RI's economy needs massive reforms: economists<\/p>\n
JAKARTA (JP): Total reformation requires changes from both the
\ngovernment and the business sector to prevent another economic
\ncrisis in the future, economists from the University of Indonesia
\nsaid here Thursday.<\/p>\n
Sri Adiningsih said business players and bureaucrats had to
\nchange their attitudes to ensure they would create a healthy
\nbusiness environment.<\/p>\n
\"The government and the business sector seem to resist rapid
\neconomic changes, but they have to adapt to these changes,\"
\nAdiningsih told a seminar on Indonesia's future economy, hosted
\nby the Indonesian Economists' Association.<\/p>\n
\"Businessmen, for example, still demand that the business
\nenvironment be like it was before the crisis,\" she said.<\/p>\n
She said this kind of attitude was not acceptable anymore,
\nbecause the economy would never return to the way it was before
\nthe currency crisis, when local businesses were \"like living in
\nan incubator\".<\/p>\n
Rapid changes are part of the dynamics of an economy, she
\nadded.<\/p>\n
She said changing the bureaucracy's attitude might take time,
\nbut in the long run it would only improve the economy.<\/p>\n
Sri Mulyani Indrawati, deputy chairperson of the Center for
\nEconomic and Social Studies at the university, said without
\nsignificant changes in the economic, governmental and political
\nsystem, there would be no guarantee that the financial crisis end
\nanytime soon.<\/p>\n
Mulyani said political aspects had hampered the government
\nfrom making clear and firm decisions.<\/p>\n
She said the government was still weak in making its policies
\napplicable and in foreseeing their possible outcome.<\/p>\n
In coping with the currency crisis, which reduced the rupiah's
\nvalue against the US dollar by around 35 percent since July, the
\ngovernment had not clearly indicated its first priority.<\/p>\n
The August decision to free-float the rupiah in the market
\nwhen the market was not ready caused the currency to further
\ndepreciate, she said.<\/p>\n
The government even made a blunder by over-tightening
\nliquidity and increasing interest rates by three times to 30
\npercent for the one-month benchmark Bank Indonesia Certificate
\n(SBI).<\/p>\n
The blunder resulted in corporate bankruptcies and banking
\nfailures.<\/p>\n
\"It seems the government thinks that they can outsmart the
\nmarket, but the market always ends up outsmarting the
\ngovernment,\" she said.<\/p>\n
\"The government should be the first to learn, but it seemed to
\nalways distance itself from the economic laboratory,\" she added.<\/p>\n
She said the government again misjudged the market by pursuing
\nreforms on the macroeconomic level with the help of the
\nInternational Monetary Fund.<\/p>\n
But what the country needed was something to boost market
\nconfidence, she said.<\/p>\n
\"It was a wrong answer to the wrong question,\" she said.<\/p>\n
The misjudgment actually started back in the early 1980s when
\nthe government began liberalizing the finance sector, she said.<\/p>\n
\"The conventional wisdom -- as in any economic theory -- is
\nthat a country must first liberalize its real sector before the
\nfinancial sector, but it was the other way around here,\" she
\nsaid.<\/p>\n
As a result, many banks were established, accumulating
\ncapital, but there was nowhere to channel the funds, as the real
\nsector was yet to be liberalized, she said.<\/p>\n
The banks then allocated the funds for nonperforming sectors,
\ngiving short-term loans to projects with long-term investment,
\nsuch as properties, she said.<\/p>\n
In the same time, the government was heavily developing the
\ncountry's physical infrastructure to create many jobs, but it
\nfailed to develop a soft infrastructure such as human resources,
\nshe said.<\/p>\n
To get out of the current crisis, the president of the state-
\nowned Bank Negara Indonesia, Widigdo Sukarman, suggested the
\ngovernment help tackle private offshore debts.<\/p>\n
For instance, the government could help establish a company
\nwhich would secure foreign loans held by the private sector.<\/p>\n
\"We could establish a new company which would buy commercial
\npapers and other debt instruments unpayable by private
\ncompanies,\" Widigdo said.<\/p>\n
The company would then issue other commercial papers and
\ninstruments and offer them to investors with a higher rating, he
\nsaid. (das)<\/p>",
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