Sunday, November 29, 2009

the first hundred days of Yudhoyono’s administration

As it is published in "Hey Diaspora!"

"Government of the people, by the people, for the people, shall not perish from the Earth."
– Abraham Lincoln

First Hundred Days, a tradition that dated back to the administration of Franklin D. Roosevelt during the period of New Deal in the United States, has been adopted by Indonesian presidents since the administration of Megawati Sukarnoputri in 1999. Many have criticized the effectiveness of this first hundred days program, yet it remains a good parameter to understand the direction of the government.

President Yudhoyono has set 45 programs to be implemented by his cabinet in the first hundred days in office including 15 priority programs:  judicial mafia eradication, strategic industries revitalization, terrorism prevention, adequate electricity supply, food security, sugar and fertilizer industry revitalization, infrastructures improvement, spatial planning restructuring, improvement of credit scheme policy for small and medium-enterprises, better budget management, climate and environmental change prevention, health reform, education reform, good disaster management, and synchronization of relations between central and local administrations.

Dr. Boediono, in an invited public lecture hosted by Rajaratnam School of International Studies (RSIS) a few months ago, stressed out that the main goal of this new government is “to meet the expectation of all people, obtain equitable prosperity for all, and establish Indonesia as a respected member of the world’s community.” This strong commitment is focused in achieving the wellbeing of the people, which is dubbed as people-centric-economic-policy (ekonomi kerakyatan).

In a separate occasion, during a two-day summit ASEAN Summit in Bangkok this October, President Yudhoyono stated that the government is determined to raise real GDP growth to 7% per year, reduce poverty and unemployment, and improve the investment climate.

Seven out of fifteen of the priority programs are set to achieve this economic agenda. We would like to see how this target could be achieved and the challenges facing Yudhoyono’s administration ahead.

Electricity Crisis

"What did people use for lighting in Indonesia before they used candles?"
– I hope the answer is not electricity…

Electricity crisis has been facing Indonesia since 2008. Electricity consumption grows 6.87% every year, compared with the growth of the generating capacity of only 3.5% every year. Blackouts are spreading across Java, and are increasingly common in the other islands as well. PT PLN was unable to increase the electricity capacity in the year 2008. This inability is mainly attributed to the lack in the government budget planning. “In the company’s work budget plan, PLN had only targeted the load growth to be five percents, with fuel demand at around nine million kiloliters,” said Muljo Adji, PT PLN’s Manager of Load and Distribution Center, “that alone takes around Rp 69 trillion in fuel subsidies and the government only allocated subsidies of Rp 54.9 trillion in the draft Revised 2008 State Budget.”

According to the recent statement from the Coordinating Minister of Economics, Hatta Radjasa, for this year, another Rp 30 trillion will be needed to provide adequate electricity supply in Indonesia. “Rp 5.6 trillion is allocated to fulfill the electricity demand in the area of DKI Jakarta alone.”

In order to get Indonesia out of this crisis, there is an urgent need to construct new power plants. Construction of new power plants will be done through Independent Power Producer (IPP) scheme, to encourage independent private entities to own facilities to generate electric power for sale to end users. Furthermore, there will be reorganization plan for the PT PLN itself. All of these efforts will require a stable source of financing, such as credit loans and direct investments.

Infrastructure Improvements

Dr. Boediono mentioned three types of infrastructure that this administration will focus on: physical infrastructure, institutional infrastructure, and social infrastructure. One of the main priorities of the current government is to improve physical infrastructure in the form of transportation and communication infrastructure which serve as the back bone of the Indonesian domestic economy. This includes: improvement and constructions of new roads totaling 19,370 km, improvement of ports and harbors, and access to the phone line in all 32 provinces.

If fully implemented, improvement in physical infrastructures will greatly boost the domestic national economy and increase the Indonesia’s economic growth which still largely depends on domestic national economy rather than exports. However, how does the government finance this effort? Funding will remain one important key aspect towards the realization of any programs.

