The Jakarta Post's senior editor, Manggi Habir, and reporter, Aditya Suharmoko, recently met with several economists to get their views on recent economic policy statements made by the three presidential candidates, Susilo Bambang Yudhoyono (SBY), Jusuf Kalla (JK) and Megawati Soekarnoputri (Mega) and their respective running mates.
Economists met were Faisal Basri, a lecturer at the University of Indonesia, Aviliani, Commissioner at Bank Rakyat Indonesia, Fadhil Hasan, senior economist at the Institute for Development of Economics and Finance (INDEF), Fauzi Ichsan, senior economist at Standard Chartered Bank and Anton Gunawan, chief economist at Bank Danamon.
The presidential candidates and their running mates have lately been talking about their economic platforms, although still in broad and general terms. Not surprisingly, all stressed economic growth as their main objective and even went further, projecting growth targets.
The incumbent SBY had the lowest and most conservative target, a 7 percent per year average for the 2009-2014 presidential term, JK was higher at 8 percent, while Mega promised the highest target, 10 percent, a double digit target, which the country has never reached. However, each candidate is mapping different paths to get there.
Mega and her running mate, retired special forces commander, Prabowo Subiyanto, at one end is promoting the "people's economy," where the emphasis would be on improving the livelihood of those at the bottom end of the income scale, for instance, farmers, fishermen, and small traders in traditional markets. Their economic policies are populist and nationalist in nature.
Foreign loans and investment will be restructured and priority will be given to local companies or state-owned enterprises to own and control the country's natural resources, which is raising concerns in some business circles.
At the opposite end is SBY with former central bank governor and coordinating minister for economy Boediono as his running mate, who will continue current economic policies, but with an increased emphasis on a cleaner and more effective government.
In some circles the economic policies of SBY and Boediono have been labeled as neoliberal economic policies, sparking a lively debate between proponents of neoliberal and people's economic policies.
Jusuf Kalla and retired General Wiranto are somewhere in between. JK feels there is a stronger role for government and is promoting a closer public and private initiative in key areas of the economy.
Question: How do you think the debate between neoliberalists and people's economists is faring?
Fauzi: The ongoing debate on Kerakyatan (populist) against Neoliberalism policies is misleading. This debate is not one of economic policies but more of perception. It has nothing to do with economic platforms.
We have to remember that all three candidates Mega, SBY and Kalla have worked together in Mega's cabinet with Boediono as finance minister, which means that there is no ideological divide.
What exists are character differences. Prabowo is the only new person, but remember, his brother is a major capitalist (businessman) as well. In other words, reality limits the option of coming out with economic policies that are too different than what is currently in place.
So long as you run a budget deficit (to spend on populist programs) the large multilateral (IMF, World Bank, ADB) and private financial institutions (Wall Street), investors (Asia and Middle East) and governments (US, Europe, Japan and Australia) will play a big role in funding this gap and cannot be ignored.
Faisal: Unfortunately, people like to talk about outer appearances rather than inner content.
In Europe, there is a party called the Anti-Capitalist Party and interestingly it still lets the market mechanism work, but focuses on providing a stronger social safety net for those in society that is most impacted during bad times.
What is your assessment about the candidates' respective economic plans?
Fadhil: The candidates have similarities and differences. All agree that there are certain preconditions for economic growth. One of them is bureaucratic reform and how to make government more efficient or good governance.
The difference is in the role of the state. SBY is more market oriented, where the role of the government is more limited and ends up more as a regulator.
At the other extreme, is Mega, where the state is expected to play a more significant role vis-a-vis the market. There will be more intervention and protection. However, even here the market will still play a role, but to a lesser degree than in SBY's case.
It is a matter of degree. In JK's case, there is more balance. He is not anti-market. Where the market works, that approach will be adopted, but where there is market failure then the state has a role to play.
On investment and trade, SBY will be more open. Bilateral and multilateral trade agreements will be encouraged. In contrast, Mega will be more restricted in this area, for example in foreign investment. JK again will be somewhere in between.
On macro-economic stability, SBY, will try to achieve this at all cost. In JK's case, economic stability plays more of a supporting role. For example, he would be more expansive (i.e. increasing government spending) and more tolerant toward the resulting rise in budget deficits and inflation.
Mega would go further and be more expansive on government spending, given her more interventionist stance, and tolerate larger budget deficits, at the cost of macro-economic stability.
