Indonesia's brief honeymoon with the international donor community appears to be over. Barely four months after President Megawati Sukarnoputri won praise for choosing an economic team packed with reformers, many aid officials, diplomats and pundits have begun to doubt their ability to match rhetoric with action.
Her government's early successes – getting a $5 billion International Monetary Fund programme back on track and passing a sober budget – have begun to fade. Privately, diplomats from donor countries and multilateral agency officials moan that the chief economics minister, Dorodjatun Kuntjoro-Jakti, is not up to the job. They add that Laksamana Sukardi, the minister for state-owned enterprises, lacks the political savvy and bureaucratic skills needed to shepherd Jakarta's privatization programme.
"There's no leadership," says a Western diplomat involved with aid negotiations. "Someone has to sell this programme, and we don't see anybody out there."
Signs of impatience were evident at this year's meeting of the Consultative Group on Indonesia, which includes the World Bank, the Asian Development Bank and Japan, among others. In his opening remarks on November 7, Jemal-ud-din Kassum, the World Bank's top official for East Asia and the Pacific, bluntly warned that Indonesia had only a six-month "window of opportunity" to restore investor confidence.
The donors ended up pledging $3.14 billion for 2002, which was $1.7 billion less than last year. But a large chunk--$1.3 billion--will only be released if Jakarta steps up its lacklustre efforts to privatize state-owned assets, set up a legal system that works, and revive a stricken banking sector. "There's a clear signal that the international community is looking for substantial improvement in policy reform," says Vikram Nehru, the World Bank's lead economist in Jakarta.
Donor discontent is the last thing Indonesia needs. Next year alone it expects about $7 billion in loans and debt rescheduling to help rein in the fiscal deficit and free up money for badly needed schools, hospitals and roads. Earlier this year, former President Abdurrahman Wahid's lengthy public spat with the IMF became a symbol of his government's economic mismanagement and contributed to his downfall in July. Megawati must find a way to square her cautious instincts with the demands of donors tired of hearing hollow promises of reform.
Meanwhile, a slowing world economy and the September 11 terrorism attacks in the United States add to the uncertainty. But, says Catherin Dalpino, an Asia expert at the Brookings Institution in Washington, this does not mean Indonesia will fall off the aid map. According to Dalpino, Megawati's successful visit to the US in September, American concerns about Southeast Asia as a potential breeding ground for terrorism, and the bureaucratic skills of Ralph Boyce, the new US ambassador to Indonesia, will ensure that the aid flows don't dry up.
But geopolitics alone won't be enough to relieve pressure on Indonesia to deliver its side of the bargain. A recent World Bank report notes that the country is yet to receive more than $9 billion worth of aid pledged since 1998. Most of this is stuck because of failure to push through reforms.
The failure to kickstart the country's privatization programme and the sale of assets owned by the Indonesian Bank Restructuring Agency will hamper the relationship with the IMF. Indonesia needs the IMF's seal of approval to ensure gentle treatment from the Paris Club of 19 creditor nations, as well as to show that economic reforms are on track. Meanwhile, the government's plan to sell Bank Central Asia, once Indonesia's top private bank, is two years behind schedule. A potential windfall of $520 million from the sale of a state-owned cement company to Mexican multinational Cemex has also stalled.
Unless Jakarta can find a way to repair its ties with donors, Megawati's first year in office may not end up being much better than Wahid's last.