Recovery vulnerable<\/p>\n
President Abdurrahman Wahid's economic team should not take
\ntoo much comfort, let alone feel complacent, from the
\ncommendation in the first few paragraphs of the latest annual
\nIndonesian review report by the International Monetary Fund for
\nwhat it called significant progress already achieved in
\nmacroeconomic stabilization. On the contrary, the bottom line of
\nthe Sept. 14 assessment mostly conveys a very strong warning of
\nvulnerability and raises great concern over uneven implementation
\nof reforms creating uncertainty in the medium-term outlook for
\nthe nation's economy.<\/p>\n
The vulnerability cited by the IMF are the very reasons why
\nmarket confidence remains fragile, most foreign and domestic
\ninvestors still wait on the sidelines, the rupiah's exchange rate
\nagainst the U.S. dollar is still 70 percent lower than pre-crisis
\nlevels and the stock market index is languishing almost 45
\npercent below mid-1997 levels. Lingering uncertainty makes such
\npositive key economic indicators as the 4.0 percent growth in the
\nfirst semester, steadily increasing foreign reserves and
\nrelatively low inflation as if meaningless to market sentiment.<\/p>\n
The fact that the IMF felt it needs to stress several times
\nthe imperative for strong political leadership for economic
\nreform measures indicates both inconsistency and laxity on the
\npart of the government in the implementation of several key
\nprograms. The IMF especially did not hide its utter
\ndisappointment over the very slow pace of asset recovery and
\ncorporate debt restructuring.<\/p>\n
Though the review did not go into such details as to cite
\ninstances of inconsistency, one can easily observe such paradoxes
\nin the manner in which the government deals with the largest
\ndebtors and prepares the privatization of state companies.
\nMeasures that initially looked forceful to compel some
\nrecalcitrant debtors to negotiate in good faith suddenly faltered
\nwithout clarifications.<\/p>\n
For example, the status of the 1998 Master of Settlement and
\nAcquisition Agreements with several the largest debtors now
\nremains uncertain because the government has yet to act on its
\nplan, announced a few months ago, to review the deals. Further
\ndelay in this area would certainly affect asset sales while the
\nassets ceded by debtors under the agreements to settle their
\nobligations are actually the most attractive to potential buyers
\nor investors because they consist mostly of functioning
\ncompanies.<\/p>\n
Many analysts see the approach pursued by the new economic
\nteam in dealing with the largest debtors as too lenient and
\naccommodative towards the businessmen's interests. Some analysts
\neven raised concerns that such a soft approach could lead to
\ncollusive deals because the process is not transparent and the
\ntreatment is discriminative and individual in nature.<\/p>\n
The government seems not fully aware of the urgent need for
\nquicker debt resolution. Now, almost three years after the crisis
\nerupted, most corporate bad debts, foreign and domestic, totaling
\naround US$100 billion, remain unresolved.<\/p>\n
It is not an exaggeration to say that insofar as the huge
\ncorporate debt overhang remains unresolved, the business sector
\nwill remain hostage to uncertainty because the thousands of
\nmiddle and large-scale corporate debtors are deprived of access
\nto new credit lines. This condition will endanger the
\nrecapitalized banks as they will not have enough credit-worthy
\ncorporate customers. New lending will therefore be limited to
\nconsumer loans and credits to small enterprises which obviously
\nwill not be able to generate sufficient earnings for banks to
\ncover their costs. Unless the banking industry gets stronger,
\nthe economic risk of doing business in the country will remain
\nunusually high. This risk, combined with the lingering political
\nuncertainty and very weak law enforcement, makes the nascent
\neconomic recovery highly vulnerable.<\/p>\n
Prolonged delay in corporate debt restructuring will create a
\npotentially devastating impact on fiscal sustainability because
\nthe interest burden of the Rp 624 trillion (US$71 billion) in
\ntreasury bonds issued to recapitalize banks and reimburse
\ncreditors and depositors under the government deposit guarantee
\nscheme will consume the bulk of state revenues, leaving only a
\npaltry sum for infrastructure investment. More worrying is the
\ndreaded possibility of the government falling into default when
\nsome Rp 130 trillion of the bonds are due to be redeemed in 2003,
\nthe same time that the government will have to resume repaying
\nforeign debts to sovereign creditors.<\/p>\n
Averting such a catastrophe requires President Abdurrahman to
\nprovide stronger leadership to the programs of asset sales,
\nincluding the privatization of blue-chip state companies, to
\nraise additional revenues, and to debt restructuring. An
\naccelerated debt resolution will enable the government to retire
\nearly a sizable portion of the treasury bonds currently held by
\nbanks by exchanging them with current performing loans.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/recovery-vulnerable-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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