TEMPO.CO, Jakarta - The return of Sri Mulyani Indrawati to government after six years as a World Bank managing director is certainly good news. But as credible an asset as she once was in the Susilo Bambang Yudhoyono administration before she fell victim to the Bank Century bailout debacle, her presence in President Joko Widodo's reshuffled cabinet should still only be viewed with cautious optimism.
She was always the first choice for finance minister, even back in 2014 when Widodo's first cabinet was being formed. Now that she is in, hopes are high that her presence will lead towards a better economic performance, clearly the government's biggest problem. A few initiatives, such as building new infrastructure, are long-term programs whose benefits are unlikely to be felt immediately. Attempts to simplify the licensing system in order to attract investment have come up against an obstinate and obstructive bureaucracy.
The budget is in a mess. Former Finance Minister Bambang Brodjonegoro was judged to have set unrealistically high revenue targets. Growth, predicted to reach 5.2 percent in 2016, was only recorded at 4.92 percent in the first quarter of the year. Tax revenues during the second quarter were a mere 33.8 percent of the Rp1.36 quadrillion target. The deficit is slowly inching past two percent of GDP, causing great anxiety given that the law restricts it to no higher than three percent.
The shortfall is expected to be covered by repatriated funds from the newly launched tax amnesty program. This initiative is commendable, but once again the government has unrealistically high expectations with a projected windfall of Rp165 trillion. Understandably, this has somewhat skewed the amended budget. If we fall short, our credibility is bound to go south with it.
High hopes are being placed on Sri Mulyani to move forward and get the economy going again, not just fiddle with the budget on an Excel table. Take the issue of spending, something that the President is always grumbling about. The low level of spending is not caused by the poor performance of the ministers in managing their budgets. The blame rests squarely with structural problems and an intransigent and inefficient bureaucracy.
Vice President Jusuf Kalla often cites excessively tight regulations as the reason for the low level of public spending. Officials fear making decisions because they feel they are being spied on by the police, the Attorney-General's Office (AGO) and the Corruption Eradication Commission (KPK). As a result, some projects have been discontinued or even abandoned. But making exemptions to the law, as many people often suggest, would only bring Indonesia back to the dark days of the New Order.
There is clearly an urgent need for bureaucratic reforms to enable comprehensive solutions to be found in resolving the low spending issue so it no longer becomes the sole authority of the finance ministry. Another problem is the availability of food, such as rice, beef and onions. Prices have risen because of limited supply. Farmers and cattle breeders face numerous problems in meeting the increasing demand from the difficulty in acquiring seedlings and fertilizers to the need for an effective distribution system.
President Jokowi believes a syndicate is behind all these problems, which have a significant impact on the budget as well. The aim is to force the government to open up imports, but what this eventually leads to is nothing less than shades of protectionism. Yet, with insufficient domestic supplies, the result is more food shortages. Consumers scream because the prices go sky high. It is believed protectionist policies don't go down well with Sri Mulyani, who is known to be a liberal economist. To her, stabilizing prices by banning imports is like a boxer being forced to compete with one hand tied behind his back.
The collaboration between the new finance minister and Economic Coordinating Minister Darmin Nasution is forecast to be positive and problem-free. But it is another story with Agriculture Minister Amran Sulaiman, who supports the current restrictions on food imports.
The solution lies with Jokowi himself. In order for his second cabinet reshuffle to be effective, the president should refrain from being ambiguous. Eradicating the food syndicate, for example, requires courage that must be supported across the board. Allowing the public to suffer because of skyrocketing prices is not smart.
Another vital requirement is improved coordination between the ministers. The President should not use the cabinet particularly the economic team as part of a game to achieve and maintain political balance. Using one minister against another, as he has done in several cases, is certainly not productive. As he said when his second cabinet was announced, the President is the sole person in charge of the government.
The market has welcomed the latest reshuffle, particularly the return of Sri Mulyani to where she belongs in government. The President should take note of the good omens he has generated and quickly act on them without delay. (*)
Read the full story in this week's edition of Tempo English Magazine
