Jonathan Thatcher, Jakarta – A cloud of gloom has descended over Indonesia. Its financial markets have been plunging, along with hopes that a shambling government can lead the country out of economic ruin and political bedlam.
For Asia's youngest, and second largest, democracy the thrill of change after decades of autocratic and corrupt rule has flagged fast. "I find it difficult to be bullish these days," said Vickers Ballas research head Ferry Yosia Hartoyo.
Investors feel the same. They have wiped out all the gains and more that followed the excitement of Abdurrahman Wahid's victory last October in Indonesia's first contested presidential election. The rupiah has fallen more than 18 percent this year and the share market, in 1999 one of Asia's best performers despite political mayhem, has dropped nearly 27 percent since January.
Lack of coherent economic policy
Analysts say the chief problem is that Wahid's government has failed to set in place a coherent economic policy that will bring about genuine recovery and a measure of stability to the world's fourth largest population.
The International Monetary Fund, whose seal of approval is crucial to investor confidence, has already delayed its latest loan in a effort to goad the government into more reforms.
The strategy is having some impact – on Wednesday the government said it was ready to sign its latest plan of action with the IMF – but the reform process remains agonisingly slow.
Little has been done to settle the private sector's huge debts and the banking sector, whose fate is key to economic recovery, still looks very sickly. And the legal system is so riddled with corruption that few dare trust the courts for a fair verdict.
Economic growth at risk
The latest blow to confidence came from the government itself, with the Bureau of Statistics warning that economic growth this year could be a feeble 1.5 percent if the political uncertainty and rupiah weakness continue.
Hartoyo said that if the rupiah remains weak, which seems likely, inflation will inevitably rise. That will hit the consumer demand which is largely responsible for the little economic growth Indonesia now has.
"In order to improve the situation, we need a stable government with a clear mission," he said. "Investors have a host of issues on their checklist [of what they want the government to do]. But it's just empty boxes with no ticks." Many blame Wahid for the country's woes, arguing that his inconsistency and occasional irascible behaviour are undermining confidence in his government.
He has already sacked a number of ministers and the cabinet has repeatedly faltered on the introduction of reforms. "It's worsening all the time. It'll go down the drain if he [Wahid] doesn't make any changes," said Sri-Edi Swasono, an adviser to Indonesia's chief economics minister. "People perceive that he can't rule well. Now it's a matter of changing that perception," he said, warning that Wahid's "inconsistent" behaviour created uncertainty for the economy.
The country's open style of government has also seen the rise of mounting discontent in the provinces, some pushing hard for independence and others trying to grab more of the wealth they feel Jakarta has too long taken from them and in the process frightening off investors. Elsewhere, religious and ethnic tensions continue to spill over into violence.
Wahid unfairly blamed?
Some say it is missing the point to blame Wahid, who has only been in power for seven months and who took over a country close to social and economic collapse after 32 years of corrupt, autocratic rule.
It is a legacy that will take years to sort out. Those three decades has left a population – much of it living in poverty – with little real concept of democracy but with high expectations that their life should improve fast under a populist government. "We're lucky to have him [Wahid as president]. He is a visionary," political analyst Soedjati Djiwandono said.
Wahid has had some notable successes, especially in reining in the military which once took it as a given that it had the right to meddle in the nation's politics.
For some, his greatest hold on power is that there is no one else acceptable to a broad enough political support to replace him. His vice-president and leader of the party with the most seats in parliament, Megawati Sukarnoputri, is widely seen as having largely squandered her huge popularity by taking little public role in running the country.
Djiwandono agrees Wahid has failings. " ... in terms of management there are some weaknesses. His style [is a problem]. It's not entirely his fault. Maybe he thinks faster than other people," Djiwandono said. He doubted there was the appetite for another revolt on the scale which forced former President Suharto from office two years ago, but he said the risk of widening social unrest remained. "I hope it won't happen, but the danger is there."