Indonesia’s new social contract


epa05443230 Indonesias new Finance Minister Sri Mulyani Indrawati poses to journalists shortly after Indonesias new cabinet ministers swearing ceremony at State Palace in Jakarta, Indonesia, 27 July 2016. It was the second cabinet reshuffle of PM Widodo. EPA/BAGUS INDAHONO

Finance Minister Indrawati sees tax amnesty programme as part of democratic reforms

HONG KONG: Indonesian Finance Minister Sri Mulyani Indrawati (pic) sees her tax amnesty as more than just boosting budget cash - it is part of “a new social contract” between government and people that represents a maturing of the still young democracy.

“It is very important as one of the cornerstones for Indonesia to build a culture of democratic accountability,” Indrawati said in an interview at the Washington headquarters of the World Bank, where she was a managing director until earlier this year. “This tax amnesty and the declaration of assets seems like saying that we as a country want to start a new chapter.”

The finance minister, who was more or less driven into exile in Washington six years ago after trying to clean up corruption in a previous incarnation in the job, is also repositioning her country as a destination for the liquidity sloshing around the global financial system. Unlike developed economies beset by negative rates, slow growth and aging demographics, Indonesia is young, it is expanding and offers good returns on investment, she says.

Indeed, unlike many nations flirting with populists and strongmen, Indonesians remain believers in the democratic system they achieved after decades of Suharto’s dictatorship. That commitment has held firm even as the polity regularly let down the electorate by failing to deliver on promises, succumbing to corruption or simple incompetence.

President Joko Widodo lured Indrawati home from Washington with promises of the political cover to make it work this time.

Widodo, known as Jokowi, wants to get back money stashed overseas and increase domestic tax revenue by using the amnesty aimed at raising 165 trillion rupiah (US$12.7bil) before it ends in March. Spending that money and more earmarked for railways, roads and ports is key to his plans to boost economic growth to 7% during his term, up from the average of less than 5% in the past two years.

“If you talk within the perspective of the reform in the past two decades after Indonesia had this reformasi, under the new democratic open system it is expected that the government and the people strike a new social contract,” the 54-year-old economist said.

Reformasi is an Indonesian word for reform.

“It is a contract between the government that is elected and that should deliver its political promises with good governance, transparency and accountability,” she said. “And the people who support this government should do so not only through voting but also paying tax properly. And in the past two decades that was not really happening on either side.”

Yet in Jokowi she sees genuine moves to change -- and confirms a story that he has provided foreign executives with his telephone number and told them to call him in the event of problems with regulations or officials.

She said a finance minister “is really dependent on the commitment of the leader” to secure reform and strengthen the system.

She said in cabinet Jokowi is asking the right questions, supporting anti-corruption measures and reform of the bureaucracy and looking to wind back regulations that impede development, even in some cases when officials are trying to lengthen them. But in a world where major economies are stuck around 2% growth and global expansion is around 3%, and with commodity prices weak, the hurdles to a country like Indonesia pulling ahead appear high. Indrawati will have none of it, standing by a forecast for growth of 5% in 2016. Indonesia needs to generate confidence in its prospects, she said. While advanced countries are growing slowly, they have plenty of liquidity.

The money is there and they’re not getting a return. Indonesia is growing quickly and has an emerging middle class. — Bloomberg

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