Clogged Reforms a Speed Bump for Indonesia’s Economy

November 23, 2011 by · Leave a Comment 

By Neil Chatterjee

2011-11-22T075418Z_373471803_GM1E7BM180L01_RTRMADP_3_-ECONOMY-INDONESIA-REFORM

Commuters standing in the doorways of a train and sitting on its roof, are seen as they travel to work in the capital Jakarta November 10, 2011. Indonesia’s economy has shown strong growth this year, but failure to improve a stifling bureaucracy, to end wasteful subsidies and to systematically curb graft, could derail a growth story that has made resource-rich Indonesia into Southeast Asian’s sweet spot. Doubts are growing that President Susilo Bambang Yudhoyono can deliver on promised reforms that improve creaky infrastructure and creating higher-value jobs for the young in the world’s fourth most populous country. Picture taken November 10, 2011.        

REUTERS/Supri

JAKARTA, Nov 22 (Reuters) – At a time when many countries are slipping off investors’ radar screens, Indonesia is a beacon with stable finances and the fastest growth rate in Asia outside China and India.

Yet its failure to improve a stifling bureaucracy, to end wasteful subsidies and to systematically curb graft could derail a growth story that has made resource-rich Indonesia into Southeast Asian’s sweet spot.

Doubts are growing that President Susilo Bambang Yudhoyono, who’s been in office seven years and has three left, can deliver on promised reforms that would improve creaky infrastructure and creating higher-value jobs for the young in the world’s fourth most populous country.

While Indonesia has had solid growth rates during Yudhoyono’s tenure, much of that is rooted in demand from overseas for the country’s coal and other commodities.

If there’s a major global slump that depresses demand, Indonesia could fail to get needed investment because it remains a difficult place to do business and one where personalities matter, not process.

There has been no real reform of the inefficient civil service – where bribery remains rife — and no sustained progress in building institutions that enhance the business climate such as credible courts.
“The political elite in the parliament and the government are busy with politicking, ignoring an urgent and important economic agenda that needs to be dealt with,” said Syamsudin Haris, senior political analyst at the government-funded Science Research Institute.

After getting improved grades in recent years as a place for business, Indonesia’s position has slipped. In the World Bank’s 2012 rankings for ease of doing business, Indonesia was 129 out of 183 countries, down from 126 a year earlier.

Re-elected by a landslide in 2009, Yudhoyono has so far squandered a mandate to drive reforms and, according to polls, has lost popularity. His long-awaited cabinet reshuffle last month reflected a desire to shore up political support more than to initiate real change before a presidential election in 2014 which he cannot contest.

“We haven’t seen any headline reforms done, which has led to some market disappointment and also to disappointment among voters,” said Prakriti Sofat, an economist at Barclays Capital in Singapore.

“If Yudhoyono and company don’t put things in order, and there’s not a good candidate coming through in 2014, then the risk will go up.”

Having solid GDP growth by itself does not mean trends are good. Just look at India: Although growth is still relatively strong, its image as an emerging market star is losing its shine as corruption scandals, high inflation and a flagging reform agenda have dented investor confidence. Business leaders openly fret that the government may be squandering India’s chance at the big time.

Azim Premji, billionaire chairman of outsourcing giant Wipro , summed up a sense of policy paralysis in India when he recently attacked a “complete absence of decision-making among leaders in government.”

The result has been investors fleeing from Mumbai stocks , making it one of the world’s worst performing major markets in 2011.

While Indonesia has been drawing investors, “long-term, if there are better opportunities elsewhere, money will go somewhere else,” said Sofat.

Yudhoyono’s government has been often commended for good macroeconomic policies. It has maintained fiscal discipline, steadily cutting the debt-to-GDP ratio and boosting foreign reserves, while lifting its budget for infrastructure by 28 percent this year.

But the government’s administrative mechanism is often clogged. Lifting budgets is not translating into spending in the real economy. Overall, government spending grew just 2.5 percent in the third quarter from a year earlier, a slower pace than in the second quarter.

“The government has never shown any reliable track record of efficient budget spending and I don’t think that will change in the foreseeable future,” said Lanang Trihardian, investment analyst at Jakarta-based Syailendra Capital, which manages around $460 million. “The impact of that is I don’t believe Indonesia can grow above the 8 percent level as seen in China and India.”

