Bill Guerin, Jakarta – A rumbling row between Indonesian Vice President Jusuf Kalla and two top technocrats charged with overseeing economic policy is hampering the implementation of the government's infrastructure spending drive and generating high-level political tensions.
President Susilo Bambang Yudhoyono reportedly came under extraordinary political pressure from Kalla's camp to shake up his economic team during a highly anticipated cabinet reshuffle announced this week. However, Coordinating Minister for the Economy Boediono and Finance Minister Sri Mulyani Indrawati, both US-trained economists who have locked horns with Kalla in recent months, were significantly left in their posts.
Both ministers – neither of whom is directly affiliated with any political party – have strongly argued that economic policymaking should be insulated from politics to ensure economic and financial stability. Boediono currently oversees Indonesia's economic and finance portfolios, while Mulyani, a former executive director for the International Monetary Fund overseeing 12 economies in Southeast Asia, is responsible for the national budget and macroeconomic policy.
The two technocrats have over the past year driven a wedge between Yudhoyono and Kalla, highlighting the two leaders' sometimes divergent views on how best to guide the national economy and combat endemic official graft. Kalla has accused both technocrats of restraining the economy, particularly through their reluctance to disburse government funds for spending programs.
Yudhoyono and Kalla had earlier apparently agreed to a sort of division of labor over the executive branch, where the business-minded vice president would oversee broad economic policy, and the more bureaucratically oriented president would handle matters related to politics, national security and broad national strategies. As chairman of the military-affiliated Golkar party – Indonesia's largest and most powerful political organization – Kalla is known to have strong negotiating leverage inside Yudhoyono's government.
However, Kalla's control over economic management was significantly weakened in December 2005 when his close political associates, Aburizal Bakrie and Jusuf Anwar, were shuffled out of their respective cabinet positions of coordinating minister for the economy and finance minister. (Bakrie was maintained as coordinating minister for welfare, a move viewed by many political analysts as a Yudhoyono concession to Kalla.)
Widely viewed as Yudhoyono's proxies, Boediono and Indrawati have openly clashed with Kalla and his business-minded political associates. Boediono was reportedly offered a seat in Yudhoyono's first cabinet formed after his 2004 election victory, but declined the offer because the business-linked Bakrie was also tapped to be part of the president's economic team.
Kalla, the former chief executive officer of his family's sprawling NV Hadji Kalla conglomerate, which has interests spanning hotels, telecoms, construction, shipping, real estate, transportation and agriculture, has as a politician portrayed himself as a champion of small business and the rural poor.
He has earned praise from local business lobby groups, particularly for his efforts to goad the country's banks to pump their excess liquidity into the local economy and stimulate economic growth, and he is widely viewed as a possible presidential candidate at the next general elections in 2009. He has favored ramping up spending on new infrastructure, including roads, railroads and power plants.
Media criticism
At the same time, Kalla and Bakrie have been stung by media criticism of big state infrastructure contracts that their respective families' businesses have won through allegedly opaque bidding procedures. Kalla's pat response to allegations of a potential conflict of interest between his public office and his family's private interests is that he cannot prevent his relatives from doing business.
One case stands out in particular, which has brought him into direct conflict with Boediono and Mulyani. Headed by Kalla's younger brother, Achmad Kalla, PT Bukara Teknik Utama, together with two small state-owned enterprises and Germany's Siemens Technology Inc, won a US$498 million contract to develop supporting technology for the financially wobbly Jakarta monorail project.
The project's main developer, PT Jakarta Monorail, which tendered the contract to Bukara, was directly appointed by the government without a tender. Critics contend that the deal is in violation of several regulations on open bidding and transparency that govern state infrastructure construction and management projects. Kalla later pushed for a government financial guarantee for the project, but Mulyani refused the request last August.
Kalla later redirected the guarantee request to the government's special Policy Committee on the Acceleration of Infrastructure (KKPPI), among whose members are top central-bank officials, the leaders of various big state-owned enterprises, and five cabinet ministers, including Mulyani. In his previous capacity as coordinating minister for the economy, Bakrie had established the KKPPI in February 2005.