Aviliani: This is where there is some contradiction on Mega's program as larger budget deficits require financing to cover the gap, which needs to come from the market and often comes from foreign sources.
We will soon be listening to presidential election campaigns. What further topics would you like to see debated to help voters make their choice?
Aviliani: All presidential candidates campaign for the people. But what the candidates forget are that economic liberalization policies, starting in the late 80s, with the banks and later extended to the capital markets, were never properly reviewed as to its impact on the public (especially the lower income segment).
They have never differentiated and reviewed those liberalization policies that were detrimental. If this is not done, there will be no significant change to economic policy. For example, our open foreign exchange system, results in a volatile currency.
This makes it difficult for businesses large and small to operate effectively. We need to review our open economic policies and change those that ultimately hurt the public.
On growth, they all talk about their different targets, but don't explain how this will be achieved. There are exports minus imports, government spending, consumption and investment. If we look at the last four years, government spending has been very low.
They have not discussed what kind of spending can stimulate growth. Next is how to promote exports. None have talked about what industry will be promoted to push exports. This is important to see which sector absorbs more labor. On investment, none have talked about what kind of incentives will be put in place to attract more investment.
None have talked seriously about the government budget. Our government has been in deficit for some time, which has increased the government's debt burden. If we talk about people's economy we need to talk about the government budget.
On foreign loans, SBY is relatively comfortable with foreign loans, while Mega-Prabowo talks about restructuring foreign loans to become more fiscally self reliant.
But we can't talk about budget deficits without talking about government debt. Not much has been said on how debt should be managed and how it links up with the government budget. My concern is that all this will be difficult to implement. We have difficulty becoming fiscally more independent with the informal sector, in terms of work force, being larger than the formal sector. The large informal sector keeps tax revenue low and thus government debt is still needed to cover the gaps in government spending.
Also, we need to remind ourselves that 44 percent of the labor force is in agriculture. And when we talk about the agricultural sector, it is impossible not to talk about subsidies. The argument again is the strength of the government budget to cover subsidies in a sector that employs most of the country's manpower.
Another issue is regional autonomy, which provides significant power to the regional government. If the regional autonomy laws are not amended then directives from the central government might not be carried out effectively if the regional government comes from a different political party than that of the central government.
Going forward, whoever wins, what does the new president need to worry about when it comes to economic policy?
Anton: On growth, I don't care much about the numbers (candidates' growth targets). What is important is the reality and the constraints we are facing. I think a more useful approach would be to discuss the quality of growth.
For example, what sector and how does it link with employment? Growth has to be supported by a better balance between tradable and non-tradable sectors, with a stress on sectors that better absorbs labor.
Also, what is the growth impact on equity for the poorer segments of society? The government should improve farmers' welfare by increasing food productivity, economizing on fertilizer usage that doesn't degrade the soil, helping farmers' move up the production chain, and cut the middle man.
Policies on education, health, water (not just limited to clean water) and the environment should be strengthened to improve the quality of life. Here, improving water management is becoming a strategic and urgent concern.
The price of accessing clean water is rising and periodic water shortages are faced by many of our dams, which are used to generate electricity and irrigate paddy fields.
Another important area of concern is how to gradually integrate the informal sector into the formal economy and thus enlarge the fiscal funding base, as Aviliani has argued earlier, thus making the country less reliant on government debt, both foreign and local.
Faisal: My major concern is the lack of integration in our national economy and how to expedite bureaucratic reform. For instance, the price of an orange from Brastagi sold in Jakarta is much higher than from China.
This is because our infrastructure needs significant development, improvement and continued maintenance to bring transportation and transaction costs down.
On our bureaucracy, my concern is that we need to strengthen our regional government capabilities more and not just add people in the central government. I observe that the "echelon" rank in the central bureaucracy keeps on rising.
It is also time we review the effectiveness of having coordinating ministers and consider doing away with it.
We are the only country that has coordinating ministers, which I think creates additional layers in the decision-making process and ultimately is not efficient.
In the end, what do you expect economic policies to look like?
Fauzi: I look at things in a much simpler way. At the end, whoever wins, realism will kick in.
Whoever becomes president, businesspeople would support the new government and, in the process, influence it to adopt economic policies that would be more business friendly.
So, at the end, I don't expect to see a major change in economic policy.