Officials often rush to spend some of a budget overhang in the fourth quarter. A much-needed project to improve woeful drainage in Jakarta recently started on the main thoroughfare — just as the torrential rainy season began, causing gridlock terrible even by the capital’s traffic standards.

“You know what the bureaucracy is like for government projects — long and complicated,” the head of Jakarta’s public works office, Ery Basworo, told a press conference called to address complaints. “For us to even get the project started in September was an achievement.”

At one time, many Indonesians felt Yudhoyono was making good gains to combat the old, damaging problem of graft, but it remains entrenched. To some citizens, corruption has worsened, in part because of decentralisation since the era of strongman Suharto.

In the remote provinces of the scattered archipelago, greater regional autonomy has sometimes resulted in corrupt local authorities to siphon off resource wealth meant for development.

Yudhoyono has declared eradicating corruption a top priority and said no official is above the law. But his recent cabinet shuffle did not signal a tougher or more effective approach. Two ministers whom the Indonesian media alleged to be tainted retained their seats.

Meanwhile, political squabbles led to a demotion of the trade minister and the narrow survival of the finance minister, both well-respected internationally.

The reshuffle “was an opportunity for Yudhoyono to have a stronger team and he missed it,” said Erman Rahman, director of economic programs in Indonesia at The Asia Foundation, a San-Francisco-headquartered nongovernmental organisation.

Another longtime impediment to business, the bloated and inefficient bureaucracy, remains a source of big frustration. “It will take more than very strong leadership to change this,” Rahman said.
So far, there are no signs of planned reforms for the police department or justice system, which are often the source of complaints.

TRACKING SPENDING FLOWS

Polls show that many Indonesians, used to Suharto’s 32-year rule, want another military man to run the country from 2014. Yudhoyono, the first directly elected president, is a retired army general but is seen by many as unable to make bold decisions to promote institutional change.

Analysts say Vice-President Boediono, a former central bank governor, is trying to improve efficiency and governance by steps such as putting into ministries computer systems that track spending flows.

In the important area of infrastructure, investors have been waiting for a long-mooted land reform bill that would speed up the acquisition of land for state-backed projects, such as $150 billion of public-private partnerships the government wants to see.

But as the end of another year approaches, it has still not been passed by a cantankerous parliament, and Yudhoyono has been silent on the issue.

Another issue that needs addressing is subsidies. With inflation significantly easing this year, the government has missed an opportunity to phase out fuel subsidies for private cars, backtracking on a planned April move and delaying it indefinitely.

The government fears hiking gasoline costing just half the price of the market rate could dampen the domestic economy or spur the kind of riots that contributed to Suharto’s fall in 1998.

Yet not ending subsidies only stores up inflationary problems for the longer-term. The “ruinous middle-class subsidies”, as one economist has dubbed them, could instead go to building roads and ports, argue economists and rating agencies who see weak infrastructure and high inflation as key risks.

“Progress on structural reforms appears to have slowed in the past year. In particular, there has been limited progress in reforming the composition of spending,” said Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch.

($1 = 9050 Rupiah)

(Additional reporting by Andjarsari Paramaditha in JAKARTA and Matthias Williams in NEW DELHI; Editing by Richard Borsuk)

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Houstonian Corner (V13-I45)

November 3, 2011 by · Leave a Comment 

Needs Outweigh Resources for State Infrastructure

Former Transportation Secretary calls report ‘blinding flash of the obvious’

The message was clear from two committees reporting to the Texas Transportation Commission on Thursday – there are no one-size-fits-all solutions to the state’s infrastructure needs and the wants and needs for creation and maintenance of highways throughout the state are much greater than the state’s ability to finance them.

In addition to the committee reports, the Commission also heard an update on the Texas Department of Transportation’s (TxDOT) ongoing modernization plan. “The process is beginning to move forward,” said Eric Gleason, TxDOT’s Director of Public Transportation. He said implementation of some of the projects is coming into focus and “the pace is quickening.” However, Gleason, noted that human resource availability to put some of the recommendations into place timely while continuing to fulfill day-to-day operations of the agency is a concern.