Now chaired by the more circumspect Boediono, the committee also refused to endorse the government guarantee, arguing that it did not meet certain government-specified requirements. In a huff, Kalla retorted that the KKPPI's job was to accelerate projects, not delay them. Apparently fearing a full-blown political conflict, Yudhoyono intervened to break the impasse by issuing a presidential regulation last December that paved the way for a sovereign guarantee over the monorail project.
Bukaka was also involved in the recent controversial purchase of 12 German-made helicopters, which were procured for the Kalla-led National Disaster Management Coordinating Board (Bakornas). Officially the Bukaka Group ordered the helicopters, but when the Finance Ministry refused to pay the bill on the grounds that normal import procedures were not followed, Bukaka ended up footing the bill. Customs officials under Mulyani's Ministry of Finance later seized the shipment when Bukaka refused to pay import duties on the helicopters. With the president's agreement, Kalla finally intervened to have the helicopters released, and they were subsequently leased – reportedly without a tender process – to Bakornas to fight forest fires.
Crash contracts
Kalla's critics note that Indonesia's Presidential Regulation No 8/2006 requires open bidding for all government procurement projects valued at more than Rp50 million ($5,500) unless they are linked to national security or emergency situations. Under a so-called "crash-start program" launched last year, however, the government approved fast-track construction for a number of coal-fired power projects worth $8 billion, many of which were contracted without a tendering process.
Under that program – which was reportedly derived from a proposal by Achmad Kalla, head of the Bukaka group, to expedite the tendering of the projects – the government has directly appointed several local contractors to speed up the plants' construction.
One of the appointed contractors was infrastructure firm PT Bosowa Energi, part of the Bosowa Group, a diversified conglomerate with businesses that include a turnpike operator owned by Kalla's brother-in-law, Aksa Mahmud, who coincidentally is also deputy Speaker of the People's Consultative Assembly. The company is on line to construct a 200-megawatt power plant in Kalla's home province of South Sulawesi.
All of these projects jibe with Kalla's bold brand of economic nationalism. He has said that Indonesia should rely less on developed countries and once asserted that the country had become too dependent on foreign consultants for devising new development programs. That particular speech was made at an informal gathering of Indonesians living in Tokyo in January 2006, where he reportedly added: "We can do it on our own. We have plenty of smart people."
Those capable hands no doubt also include Boediono and Mulyani, who increasingly represent the only hard check on the country's Kalla-inspired ambitious infrastructure spending plans. To be sure, the government's spending drive has been hampered by bureaucratic red tape. Fewer than 10 of the 91 projects that were on offer at the country's first Infrastructure Summit in January 2005 have actually reached the construction phase. The other 80 or so are still bogged down in tender and pre-qualification stages. And none of the projects offered at the second summit last November have even reached the tender stage.
Yet Boediono and Mulyani arguably represent a prudent voice of economic reason. Speaking to investors at last year's summit, Boediono said that while the government wants to accelerate infrastructure development, its ability to do so is limited by budgetary constraints and that it was impossible to fund prudently all of Indonesia's infrastructure needs internally. "Current economic circumstances dictate the need to resort to private-sector participation, targeted mainly at injecting private finance into the infrastructure sector," he said.
With 2009 general elections now in view, Yudohoyono and Kalla have limited time to make good on their election pledges to stimulate economic growth and create desperately needed jobs. But Yudhoyono is also driven by his anti-corruption promises, and some suggest that he should take total control of the economic portfolio rather than using Boediono and Mulyani as proxies to temper Kalla's high-speed economic-growth ambitions.
It's a delicate dance that if politically mishandled, some political analysts believe, could result in the popular Kalla breaking away from Yudhoyono to pursue his own electoral bid for the presidency.
[Bill Guerin, a Jakarta correspondent for Asia Times Online since 2000, has been in Indonesia for more than 20 years, mostly in journalism and editorial positions. He specializes in Indonesian political, business and economic analysis, and hosts a weekly television political talk show, Face to Face, broadcast on two Indonesia-based satellite channels. He can be reached at softsell@prima.net.id.]