Government told to sell assets quickly<\/p>\n
JAKARTA (JP): International economists urged the Indonesian
\ngovernment to accelerate sales of assets to speed up the pace of
\nrecovery and strongly warned against resorting to any form of
\nexchange control as a quick fixer to stabilize the rupiah's
\nexchange rate.<\/p>\n
The economists, speaking at a panel discussion here on
\nTuesday, also strongly suggested that Bank Indonesia (the central
\nbank) ease monetary policy to fuel economic expansion.<\/p>\n
"I don't think Indonesia can now afford to introduce exchange
\ncontrols. Nor is a currency board system appropriate for the
\ncountry," asserted economist Paul Krugman of Princeton
\nUniversity, U.S.<\/p>\n
Krugman argued that even though Malaysia achieved a stronger,
\nquicker recovery under a regime of exchange control, the
\nIndonesian government simply lacks administrative depth and
\ncredibility to manage such an exchange system.<\/p>\n
Krugman, one of few economists who accurately forewarned of
\nthe East Asian economic crisis in late 1997, was a keynote
\nspeaker at the meeting on Indonesia's road to recovery that was
\norganized by Strategic Intelligence, an economic research agency.<\/p>\n
Other economists participating in the panel discussion that
\nattracted quite a large audience were: Hubert Neiss, former
\ndirector of the Asia and Pacific Department of the International
\nMonetary Fund and the architect of Indonesia's bailout program in
\nNovember 1997, IMF senior resident representative in Indonesia
\nJohn Dodsworth, World Bank Country Director for Indonesia Mark
\nBaird, Bank Indonesia's Deputy Governor Miranda Gultom, Standard
\nChartered Bank's chief economist for Southeast Asia Wong Yit Fan.<\/p>\n
"The monetary policy should not react too much to inflationary
\npressures and should not be too cautious about lowering interest
\nrates," Krugman added.<\/p>\n
Bank Indonesia has steadily raised its benchmark interest
\nrate since early May after the tightening of monetary policy in
\nthe U.S. and in reaction to the recent deterioration of the
\nrupiah against the U.S. dollar.<\/p>\n
The central bank's benchmark interest rate is now around 13.3
\npercent, compared to less than 11 percent in April.<\/p>\n
Krugman conceded he was out of new ideas on how to speed up
\nIndonesian economic recovery, but cited speedy resolution of the
\ncorporate and government debt trap and corporate and bank
\nrestructuring as top priorities of current policy measures.<\/p>\n
The government's debts are now estimated at more than US$146
\nbillion, of which $74 billion are foreign debts and $72 billion
\ndomestic debts in the form of treasury bonds issued to
\nrecapitalize banks. Foreign corporate debts are estimated around
\n$65 billion.<\/p>\n
Krugman stressed the urgent need for the development of
\nstrong, independent institutions to execute reform and a credible
\nsystem to broaden the tax base, as well as acceleration of the
\nprivatizing of state companies.<\/p>\n
Neiss, currently Deutsche Bank's Asia chairman, shared
\nKrugman's view that Bank Indonesia should not raise interest
\nrates to cope with the rupiah's depreciation.<\/p>\n
He also warned that any form of exchange control would scare
\naway investors.<\/p>\n
Miranda noted that the central bank's monetary policy has to
\ndeal with challenging situations due to the weakening rupiah and
\nincreasing inflationary pressures.<\/p>\n
"The banking industry has not yet resumed significant lending
\nand that is very worrisome," Miranda added.<\/p>\n
Baird, Dodsworth and Neiss agreed that accelerating sales of
\nthe assets currently managed by the Indonesian Bank Restructuring
\nAgency is pivotal for fueling economic recovery.<\/p>\n
Dodsworth said he understood the concern over the risk of fire
\nsales but the dilemma is that "without significant asset sales,
\nrecovery will never come and the quality of the assets will
\ndeteriorate."<\/p>\n
The economists referred to the Rp 600 trillion (US$72 billion)
\nin assets taken over by IBRA from closed and nationalized banks.<\/p>\n
While Krugman declined to comment on the economic team in the
\nnew Cabinet because, "I don't know those people", other panelists
\nopined that the team should immediately set a firm policy
\ndirection to gain credibility in the market.<\/p>\n
"The new economic team needs to firmly demonstrate up front
\npolicy direction to convince the market," Dodsworth said.<\/p>\n
The panelists cited policy directions in the 2001 state
\nbudget, fuel subsidy cuts through fuel price increases in
\nOctober, preparations for the decentralization of political and
\nfiscal power to the regions, civil service reform and corporate
\nand bank restructuring as crucial for establishing the Cabinet's
\nmarket credibility.<\/p>\n
"The government should step up interference in the process of
\ncorporate debt restructuring," Neiss said.<\/p>\n
The economists also agreed that the new Cabinet should be
\ngiven a fair chance to prove itself. (bkm\/vin)<\/p>",
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