Economic Reform, Cabinet and Technocratic Vision

It is no secret that those managing the Indonesian economy face an increasing set of challenges.

In the short term, there is the threat of a slowdown of the global economy, which would cause exports to weaken while investment will be increasingly difficult to obtain. In the medium and long term, vast technological development will rapidly change economic structures, including employment.

Therefore, in his inaugural address, President Joko “Jokowi” Widodo noted the importance of reforms in economic policies and regulations, in addition to infrastructure development and human capital improvement. The Bappenas (National Development Planning Board) Growth Diagnostic Study (2018), for example, identifies policy and regulatory factors as the main impediments to investment, business activity and economic growth. The annual survey conducted by Jetro also always attributes to this issue the highest risk factor, along with employment issues.

Crisis and policy reform

Will the Jokowi-Ma\'ruf Amin government be able to achieve the envisioned improvements to regulations and policies? This is a serious question, considering that the previous attempt to improve the business and investment climate through a series of economic policy packages unfortunately did not bring the desired results.

There is a famous saying about economic policy from the late Prof. Mohamad Sadli, one of the country\'s leading economists. He said a crisis would usually produce good economic policies, because it made many parties aware of the need for reform.

KOMPAS/WAWAN H PRABOWO

President Joko Widodo and Vice President Ma\'ruf Amin pose for a photograph with ministers on the front steps of Merdeka Palace, Jakarta, Wednesday (23/10/2019). On that day, President Joko Widodo announced the composition of his Cabinet, which was named the Indonesia Onward Cabinet. On that occasion, the President advised his ministers not to commit corruption and create a system that closed loopholes in corruption.

Of course, this does not happen automatically. The crisis will only lead to reform if the political-economic process, leadership aspects and institutional completeness support the creation of a consistent, credible and trusted policymaking process.

Current political-economic process differs from the situation when Prof. Sadli participated in the formulation of policies. The 1980s crisis did trigger a series of economic deregulation that was quite successful in driving Indonesia\'s economic development. This was supported by policies based on a technocratic view that enabled policymakers to establish deregulation and implement it consistently.

At present, the formulation of policies is strongly influenced by political-economic considerations, so the resulting policies are often inconsistent and change quickly in response to political pressure.

Efforts to change labor and trade policies, for example, will run into political opposition, because workers or business groups will feel disadvantaged, even though this is needed to increase productivity and competitiveness of the Indonesian economy.

Market intervention is frequently carried out to meet the demands of various economic interest groups, even though it runs counter to economic reality, such as the supply of fuel at low prices. The longterm welfare of the community as a goal of policy reform is possibly sacrificed frequently to respond to short-term political situations that sometimes produce populist policies.

Leadership and technocratic vision

This is where leadership and institutional aspects play a role, so that policy reform can be effective. A technocratic vision based on strong economic considerations is needed to balance out increasingly fast political-economic processes. Cabinet members in the economic field play an important role in providing the technocratic direction and economic analysis needed.

Alessina and Tabellini (2008) in their seminal paper Bureaucrats or Politicians? explain that the success of reform depends on the capability and effort of policymakers. Capability depends on experience and knowledge, while business is strongly influenced by the "costs" of carrying out reforms, especially political costs.

KOMPAS/INSAN ALFAJRI

Coordinating Political, Legal and Security Affairs Minister Mahfud MD waves his hand as he enters his office, Wednesday (23/10/2019).

A technocratic vision can be obtained from someone who has accumulated knowledge about the policy area within a sufficient time frame. Politicians who rarely come into contact with policy making in the relevant field are less likely to provide the needed direction. On the other hand, the "costs" and political consequences borne by politicians tend to be higher than for professional Cabinet members.

At present, many key economic positions in the Indonesia Onward Cabinet are filled by representatives of political parties, namely the positions of coordinating economic minister, trade minister and agriculture minister. In fact, these three have an important role to play in carrying out policy reforms.

A more open trade and investment policy will be an important factor in increasing investment and boosting exports. Appropriate agricultural policy is also badly needed to improve food security. However, this will all be challenged by various interest groups that have been getting economic rent from the protection that is imposed.

Given the leadership by politicians and political party representatives, it is hard to imagine that a technocratic and rational economic vision will be the basis of economic policymaking in this Cabinet. There is a risk that political economy considerations will increasingly dominate discourse and policy formation. Political compromises may become more frequent, thereby sacrificing the credibility of policies. This is certainly not in line with the spirit of reform promoted by the President.

Institutional aspects and coordination

With increasingly intense political pressure and a lack of technocratic vision in Cabinet leadership, the success of policy reforms depends on strong institutional aspects. Policy coordination must also be improved.

Unfortunately, in the Indonesia Onward Cabinet, the economic sphere is still under two coordinating portfolios, namely the Office of the Coordinating Economic Minister and the Office of the Coordinating Maritime Affairs and Investment Minister. The various ministries should act under unified leadership, for example under the coordination of Gen. (Ret.) Luhut Pandjaitan. Moreover, he has experience in managing the field of economics and can provide coordination for the entire field.

According to the World Bank, around 6,300 regulations were issued by institutions and ministries in the 2015-2018 term.

The authority of the coordinating ministers also needs to be increased. It is common knowledge that economic policies and regulations in Indonesia often overlap or are even in conflict with each other. According to the World Bank, around 6,300 regulations were issued by institutions and ministries in the 2015-2018 term.

This underscores the importance of adopting Good Regulatory Practice (GRP), where regulations will not be issued if they do not meet various requirements, such as an impact and benefit analysis, public consultation, analysis of compliance with various other regulations as well as being clearly communicated.

The coordinating ministers’ offices can be given the authority to run the GRP and become clearing houses for all economic regulations, so that no ministerial regulations and rules can be issued without the approval of the coordinating ministers.

Coordination might even be enforced in a more extreme way, whereby the authority to issue regulations is only given to the coordinating ministers, so that there are no regulations from the technical ministries. The technical ministries then can be more focused on implementing economic regulations. Such a structure could ensure comprehensive consideration before any regulation or economic policy is issued.

KOMPAS/SATRIO PANGARSO WISANGGENI

Yose Rizal Damuri

The Indonesia Onward Cabinet will face difficult times that will determine the future of the Indonesian economy. With a strong political-economic process, a technocratic vision of ministers who tend to be weak and immature institutions, the solid leadership of President Jokowi and Vice President Ma\'ruf Amin is key in building a foundation for the realization of the dream to become a developed country.

Yose Rizal Damuri, Head of the Economic Department of the Centre for Strategic and International Studies (CSIS) Jakarta