and favorable global economic conditions.

However, as the East Asian economic crisis -- which began in Thailand in July, 1997 and spread to Indonesia later in the same year -- panicked foreign investors and creditors rushed to pull out their money. This capital flight bared all the weaknesses of the economy, triggering first the melting of the rupiah and then the collapse of the financial system, causing an unprecedented destruction of wealth.

So fragile had been the foundations of the economy left behind by Soeharto that growth deteriorated to a contraction of almost 14 percent in 1998 and the rupiah exchange rate plunged to as low as Rp 10,000 to the dollar from Rp 4,000 in late 1997.

More than 25 years of steady growth generated new challenges in income inequality and weak institutions and a basic need for democratic system of checks and balances.

However, pressures from his greedy family members and relatives and business cronies and his patrimonial system made Soeharto blind to these new concerns and eventually caused his downfall, leaving behind a soup of a broad-based economy floating on a corrupt bureaucratic system as his legacy.

Obituary: Sadli among New Order's architects

Friday, January 11, 2008 Vincent Lingga, The Jakarta Post

Modesty was the foremost impression of many who met the professor Mohamad Sadli -- despite his role among the nation's decision makers and his wealth of knowledge.
Born in Sumedang, West Java on Jan 10, 1922, he died at the Cikini General Hospital in Central Jakarta late Tuesday at an age of 85.

Perhaps the most outstanding member of, and spokesman for, the so-called Berkeley Mafia -- the selected group of Indonesian economic scholars educated at the University of California, Sadli was one of the few technocrats who always spoke their mind even under Soeharto's authoritarian rule.

He is survived by his wife Prof. Saparinah Sadli, whom he married in 1954. Former leader of the national women's human rights body, like her husband she was also a professor at the University of Indonesia.

Sadli and his economist colleagues, including Widjojo Nitisastro, Emil Salim, Ali Wardhana and J.B. Sumarlin played a key role in fashioning Indonesia's economic development for more than three decades until the mid-1990s.

Sadli contributed to his nation, more than any other, through his decades at the university and government. He continued contributing to public policy debates long after he left both institutions, through newspaper articles and comments he regularly made until the last few months of his life.

Indeed, few have written more economic and socio-political analyses or have given so generously of their time and energy toward the interests of their nation.

As chairman of the Technical Committee for Capital Investment, the embryo of what is now known as the Capital Investment Coordinating Board, in 1967-1973 Sadli was responsible for promoting foreign direct investment immediately after the enactment of the 1967 foreign investment law (recently replaced by the new investment law).

His impeccable integrity and high ability to candidly and honestly explain the full perspective of Indonesian economic prospects and challenges and its social and political problems has been widely regarded as responsible for regaining foreign investor interest in Indonesia soon after the anti-Western campaign by the then president Sukarno in the mid-1960s.

He simultaneously held another important portfolio as the minister in charge of manpower development in 1971-1973, before being appointed the minister for mining in 1973-1978, after which he had remained outside the government. He continued making his great contribution to the national economy through his lectures and analyses in various newspapers and periodicals.

Different from most of his economist colleagues, Sadli was an engineer, graduating from the School of Engineering at the Gadjah Mada University in Yogyakarta in 1952, before he pursued his graduate economic and engineering studies at the Massachusetts Institute of Technology in 1954-1956 and post graduate economic studies at the University of California in Berkeley. He went on to gain a PhD in economics at the Jakarta School of Economics, University of Indonesia, in Depok in 1957.

It was his engineering background that perhaps enabled Sadli to consistently come up with straight, direct-to-the point answers to almost any economic issues, unlike most other economists who tend to ramble with long explanations and without much substance.

While a champion of the market economy as the most efficient mechanism for resource allocation for the benefit of the people, Sadli recognized the constantly competing camps of market efficiency and social justice, comprehending the inter-linked nature of economics and politics.

For more than four decades until 2006, he still wrote regularly for Kompas and Tempo and Business News bulletin and became perhaps the most widely-quoted analyst, because he made himself available to journalists with his valuable commentaries on economic and political issues.

Sadli was one of the technocrats who saw the great importance of developing adequate capabilities for industrial associations to hold policy dialogs with the government on an equal footing.

On an invitation, he became the secretary general at the Indonesian Chamber of Commerce and Industry in the early 1980s. There he remained for almost 10 years, acting as the chief of the chamber's policy think-tank (research department) which, from time to time, made policy recommendations and came out with sharp analyses of government policies and state budgets.

Rest in peace Pak Sadli.