Early warning systems and politics of fear oleh Jonatan Lassa

Early warning systems and politics of fear

Jonatan Lassa ,  Bonn   |  Mon, 01/25/2010 11:01 AM  |  Opinion

The proponents of the decision of the Bank Century bailout are happy with the explanation that “the benefit of the intervention is the
crisis that did not happen until now”.

In other words, had there been no intervention or confirmed response to the indicated crisis, the risk would’ve been that the crisis may have happened today at an unexpected scale.

The above argument raises concerns from the proponents and opponents
of the policy. It is controversial simply because there are risk and
uncertainty in both action/inaction to the crisis – which is largely
underestimated by both camps. Therefore, one should understand how
decision making among high levels of uncertainty, especially when the
ghosts of the 1998 financial crisis dominated the perception of the
responsible authority during 2008 and 2009.

Boediono and Sri Mulyani Indrawati, have maintained that the decision
to bailout the bank was right, especially when it is understood under
the context of the global crisis, which may (or may not) have created
systemic threats to the banking sector. The anatomy of the Finance
Ministry’s White Paper is as follows — it starts with the global
crisis, it’s “epicenter” in the United States, which propagated a
“tidal wave” to Europe and the United Kingdom.

The fear was, based on the experience of the 1998 financial crisis,
that sooner or later the crisis would find its way to Indonesia. The
measures taken to mitigate the identified threats were simply
legitimized by the formal process of relevant stakeholders and the
chronology towards the final decision to bailout Century. The paper
shows a flow similar to the anatomy of an early warning system.

Abundant knowledge about early warning and early response systems
(EWERS) in the field of disaster and crisis prevention are available
for financial crises application. The knowledge may shed some light
onto the Century case, which can help reduce the controversy by
explaining the nature of uncertainty and risk surrounding the
controversy.

Depending on the character of the type of threat, some creeping
threats may not seem apparent to the lay public but send shivers
through the professional community who monitors the indicators of
threats. In the case of EWERS for the financial crisis, information
should be based on several factors, such as confirmed indicators about
the tides of the global crisis, including that the propagation of the
crisis may be further triggered by the domestic public’s perception
regarding weak governance of the financial crisis. Therefore, Bank
Indonesia could have played a role in this despite the inherit nature
of uncertainty of the data.

Both Sri Mulyani and Boediono have confirmed again and again that they
took action to save the national ecenomy by preventing a possible
systemic downfall of the country’s banking system by saving Bank
Century during the global financial crisis. The benefit of the
intervention is the crisis that did not happen until now. This is
simply an argument of effectiveness.

It is prone to controversy and political conflict because the nature
of uncertainty in the knowledge, information and data is high.
Unfortunately, the decision should have been made before it was too
late to mitigate the possible threats.

In order to reduce public criticism and controversy, certain vital
aspects should also be considered. The White Paper adds effectiveness,
efficiency, legitimacy and equity to the list as well as the
effectiveness argument above. Apparently, the proponents of the
Century bailout neglect these important principles. The decision was
solely based on the aspect of effectiveness. Quality of data from Bank
Indonesia was mentioned as one of the pitfalls. “The politics of fear”
to the systemic risk of financial crisis inherented from the 1998
financial crisis is the other variable mentioned by Boediono on many
occasions.

European governments were quick to respond to warning signs of the
crisis. In this case, regardless of the possibility of miscalculating
the risk including amplification of the financial risk from the actual
objective risk, the Century bailout can be justified. In times of
extreme uncertainty it is dangerous to underestimate the little things
that could trigger a crisis.

It should be clear that either attenuating or amplifying the actual
risk is bad. However, the problem is that the objective risk never
exists because of the subjective judgment embedded in the decision
makers’ perception of the problem.

The controversy can be reduced if the inquiry team takes a balanced
approach to consider some important factors such as efficiency, equity
and legitimacy. If the bailout was indeed legitimate, every Rupiah
spent on the bailout should have saved an amount far bigger than that
spent. Therefore, rational calculation on cost and benefit analysis
should be done.

The question today is not about whether or not the calculation is
done. The question is how it is done and later communicated to the
relevant stakeholders and the public at large. How were different
scenarios about of the risks and benefits of action/inaction in the
Bank Century bailout communicated to the public?

 It is often accepted that the effects of crises on the public are
mediated by social, economic and political factors. In this case, the
political factor has received the blame in this case due to the
coincidence of the general election in 2009. The ruling party is at at
the center of this blame. The answers depend on the individual, but a
good leader should win the hearts and minds of the people.

In addition, there is an anomaly in the policy making processes in
Indonesia as clearly seen in the Century case, where the regime tended
to produce rushed White Papers to justify their policy after intense
public criticism. The truth is that White Papers should have come
first as a rational justification to the policy remedy, which may have
invited more constructive input before the decision was made.

Should this be done for any major decisions, more constructive policy
planning and decision making in times of crisis can be made without
undermining accountability and transparency.

One of the resorts to mitigate the controversy is the consideration of
equity and justice. Former vice president Jusuf Kalla, who did not
agree with the bailout, argued merely from the point of equity
principle. He also employed “the politics of fear” argument based on
the experience of 1998, where rich people and bank thiefs helped
themselves while the poor were left behind. However, who would have
paid the cost of inaction had the crisis hit the country?

Regarding the “rightfulness” of EWERS to mitigate the financial
crisis, the central problem that led to the controversy is that the
decision seemed to undermine the superiority of the commander in chief
at that time, vice president Jusuf Kalla. In addition, the ambiguity
of the DPR on the policy at the time of urgency was clearly a serious
problem.

There was little room for the stakeholders to question the bailout
process. There was the illusion of “politics of fears” at work, which
undermined the public inquiry into why it cost Rp 6.7 trillion and not
Rp 3 or 5 billion? By avoiding public scrutiny and inquiry at the
outset of this issue, the progators of the bailout have in effect
undermined the trust and legitimacy of the government today.

The writer is a PhD Candidate at the University of Bonn, Germany, and
co-editor of Journal of NTT Studies.

Sumber: The Jakarta Post