Long-term reform a must for RI<\/p>\n
By Omar Halim<\/p>\n
JAKARTA (JP): Amid the nosedive of the rupiah value against
\nthe dollar by more than 50 percent between July and October,
\nPresident Soeharto decided last week to ask the International
\nMonetary Fund (IMF), World Bank and other international financial
\ninstitutions to assist in shoring up Indonesia's currency.<\/p>\n
He also asked Dr. Wijojo Nitisastro, the New Order economic
\nguru, to take the necessary action and coordinate with the
\nrelevant governmental institutions to deal with the problem.<\/p>\n
These steps have no doubt increased confidence in the
\ngovernment's intentions and seriousness in facing the present
\nmonetary crisis. The rupiah exchange rate had, as of yesterday,
\nrebounded to Rp 3,400 to the dollar.<\/p>\n
In the past several weeks, the monetary measures announced
\nwere meant to drastically reduce the money in circulation through
\ncompulsory deposits of public corporations deposited into Bank
\nIndonesia, the central bank, accompanied by the payment of
\nexorbitant interest rates for these deposits.<\/p>\n
These prompted an intense time-deposit rate war among banks to
\nattract deposits from the public. Gradually, these rates have
\nbeen reduced. The government had subsequently complemented these
\nmeasures with a series of fiscal measures which were meant to
\nredress the excessive balance of current account deficit in the
\nlonger term.<\/p>\n
The continuing liquidity squeeze has affected the financial
\nviability of firms which could, sooner or later, result in
\nbankruptcies and unemployment. A decrease in the rate of economic
\ngrowth has been widely forecast for 1997 and 1998.<\/p>\n
The involvement of the IMF and World Bank, and the return of
\ncredibility and confidence, might stabilize the exchange rate of
\nthe rupiah for now, but the government should take this
\nopportunity to undertake fundamental reforms aimed at laying the
\nbasis of long-term confidence in the Indonesian economy.<\/p>\n
This should include revitalization of the capacity and
\nperformance of the economy at the micro level, the level which
\nwill basically determine the viability of the Indonesian economy
\nin the face of the process of globalization.<\/p>\n
In accordance with the ASEAN Free Trade Area timetable,
\nIndonesia will be exposed to almost full competition from other
\nASEAN countries by 2003. Members of the Asia Pacific Economic
\nCooperation, including Indonesia, have agreed to have free trade
\namong themselves by 2020. Indonesia should be, if it does not
\nwant to be the backyard of other countries, at that time, fully
\ncompetitive in world trade.<\/p>\n
For this purpose, the government should have a long-term
\nperspective of the comparative advantage of the Indonesian
\neconomy vis-a-vis its major trading partners in ASEAN and the
\nAsia Pacific region.<\/p>\n
It should orient the education and training system to enable
\nIndonesia to be fully able to face the challenges of the future.
\nThis is a long-term project, which should have been started.<\/p>\n
The government could also use this opportunity when the
\ninternational community (IMF, World Bank, ADB and major bilateral
\ndonors) is prepared to support its efforts to put the Indonesian
\neconomy back on the high-growth track.<\/p>\n
This means undertaking fundamental reforms in the banking
\nsector, as has been suggested by numerous commentators, to weed
\nout inefficient and incompetent financial institutions in order
\nto make the banking sector fully capable in efficiently
\nchanneling financial resources into the appropriate sectors.<\/p>\n
At the same time, the banks should also be protected from
\nhaving to fork out funds for projects that have not been
\nthoroughly evaluated and approved. The government should also use
\nthis opportunity, in general, to eliminate demands for resources
\nthat are not consistent with national economic priorities, or
\nnonviable megaprojects which would only increase the overall cost
\nstructure of the economy.<\/p>\n
Monopolies, oligopolies and other activities that distort
\nprices, and the efficient allocation of economic resources,
\nshould also be phased out within a short period of time. These
\nentities, if they are serious in contributing to the Indonesian
\neconomy, would benefit from the required rationalization process
\nthat would make them competitive with foreign competition.<\/p>\n
It is difficult to take firm decisions on these, and other,
\nreform measures because there are numerous influential interest
\ngroups. Some of those measures would also take some years to bear
\nfruit.<\/p>\n
But it is imperative that the fundamental reform of the
\nIndonesian economy must be undertaken now. It will immeasurably
\nincrease confidence in the Indonesian economy and the government
\nmuch more than the confidence which is being shown now to restore
\nthe value of the rupiah.<\/p>\n
The IMF\/World Bank mission in its stay here this week should
\ntake a long-term perspective in its recommendations to the
\nIndonesian government.<\/p>\n
Better still, as Dr. Mohammad Sadli said in a recent Business
\nNews editorial, if the \"government, on its own initiative,
\n(would) adopt most urgent measures without consulting vested
\ninterests, and before any demand is made by the IMF\".<\/p>\n
Failure to undertake the necessary reform now would make the
\nIndonesian economy continue to be vulnerable. And if such crisis
\nshould recur in the future, international goodwill will be much
\nmore difficult to come by, since it will be clear to foreign and
\nnational capital that Indonesia is not where their capital would
\nreceive the maximum return.<\/p>\n
The writer is a research fellow at the Center for Strategic
\nand International Studies who worked for the United Nations for
\nalmost 30 years.<\/p>",
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