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Indonesia: Tough decisions await Yudhoyono

Indonesia's new President has sold himself as a reformer. Now he has some high expectations to fulfil, writes Matthew Moore from Jakarta.

When he's sworn in on October 20, Indonesia's new President, Susilo Bambang Yudhoyono, will have to decide how long he wants his honeymoon to last.

In his polished campaign in which he seized the country's top job, the former general made a lot of reassuring noises to comfort voters worried about putting another soldier in charge. He promised to fix ailing health and education systems, clean up corruption and guaranteed work for some of the 40 million jobless.

Policy details were scant, but that hardly mattered. He spoke with sincerity to a nation eager to believe. Compared with the insular plodder that was Megawati Soekarnoputri, he appeared fresh and new and above all capable.

In every test of credibility the polls had him way out front; creating jobs, curbing corruption, improving security, boosting education and keeping prices down.

In a country where half the population hovers around the poverty line, this last measure is of huge daily importance. And it is the one SBY, as everyone calls him, will need to confront right from the start.

With the world watching, he will have to decide what to do about Indonesians enjoying some of the cheapest fuel anywhere.

The price of crude nearly doubled this year, but for Indonesians that meant nothing. A fuel subsidy scheme means the Government, not consumers, picks up the bill for the increased cost of petrol, diesel and kerosene used everywhere for cooking.

Now it's time to pay, and the sums are terrifying.

The 2004 budget includes a 14.5 trillion rupiah ($A2.3 billion) allocation for the government subsidy. The galloping increase in world crude prices this year means the actual cost could be four times the budgeted amount - about $A10 billion, according to information before parliament.

Ramses Hutapea, one of SBY's oil advisers, fears this staggering cost could "create havoc for the incoming government".

The issue is when to move. Five days before SBY is sworn in, the fasting month of Ramadan begins. Four weeks later it ends with Lebaran, the Muslim equivalent of Christmas when half the country packs up and goes back to the family village and hands out presents.

SBY will well remember the riots former president Soeharto sparked when he imposed big fuel price rises in his final days. The idea of his doing something similar in his first days as president must be unthinkable.

And yet, the business community is looking to him for the sort of economic policies that will show investors he is serious about reform. To do nothing is to invite disaster.

Professor Hal Hill, of the Australian National University, agreed the issue was critical. He has studied the Indonesian economy since the 1970s, watched as it was hit hardest by the Asian economic crisis and made the slowest recovery.

Just back from another trip to Indonesia, he said the task facing Mr Yudhoyono was huge.

"It's the only one of the crisis economies where there is still negative foreign investment . . . mining sector investment has virtually collapsed, manufacturing exports picked up after the crisis but have now tapered off, infrastructure is becoming a critical issue, electricity is really quite precarious, roads are getting serious . . ."

However, Dr Hill said, there was a hint of euphoria in the business community that Mr Yudhoyono might appoint a cabinet selected on merit and aim for a 100-day program of reform, despite the pain that would involve. "He's going to have to fund the agenda and the only way he can do that is by reducing the fuel subsidies . . . education and health are being absolutely squeezed."

Whether Mr Yudhoyono has the stomach for tough decisions such as scrapping fuel subsidies remains the question no one can answer with certainty. A product of the Soeharto era, Mr Yudhoyono sold himself to the electorate as a reformer, but those who have worked closely with him say he likes to be liked and finds unpopular decisions difficult.

Rachmat Witoelar, a former ambassador to Russia and now one of SBY's inner circle, remembers when Boris Yeltsin made 1400 presidential decrees a year in his flurry of reform.

Would Mr Yudhoyono attempt something similar? "No, no, no, this is not Russia," he said.

Creating jobs and cutting corruption would be the new president's top priorities, he said, insisting there was plenty that could be done quickly to make Indonesia more attractive to investors.

Customs was an area where reform was sorely needed. To clear customs now requires the approval of 17 different desks, many of which have conflicting requirements so that bribery often provides the only path through the maze. Enacting consistent regulations was one way to reduce corruption.

Another essential move was to prosecute and punish some of the scores of people now accused of corruption.

A new attorney-general will be fundamental to this. Selection of a new top law officer is awaited as the first piece of real evidence to demonstrate the new President's desire for reform. A noted human rights lawyer, Todung Mulya Lubis, has been named as a candidate, although he declined to confirm that he had been in discussions. Marsillam Simandjuntak, who was jailed in the Soeharto era, is another whose appointment would send shock waves through the legal system and herald serious reform.

While publication of such names has raised expectations about the President-elect, one of his former military colleagues, General Agus Wijojo, cautioned against expecting too many waves. "I think he's a very cautious man, who always tries to find the right balance in achieving the purpose but minimising the negative consequences," he said. "He always seeks a compromise."

Given the size and urgency of many Indonesian problems, compromise may not always be a realistic solution, something advisers such as Mr Witoelar have already acknowledged.

"That's why we have a secret weapon, the Vice-President (Jusuf Kalla)," Mr Witoelar said. "He pushes his way through anything."

Mr Witoelar said Mr Kalla, a successful businessman from Sulawesi, could be the government's bad cop, pushing the tough economic decisions and leaving Mr Yudhoyono to be the good cop.

He could be the "wise and careful president", he said. "That way we hope we can have the best of both worlds."

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