Return of confidence vital: Mari<\/p>\n
JAKARTA (JP): The government's target to lift the country out
\nof its economic crisis by 2000 will largely depend on efforts to
\nwin back hard-to-obtain confidence in the country, according to
\neconomists.<\/p>\n
Mari E. Pangestu, executive director of the Centre for
\nStrategic and International Studies, said a turn around in
\neconomic growth by the year 2000 would mean that investment must
\nsignificantly return next year because domestic consumption could
\nno longer be expected to stimulate growth amid plunging
\npurchasing power and soaring inflation.<\/p>\n
\"To rejuvenate investment we have to win back investors'
\nconfidence,\" she told the Jakarta Post on the weekend.<\/p>\n
She added that confidence would only return if the country
\ncould create a feeling of security and political stability.<\/p>\n
\"A return of confidence will also depend on whether next
\nyear's general election is fair and clean, and produces a
\nlegitimate government,\" she said.<\/p>\n
In a letter to the IMF, the government reported its progress
\nin implementing fund-sponsored economic reforms, and said it
\nexpected the devastating fall in economic output to bottom out by
\nearly 1999, a return to significant economic growth by the
\nfollowing year and a single-digit inflation rate within two
\nyears.<\/p>\n
The government forecasts that the economy will contract 10
\npercent in 1998, with inflation reaching 80 percent in the wake
\nof the country's worst economic crisis in three decades.<\/p>\n
15 percent<\/p>\n
However, the government said the economy could shrink to as
\nmuch as 15 percent this 1998\/1999 fiscal year.<\/p>\n
Mari said that achieving significant economic growth would
\nalso depend on how successful the government was in reaching a
\nsingle-digit inflation rate.<\/p>\n
\"Controlling the money in circulation and restoring the
\nshattered distribution system are keys to curbing inflation,\" she
\nsaid, adding that distribution problems had caused a scarcity in
\nthe supply of basic commodities which had partly caused prices to
\nsoar.<\/p>\n
The country's distribution system was badly affected by bloody
\nrioting in May which led to the resignation of former president
\nSoeharto.<\/p>\n
Umar Juoro, an economist at the Center for Information and
\nDevelopment Studies, said the government's economic and inflation
\ntargets were too optimistic.<\/p>\n
He said inflation might jump to a yearly average of 100
\npercent during the next three years if the government failed to
\ndeal with the country's massive private sector overseas debt,
\nreform the banking sector and stabilize the ailing rupiah.<\/p>\n
The government's corporate debt restructuring program might
\nnot work if the rupiah remains at more than Rp 10,000 to the U.S.
\ndollar and creditors do not write off a significant amount of
\ndebt, he said.<\/p>\n
The Indonesian Debt Restructuring Agency, which was officially
\nlaunched last Monday, intends to invite both debtors and
\ncreditors to participate in an eight year debt restructuring
\nprogram, in which debtors would pay their principal and interest
\nto the agency in rupiah based on a fixed exchange rate. The
\nagency would then pay the foreign lenders in U.S. dollars, though
\nonly the interest during the initial three-year grace period.<\/p>\n
Umar also said insolvent banks must be close down immediately
\nand the banks' owners taken to court if they were guilty of
\nbanking crimes.<\/p>\n
\"These steps must be taken to bring back confidence in the
\nbanking sector,\" he was quoted by Antara as saying.<\/p>\n
According to the government's latest letter to the IMF, four
\ntroubled banks under the Indonesian Bank Restructuring Agency
\nhave been declared insolvent, but it was not mentioned what
\naction would be taken against the banks.<\/p>\n
Umar also said restoration of the banking sector was one key
\nto stabilizing the rupiah, which had lost more than 80 percent of
\nits value from the precrisis level in July.<\/p>\n
Separately, businessman Iman Taufik said he was optimistic
\nthat the government's new economic target could be obtained
\nbecause the current regime was \"making good progress in cleaning
\nup the economy from corruption, collusion and nepotism\".<\/p>\n
A group of 15 leading economists last week lambasted the
\ncrisis-handling policies of President B.J. Habibie's
\nadministration.<\/p>\n
They said the current fiscal year's huge budget deficit of 8.5
\npercent of gross domestic product reflected a populist policy
\nwhich would only lead to an uncontrollable inflation rate.<\/p>\n
The economists also said the current government had no
\nlegitimacy because it was run under the corrupt system that
\nprevailed during the Soeharto regime. (rei)<\/p>",
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