Encouraging news offers only short-lived boost: Analysts<\/p>\n
JAKARTA (JP): The government's success in rescheduling most of
\nits debt due this year and in landing multibillion dollar
\noverseas funding are not enough to effect long-lasting confidence
\nin the faltering economy, experts have said.<\/p>\n
They said yesterday recovery from the year-long economic
\ncrisis remained in the distance, dependent on solving lingering
\nissues such as private debt and banking sector problems,
\nuncertainty over the domestic political situation and the
\nmarket's negative view of the government's populist policy.<\/p>\n
"It's difficult to be optimistic," said head of research at PT
\nSG Securities Indonesia Goei Siaw Hong.<\/p>\n
He considered the debt rescheduling to be only a temporary
\nremedy for the ailing economy because debt pressure still
\nexisted.<\/p>\n
"What Indonesia needs is a reduction in the amount of both the
\nsovereign debt and private sector overseas debt."<\/p>\n
He added that the implementation of a new bankruptcy law would
\nhelp in reducing pressure from the private sector's overseas debt
\nbecause a bankrupt entity would no longer be required to pay its
\ndebt.<\/p>\n
But uncertainty on the domestic political front created a
\njittery environment which deterred investors, he said.<\/p>\n
Markets would pay particular attention to the special session
\nof the People's Consultative Assembly in November, the general
\nelection in May and the presidential election in December 1999,
\nhe added.<\/p>\n
Associate director of PT Bahana Securities Andre Cita agreed
\nthe uncertain political situation was a primary contributor to
\npersistent low confidence.<\/p>\n
"There is still concern on the social and political situation.
\nPeople are still waiting to see whether there will be more social
\nunrest or rioting."<\/p>\n
Coordinating Minister for Economy, Finance and Industry
\nGinandjar Kartasasmita said Monday that foreign lenders had
\ncommitted to rescheduling about US$1.25 billion in the country's
\nsovereign debt due this year.<\/p>\n
The agreement is expected to be signed at the Consultative
\nGroup on Indonesia (CGI) donors meeting in Paris at the end of
\nthis month.<\/p>\n
The government has allocated Rp 33.26 trillion ($3.1 billion)
\nfor principal payment of its debt during the remaining period of
\nthe 1998\/1999 fiscal year.<\/p>\n
The postponement is expected to help the country in financing
\nits huge subsidy commitments to help the people survive the
\ncountry's worst economic crisis in three decades.<\/p>\n
The IMF has also announced that several donors including the
\nWorld Bank, Asian Development, Australia and China had agreed to
\nprovide an additional $6 billion on top of the $43 billion IMF-
\narranged loans to cover the financing gap in the 1998\/1999 State
\nBudget, which was allowed by the IMF to have a deficit of 8.5
\npercent of gross domestic product.<\/p>\n
The news briefly lifted the rupiah to around Rp 13,000 to the
\nU.S. dollar last Wednesday, but the currency plunged back to more
\nthan Rp 14,000 during the following days. The rupiah has lost
\nmore than 80 percent in value from its precrisis level of Rp
\n2,450 in July last year.<\/p>\n
The additional funding is needed to provide subsidies for
\nfuel, basic food items, and a credit program for small
\nbusinesses.<\/p>\n
Populist policies<\/p>\n
"But these are populist policies which will drain our forex
\nreserves. The market doesn't like this," said Goei.<\/p>\n
He explained that subsidies would be tolerable at difficult
\ntimes if they were prioritized to the poor.<\/p>\n
"It would be a serious problem if President Habibie is trying
\nto satisfy everyone."<\/p>\n
He also lambasted the government's decision to raise the
\nexport tax on crude palm oil.<\/p>\n
"Why shouldn't we export CPO when we really need more
\ndollars?" He feared the high export tax would only lead to more
\nsmuggling of CPO out of the country.<\/p>\n
Cita said one of the key factors in returning confidence to
\nthe economy was the restoration of the shattered banking sector.<\/p>\n
"There's still a lot of focus on the banking sector," he said,
\nadding that investors were also waiting to see the implementation
\nof the bankruptcy law.<\/p>\n
Minister of Justice Muladi said Tuesday that new bankruptcy
\nregulations would be effective by Aug. 22, in which it would only
\ntake 30 days to process a bankruptcy case.<\/p>\n
The IMF's Asia Pacific director Hubert Neiss arrived in
\nJakarta yesterday on an expected two-week visit to continue
\nreviewing the country's economic reform programs. (rei)<\/p>",
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