Three members of the Strategic Research Program Advisory Committee testified before the Commission Thursday. According to Rick Collins, director of the Research and Technology Implementation Office at TxDOT, the committee is charged with making recommendations to TxDOT regarding research topics that should be explored relating to transportation in the state. Those research projects will be awarded to universities throughout the state who respond to an upcoming request for proposals. Through these topics and the research, the committee will help prepare the department for some of the challenges the state and TxDOT will face in the future.

The committee held its first meeting in August and told commissioners this week that they quickly realized there was a lack of sustainability for maintaining and creating new infrastructure.

Committee member Mary Peters, former U.S. Transportation Secretary, said the committee’s report might appear to be a “blinding flash of the obvious.” She said it would be important not to reinvent the wheel but to “bring data to bear and focus on where this industry and the state can get more money” for its transportation infrastructure needs.

Another committee member, Ken Allen, told commissioners that as the committee was putting together its “wish list” for research projects that might result in a better way to use transportation funding for more projects, it narrowed the scope to three subjects, which he said were “deliberately kept very broad for the researchers.”
 
Among the topics was what he called “demand leveling,” or getting the most out of existing infrastructure, as well as innovative financing options and “managing the decline,” or prioritizing the use of limited funds. Regarding funding, Hall said the question becomes “how to best spend the money we have,” which he said would have to be “spent incredibly wisely.”

Similar messages were brought to the commission by Tim Brown, Bell County commissioner, who serves on the I-35 Advisory Committee.

Brown told the Commission that his group initially came up with little more than a list of projects. However, he said that illustrates that there is no one-size-fits-all solution because the solution changes from one geographic region to another.

Saying a variety of rail components will have to be part of the future solutions for the I-35 projects, the county commissioner said it became glaringly obvious that “we’ve got to find some more ways of funding those projects.

“Funding seems to be the common denominator we keep coming back to,” he said. Brown noted that the committee came up with “appropriate solutions, but no funding stream.”

The challenge for the committee, he said, is to “identify what needs to be done” and then come back to try to find ways to fund it.

“Transportation is so important that we’re going to have to get serious about funding,” said Brown.

In other action, the Transportation Commission took action to add Interstate 69 to the state highway system, allowing TxDOT officials to label the first Texas stretch of the nearly 1,000-mile interstate since I-69 received federal high-priority route designation more than a decade ago. This action will allow TxDOT to add the concurrent designation of I-69 to a 6.2-mile section of US 77 between I-37 and SH 44 in Nueces County without additional funding, right-of-way or construction because the existing highway already meets interstate standards.

Well Attended ICNA South Central Region Conference

Theme: Quran – The Scripture That Saved The World

picturehouston

Sheikh Omer Suleiman Speaks at the Sixth Annual ICNA-MAS Conference at University of Houston

Thousands of Muslims from the US South Central Region (Texas, Louisiana, Oklahoma, Kansas) attended the 6th Annual Conference of the Islamic Circle of North (ICNA), and the Muslim American Society (MAS) at the University of Houston, on Saturday October 22nd.

Theme of the conference was: Quran- The Scripture That Saved Humanity. A parallel Youth Conference was organized by Young Muslims (YM), on the subject of “Peer Pressure – Peer Power”.
Prominent speakers and scholars spoke, including Sheikh Nauman Ali Khan, Sheikh Omer Suleiman, Imam Khalid Griggs, Qari Qasim Mazhar, Dr. Mohammad Yunus, Mustafa White, Hafiz Tauqeer Shah, Dr. Shahid Rafiq, Dr. Mohammad Shalaby.

Speakers were quite interactive and their presentations were practical, inspirational, and made the people happy.

Some of the subjects that were discussed and presented included: “Islamic Sharia: A Divine Legal Framework for a Prosperous Society”; “Speaking to Your Lord”; “Quran: Theory and Practice”; “The Vision & Mission”

In the Youth conference, the various themes that were touched included: “Jumping on the Bandwagon”; “A change is gonna come”; “What about you?”; “Take-home Message”; and “Will you be Missed?”

At the eve of Eid-AL-Adha, the bazaar at the conference had many Islamic Garments and Gifts stalls.

By the Grace of God, a successful fundraising for ICNA was done by Sheikh Omer Suleiman, where around $100,000 were raised for the Learning, Dawah and Community Services funds of ICNA.

For more information, one can visit www.ICNASouth.Com

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