No easy answer to poll riddle

Business Asia, July 5, 1999 by Kevin Rudd

Fallout from Indonesia's recent election campaign is likely to strike Jakarta's neighbours. KEVIN RUDD(*) suggests that Australia will not be spared

There is no more important relationship to Australia than the Australian-Indonesian alliance.

Indonesia has a direct impact on Australian national security and Australia's exports to Indonesia lie within our top 10 export markets globally, not withstanding the recent downturn in regional economies.

Indonesia is also the destination for large-scale Australian direct investment.

And, with a population of more than 200 million, it is also potentially a source of significant refugee outflow to the rest of the region (including Australia) in the event of any future domestic political implosion.

That is why the recently concluded Indonesian national elections are of significance to the Australian government, business and the Australian community in general.

While the precise nature of the political outcome of the June 7 elections will not be known until early this month, at this stage it seems likely that Ms Megawati Sukarnoputri's Democratic party will be the dominant force in a broader coalition government later this year.

The horse trading has barely begun, and it is still possible that the current ruling party (Golkar) could fall over the line and form its own coalition with a number of small Islamic parties.

Whatever the outcome, critical factors will emerge from the electoral process that have significant implications for Australia.

First and foremost, we are probably going to have to get used to the idea that for the foreseeable future, governments in Jakarta are likely to rise and fall with great regularity.

In Australia, we have become accustomed to the predictability of Suharto's 32-year New Order Regime.

Democratic Indonesia is likely to be much less predictable. India is more likely to be the model for the future, whereby administrations come and go but where the permanent bureaucracy by and large keeps the wheels of public administration turning.

This, of course, brings us to the question of bureaucracy itself and the challenge of any incoming administration to tackle what the Indonesian's themselves call KKN -- corruption, collusion, nepotism.

There is a widespread view across the Indonesian establishment that the country's future economic development hinges on its ability to restore probity to the decision-making processes of government. As for future direction in economic policy, the overriding constraining factor is the International Monetary Fund's recovery plan.

The IMF has been critical to the process of restoring solvency to the Indonesian banking system. Without the injection of international liquidity through this package, the banking system would have collapsed completely.

Most serious players in Indonesian politics appreciate this fact.

While the package was negotiated and agreed to under the New Order Regime led by former President Suharto, it is effectively being imposed on any future administration, including one led by Megawati. The first test of a Megawati administration, if that is what comes to pass, will be its preparedness to adhere to the IMF package.

Megawati's advisers during the election campaign made a number of public statements to the effect that they would be seeking a re-negotiation of the terms of the package.

However, in the period since the June 7 election, they appear to have changed tune. If changes do occur, they are more likely to be at the margins of the package rather than at its core.

Asia's economic crisis has had a fundamental impact on the economics and politics of Indonesia. By the end of 1999, the economy is likely to be some 20 per cent smaller than it was in 1997.

Income per capita has declined from US$1155 in 1997 to just US$436.

Already since the election there has been some recovery in the Jakarta Stock Exchange -- driven in part by the relative stability of the election process itself. For the economy to continue to turn the corner, we will need to see continued policy stability in a reformist direction as well as a fundamental reform of the system and culture of Indonesian public administration.

On these questions, the jury is likely to be out at least until early next year -- well after the new government has been sworn in.

(*) Kevin Rudd is a federal parliamentarian and the chairman of the Labor Party's Policy Committee on National Security and Trade. He has recently returned from Jakarta as part of the Australian Parliamentary Observers' delegation for the Indonesian election.