SINGAPORE, Dec. 30 (UPI) -- The Indonesian economy has greatly improved since the Asian financial crisis of 1997-1998. But as the country gets ready to leave the umbrella of the International Monetary Fund, it will face a key political year with rising uncertainties possibly weighting on the economic recovery.
Ever since the meltdown, the country's economic policies were largely driven by the IMF, which lend over $5 billion in financial support to put back the country on its feet. As a result the stabilization of the economy does appear to have been achieved, with GDP growth of 4 percent this year, rising to 5 percent in 2004, and inflation down below 5 percent.
The government has also managed to tighten expenditures and control its fiscal deficit, regularly reducing it to below 1.8 percent of GDP this year.
Economists have lauded the government's determination to stick to its macro-economic program and the results achieved, and most do not believe that leaving the IMF program will create an opportunity for the government to relax policies. In fact its White Paper, which lays out its economic platform for 2004, is very similar to what a letter of intent with the IMF would have looked like comforting investors of the continuity in strict economic policies.
However, while the economic achievements are undeniable, progress on structural and social reforms have been lagging behind, with corruption still at the root of most investors' complaints.
Overhanging the economy in 2004 will be a parliamentary election on April 5, and the presidential election on July 5, which will be the first direct election in Indonesian history. Those results could bring sweeping changes as the reelection of current President Megawati Sukarnoputri is no a guarantee.
A total of 24 political parties will be battling it at the poll in the general election, and there will be a lot of political jockeying for the presidential elections, especially among the Indonesian Democratic Party of Struggle or PDI-P (Megawati's party), Golkar (ex-President Suharto's political machine), and Islamic-based parties.
Following the downfall of Suharto in mid-1998, the number of political parties in Indonesia exploded from three to 45. However, only five (PDI-P, Golkar, PPP - Vice President Hamzah's political party -, PKB - Ex-President Wahid's political party-, and PAN - chairman of the People's Consultative Assembly Amien Rais' political party) have a meaningful number of representatives in the parliament post the 1999 election. So, despite the high number of registered political parties for the 2004 race only a handful are expected to dominate the debate.
Given the fact that Indonesian politicians' maneuvers are highly unpredictable, observers forecast the country's risk premium will increase dramatically next year, even through it is already well understood by the business community and factored in by financial markets.
But comments by the Army Chief of Staff General Ryamizard Ryacudu that soldiers will be mobilized to take control of the situation if next year's election "turn bloody," will only reinforced the feeling of insecurity that could arise from the election.
On the positive side, some observers point to signs the 2004 election could be the beginning of a gradual transition from the personality-cult (family-lined) to policy-based political system, with attention focusing on manifesto and policy platforms even though the daughters of Indonesia first two president will be vying for power.
To date, Indonesian political parties do not differentiate themselves based on policy platforms.
But whatever the result of the presidential election, the next government will be based on a coalition of rival parties. If no strong leader emerges capable of imposing cohesion on such a government, policies are likely to be hamstrung as it has been the case with recent government.
Opinion polls indicate that the two leading parties in 1999 -Megawati's PDI-P and Golkar - are again likely to occupy the top positions again. However, the polls also suggest that many who voted for the underdog PDI-P in 1999 have been alienated by its behavior and are returning to Golkar.
Among potential presidential candidates, Megawati remains the front runner, but Golkar, currently assessing seven presidential candidates, is gaining ground. The two most likely Golkar nominees are party chairman Akbar Tanjung, who is appealing a three-year jail sentence for corruption, and former military commander General Wiranto, indicted by the UN's East Timor Serious Crimes Unit for atrocities in 1999. The latter is playing to the growing desire amongst disillusioned Indonesian for strong leadership. Either may need a coalition with one or more of three smaller Islam-based opposition parties.
While the elections will bring a degree of uncertainties to the economy, many observers do not believe the results will spur the badly-needed reforms.
In a recent report, the International Crisis Group said neither PDI-I or Golkar look likely to address seriously the core problems facing the country: "blatant corruption, stalled democratic reform, economic stagnation, communal violence, and the more recent threat of terrorism."
"President Megawati's leadership has been deeply disappointing, not only for those who had once held her up as a beacon of reform but also for those who had hoped she would use this period of relative political stability to tackle some of the country's enormous problems", said Sidney Jones, Indonesia Project Director for ICG. "There is no sign of a dynamic, visionary leader able or willing to take them on".
