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01/10/03
So, finally Indonesian people have to swallow the
bitter pill: The increases in prices. Ironically, it
was announced at the beginning of the year when people
have probably set their optimistic expectations about
the year of 2003. Regardless the government’s
explanations for the policy, one may wonder why
Megawati opted for such unpopular, and often bad,
policy. The policy is not only a suicidal political
move, but also economically is open to criticism.
While the motive for the policy may be reasonable, the
real concern is actually that the government is lack
of a coherent economic plan and a clear communication
to the people. An economic plan would include the
ways the government to finance its budget and their
consequences to the nation. For instances, are the
increases in the prices temporary burden for people to
achieve a much more important goal: An economic
stability? Or is the policy just one-time mechanism
which will be recurred again one year or two years
down the road while the fundamentals of the economy
remain wobbly?
The answer somehow is just like what Minister Boediono
said that is in order to prevent a higher inflation,
the government would move to avoid a sharp increase in
food prices which by the way: How? In other words,
the government tends to solve one problem by another
problem which suggests that it really never solves any
problem. Instead, the government just moves from one
problem to another.
If the real reason is the deficit in the government
budget, then there are several ways to overcome it.
The simplest one is by using an accounting principle:
Balance the expenditures and the revenues. While
adjusting (decreasing) the expenditures often causes
controversy (such as reducing the government’s
subsidies), boosting revenues will be less
controversy, except a major tax increase. The
government has been trying to raise its revenues
including by selling government’s assets. But is it
still possible to raise its revenues by reforming the
tax system or increase the amount of the tax that is
really collected. It is commonly believed that
the percentage of the collected tax that is out of the
government’s hand is not small. Unethical business
people are not rare making closed-door deals with
corrupt bureaucrats in order to avoid paying the real
amount of tax they owe.
The data of government revenues from taxes give an
interesting fact. The government revenue from the
income tax in 2001 was almost doubled from 58 trillion
rupiah to 98 trillion rupiah in 2001. The revenue from
the value-added tax also increased sharply, from 35
trillion rupiah in the year 2000 to 56 trillions
rupiah in 2001. While the government sets the target
around the same rate of increase for the value-added
tax for in the year 2002, the target for income tax in
the year 2002 is somewhat modest, about 105 trillion
rupiah. This suggests that the government, with an
aggressive and honest initiative would likely to
manage higher revenues from income tax.
On the expenditure side, the real problem is not the
amount but the percentage of the expenditures which is
really allocated to their intended purposes. It is
also widely believed that only about 60-70% of the
government’s development budget is really allocated to
its planned purposes. The remaining 30-40% goes to the
corrupt bureaucrats and other parties which are
involved in the government’s projects.
Instead of choosing the unpopular option – reducing
the subsidies -, the Megawati’s government should
focus on increasing the collection rate of tax (the
percentage of the collected tax that goes to the
government) and reducing the government money that
goes to personal pockets (increasing the “expenditure
rate”). Is it possible to have a collection tax rate
of 90% and an “expenditure rate” of 90%? These two
agendas, of course, will be more reasonable if they
are included in a clear and coherent economic recovery
and development plan because they are also dealing
with other front-runner issue: The eradication of
corruption.
When one thinks of that way, then the President
Megawati’s controversial decree that rules out
criminal charges against former bank owners who have
finally settled their huge debts to the state is
totally outrageous. How exactly and how much exactly
these debtors paid their debts are remained mystery to
the public. But what public that do know is the
government debts keep amounting as a result of the bad
practices of these business people. Again, Megawati
chose an unpopular and bad option.
President Megawati was right to defend her record on
national security, but on other two crucial issues,
economic revival and corruption, the Megawati’s
government still has much work to do. Although she
cited the government's success in developing the
economy such as the stabilization of the rupiah
exchange rate and the bank benchmark rate, the public
expect more than a short term stabilization.
As Oliver Holmes once said, “The great thing in this
world is not so much where you stand, as in what
direction you are moving,” what the public that really
wants to know are: What is the government agenda in
combating the endemic corruption and what is the
government plan to revive and develop the economy.
Reducing subsidy in order to balance the budget is
more like a short run objective as the government will
likely have problems in balancing its budget sometimes
in the future unless it really commits to achieving
higher collected tax rate and expenditure rate which
again both are dealing with: The eradication of
corruption.
Sadly, the current economic team seems lack a sense of
direction and understanding. If the former US
secretary of the treasury Paul O’Neill and former
Chief of Council Economic Adviser Larry Lindsey were
“forced” to resign because of their incapability in
handling economic issues, will Megawati have the nerve
to do the same to her economic team?
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