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Indonesia's Megawati faces tough cabinet balancing act

Dow Jones Newswires - July 24, 2001

I Made Sentana, Jakarta – Indonesia's new President Megawati Sukarnoputri faces a tough balancing act between building a workable political coalition and fulfilling hopes among financial market players to appoint economic technocrats, analysts say.

Outgoing president Abdurrahman Wahid, who was forced from power Monday in a vote by the national assembly, failed to get the balance right.

Wahid, who still won't leave the palace, was always either hamstrung by lawmakers refusing to pass his cabinet's policies, or forced into decisions that smacked of favoritism to politically-connected groups.

For the last six months, pressing economic reforms needed to reduce pressures on government coffers have gone on hold while Wahid spent most of his time trying to hang on to power.

Financial markets hope Megawati won't repeat the mistakes of her predecessor, and would instead use her popularity with lawmakers to help make tough economic decisions needed to restore foreign investor confidence, and get the International Monetary Fund to restart lending to the country.

But in a country notorious for its endemic corruption, analysts say pulling this off is going to require consummate political skill. "There are two things she must get. Firstly, national backing to survive and ensure Parliament support for her programs, and professional people to tackle economic matters," said Jusuf Wanandi, a respected political analyst at the Center for Strategic and International Studies.

Although part of Wahid's failure could be pinned on his often erratic decision-making which alienated lawmakers, his task was in some ways made difficult from the start due to the nature of politics in this country. Over three decades of iron rule under former president Suharto, which ended amid pro-democracy protests in May 1998, created a patronage system in which power was based on control of the spoils from corruption.

Now, Megawati faces the challenge of dismantling this system and going after the country's biggest bad debtors, while trying to hold on to the support of a political elite who fear this process will hurt their wealth.

Political factions clamor for cabinet posts

Pressures which Megawati will come under in forming her new cabinet are starting to show only a day after the national assembly voted her to power, ending Wahid's 21-month government. Under Suharto, and to some extent even today, cabinet positions hold huge power as they have the right to bestow political favors.

Political factions that were shut out of Wahid's government are now clamoring for Megawati to increase the number of positions in her cabinet so that no one is left out, local media reported Tuesday. Major parties have suggested Megawati form a cabinet comprising 34 ministers, more than the 25 ministers in the current cabinet, Media Indonesia daily reported.

Fears that patronage rather than proficiency will dominate Megawati's cabinet choices hurt Indonesian markets Tuesday after their strong rally a day earlier. Stocks ended down 2.6%. Some of the euphoria of the previous day's events are also fading for the rupiah, which ended 4% higher at 9,890 rupiah to the dollar, but off intraday highs. Investors are concerned that Megawati, much like Wahid, will bow to pressure from the country's politically-connnected businessmen not to push ahead with debt restructuring.

Rumors that Finance Minister Rizal Ramli – who is said to be close to Megawati's millionaire husband Taufik Kiemas – may keep his post in the new cabinet are stoking these concerns. Rizal drew criticism from the IMF among others for pushing through a number of debt restructuring deals seen as favoring powerful debtors, while putting the burden on the Wahid government. Such decisions pushed the fund to suspend its $5 billion lending program to Indonesia in December.

Megawati must stand against such pressures to get the IMF back, and recoup as much money as possible from debtors which the government helped through a massive $50 billion bailout after the 1997 Asian financial crash.

Indonesia's fifth president will also rely on Suharto's former ruling Golkar party for a majority in Parliament, given that her own Indonesian Democratic Party of Struggle, or PDI-P, has only a third of seats. Golkar's association with Suharto's corrupt regime could hurt any attempt by Megawati's government to discard the old politics of corruption, said Arbi Sanit a political lecturer at Universitas Indonesia.

As the first woman president in the world's largest Muslim country, Megawati may also face pressures from the United Development Party, a religious party which holds the third largest number of seats after PDI-P and Golkar, Arbi added.

Despite the pressure to bow to political realities, analysts say Megawati has to put appointing credible people as her top priority. "It won't be easy, but she has to make a choice," said political observer Andi Malaranggeng. "Professionalism is the prerequisite, and she has to pick the best people."

Among names on the markets' wish-list for the cabinet is economics professor Sri Mulyani, former head of the National Development Planning Board Boediono, and Megawati's economic advisor and former Citibank banker Laksamana Sukardi.