Furthermore, still another problem persists. At the start of 2009, the government announced a large stimulus package of Rp 71.3 trillion, Rp 11.6 trillion of which was set aside for infrastructure. However, only a quarter of this figure has been spent by the end of this year. Ministry of Transport and Ministry of Public Works both have a poor track record in disbursing funds.

Persistent problems in disbursing funds in recent years have meant that public spending has fallen short of projections. Stimulus and other planned infrastructure projects will only be effective if the government can overcome these problems. The nature of Indonesia’s financial management and budget disbursement procedures will continue to thwart the realization of any programs. Yet, there are no specific initiatives to tackle this constraint which have been announced by Yudhoyono’s administration.

Budget Deficit and Financing

Budget deficit has been classic news in Indonesia. It has been increasing ever since the year 2005, from 0.2% of the GDP up to 2.6% of GDP in the year 2009. On one hand, budget deficit could be used to purposefully stimulate the economy. However on the other hand, budget deficit requires government to find source of funds to finance all of its spending which couldn’t be covered by governmental revenue alone. President Yudhoyono and his team need to work together to find the best stable and healthy source of financing.

Increasing foreign debts should be one of the least preferred ways to finance the budget deficit. Indonesia’s foreign debt has been growing steadily from the year 2001, from USD 58.791 billion all the way to USD 65.7 billion this year. This will only increase Indonesia’s dependence on foreign aids.

The most preferred way is to increase foreign investments and export. The classical problem with Indonesia which always tends to distract investors away is the inadequate legal system, weak protection of private property rights, and the decentralized structure of the government all undermine policy towards foreign investment. President Yudhoyono has promised to improve the business and investment climate in order to thrive for both domestic and foreign investments. However until now, no specific action plan has been devised to further the investment climate in Indonesia, especially to attract more foreign direct investments to the country.

The prospect on export has not been good either. Indonesia’s export value within the period of January-October 2009 reached USD 92.03 billion, a 22.31% decreased from the same period last year. It has also been predicted that this decrease will continue as the external demand for the country’s exports will weaken. The rapid appreciation in the rupiah against the US dollar this year has also led to concerns about a loss of competitiveness for exporters and the possibility of currency volatility. Minister of Trade, Mari Pangestu, mentioned that Indonesian exporters are not concerned by the strengthening rupiah, but they are apprehensive about the speed of the appreciation and the volatility of the exchange rate. The government should work together to create a healthy climate for exporters and Bank Indonesia should maintain its policy in preventing volatility rather than targeting a specific level for the currency.

Challenges and Closing Remark

One of the biggest challenges for President’s Yudhoyono administration to achieve this first hundred days program is the direct attempt to discredit the Corruption Eradication Committee (Komisi Pemberantasan Korupsi, KPK) and the corruption allegation related to the liquidity funds to help Century Bank. These two cases have been preoccupying President Yudhoyono, Vice-President Boediono, and Minister of Finance Sri Mulyani and might have affected their performance in the first hundred days.

Another challenge lies within the bureaucracy. Indonesia is still lacking in a good institutional infrastructure. Bureaucracy still tends to be ineffective and inefficient to play its role as the agent of development. For many cases in Indonesia, the procedure has never been clear. The fund disbursement problem mentioned above shows one weakness within Indonesia’s bureaucracy.

There has been much hope in the new Yudhoyono’s administration. President Yudhoyono and his team must always remember that their mandate comes from the people. They should work together for the wellbeing and social equity of its people. They should serve the welfare and the greater good of all. It’s of the utmost importance for a good government to ensure the fulfillment of the basic needs of all citizens so that they could become respected members in the society. Thus the focus is no longer on what is demanded, but what is needed by the citizens. What are needed by the Indonesian people right now? Answering this question and the adoption of this attitude will be one of the key successes of President Yudhoyono’s administration.