IMF predicted to set tough conditions for Indonesia<\/p>\n
HONG KONG (Reuters): Indonesia must brace itself to accept
\ntough conditions for aid as talks go on with the International
\nMonetary Fund (IMF) in Jakarta, analysts said.<\/p>\n
A headline-grabbing sacrifice, most likely of the national car
\nprogram, and some tough economic reforms that strike at the heart
\nof Indonesia's government-banking-business triangle are likely to
\naccompany a standby facility of between US$5 and US$12 billion,
\nthey said.<\/p>\n
\"The need to implement a rescue package brings into question
\nthe balance of power between different interest groups within the
\ngovernment,\" William Keeling wrote in a Dresdner Kleinwort
\nBenson (DKB) research note.<\/p>\n
\"If resolving the current crisis requires a break in the
\nmutually self-serving relationship of government and business,
\nthen a new style of government must emerge to take Indonesia
\nforward. This could be politically problematic.\"<\/p>\n
Abandonment of the national car program, the national jet,
\nfuel subsidies and key monopolies are likely to accompany IMF
\ndemands for immediate insolvency of at least a dozen banks.<\/p>\n
More importantly, demands for a more independent supervisory
\nrole for government are also expected in a country known for
\nextensive political involvement in the corporate sector.<\/p>\n
Although the IMF is known to be vigilant in how its cash is
\ndisposed, analysts stress that Indonesia's economic crisis is a
\nprivate, corporate sector debt problem -- and that will pose
\ndifficulties for the IMF.<\/p>\n
Just as there is a distinction between private and public
\nfinance in Indonesia, so there is a distinction between export
\nand domestic business.<\/p>\n
Exporters were believed to be in better condition given their
\nnatural hedge against foreign-denominated liabilities. But
\ndomestic-oriented conglomerates, including some of the country's
\nbiggest names, could be in serious trouble.<\/p>\n
\"If the worst-indebted of the private companies are among the
\npolitically best-connected, then the process of resolving their
\ndebt obligations becomes highly sensitive,\" Keeling wrote.<\/p>\n
\"The weakness in the currency reflects concern that high-
\nprofile conglomerates are among the worst indebted and that the
\ngovernment may not have the political will to confront them.\"<\/p>\n
Suspensions are forecast in some of the largest, listed
\nconglomerates in order to ringfence their best assets, confirming
\nthe urgency of the situation.<\/p>\n
Up to $10 billion in very short-term debt and US$5 billion in
\none-year debt is expected to mature in the next three months, up
\nto half of which will not be renewed.<\/p>\n
This implies principal repayments on the remainder amounting
\nto 1.1 percent of gross domestic product per month, DKB said.<\/p>\n
Compounding these problems is the absence of insolvency
\nlegislation in Indonesia. This will require the government to act
\nby fiat to seize assets, testing its commitment and putting
\npressure on the IMF to enforce conditions.<\/p>\n
Given Indonesia's inbred corporate structure, DKB suggested
\nthe IMF consortium would require the government to take over
\nentire groups rather than individual companies, choosing which
\nones should be rescued and which should be allowed to fail.<\/p>\n
\"To do otherwise would be to bail out the most profligate of
\nthe private entrepreneurs,\" Keeling wrote.<\/p>\n
\"There will inevitably be room for preferential treatment
\nwhich will be contentious but unavoidable. This increases the
\nneed for the IMF consortium to set the terms of reference for
\nenforcing the insolvency of private companies before approving
\nthe standby facility.\"<\/p>",
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