Springtime in economy<\/p>\n
Indonesia's economy still contracted by 10.34 percent in the
\nfirst quarter of this year compared to the same period in 1998
\nbut improved markedly with a 1.34 percent expansion from a
\nnegative growth of 19.5 percent in the last quarter. Other key
\nindicators also show encouraging signs of improvement. Inflation
\ndeclined for the second consecutive month with a 0.68 percent
\ndrop in April, compared to the 0.18 percent deflation in March.<\/p>\n
Punitive high interest rates, which crippled both banks and
\nbusinesses, are on a downward trend. The central bank's benchmark
\ninterest rates have declined steadily to as low as 31.47 percent
\nthis week from 36.50 percent in January and from as high as 70
\npercent last October. Net foreign exchange reserves were a
\ncomfortable US$16 billion, well above the International Monetary
\nFund's set minimum target of $14.3 billion.<\/p>\n
The Jakarta Stock Exchange index has strengthened to its
\nhighest level since its collapse hit a low of 276.15 in September
\n1998. The composite index rose to over 588 one day this week on
\nthe back of strong foreign buying before ending the week at
\n575.11.<\/p>\n
Most importantly, the rupiah -- its the crash in August 1997,
\nwas largely responsible for triggering the current economic
\ncrisis -- broke the psychological barrier of Rp 8,000 to the
\nAmerican dollar and closed the week at 7,800-7,900. The currency
\nhovered between Rp 8,600 to Rp 8.900 over the last few months
\nafter recovering from its low of Rp 17,000 last July.<\/p>\n
The problem of US$65 billion in non-bank corporate foreign
\ndebt which has virtually closed the international financial
\nmarket to Indonesian companies, is being addressed more
\naggressively. This is from the realization that businesses will
\nremain under the grip of paralysis without the return of foreign
\nconfidence.<\/p>\n
State-owned PT Danareksa finance company made the first break
\nout of the impasse with a $196 million debt-restructuring deal
\nlast month. Until a few months ago, almost all debtors had simply
\nlaid back and stopped servicing their debts. Many of them are now
\ndealing with foreign creditors in good faith and several major
\ndebt-restructuring agreements involving such big groups as Astra,
\nBakrie & Brothers, Polysindo and Mulia which covers more than $5
\nbillion are in the pipeline.<\/p>\n
The massive bank reform, though still dogged by power
\npolitics, got a sorely needed infusion of foreign confidence last
\nmonth when Standard Chartered Bank bought 20 percent of Bank
\nBali. The deal will give the United Kingdom bank the option to
\nimmediately take over full control of the management and the
\nmajority ownership within five years.<\/p>\n
The only big disappointment is export, the main locomotive
\nexpected to drive economic recovery. Non-oil exports, though up
\nby 10.23 percent in February, suffered a 22.06 percent decline on
\na year-to-year basis for the first two months (compared to the
\nsame period in 1998). A shortage of trade financing due to the
\nlack of foreign trust in Indonesian banks, which are mostly
\ncrippled with negative capital, has deprived manufacturers access
\nto imported input. Foreign buyers, worried about delivery
\nschedules due to security disturbances in several areas, seem to
\nhave diverted orders to other suppliers.<\/p>\n
That said, we are still far off the path of sustainable
\nrecovery. However encouraging this springtime seems to be, big
\nturbulences still loom ahead, threatening to destroy the budding
\nconfidence.<\/p>\n
Obviously, a sustained recovery still hinges primarily upon a
\nsmooth general election on June 7 and the election of a credible
\ngovernment later this year. Anything less than this would again
\nlead the economy back into an abyss. But a credible government by
\nitself will not be sufficient to spur the economy however vital
\nit is to restore political stability, security and order, and to
\nsustain international aid flow.<\/p>\n
Continued reform measures are no less crucial for restoring
\nfull confidence in the long-term prospects of the economy,
\nespecially now when the country is so strapped for both foreign
\naid and capital. Most imperative is an accelerated pace of the
\nbank and foreign and domestic debt restructuring. Without
\nsignificant progress in these areas, no foreign investor will
\nlikely come, most businesses will remain closed to new domestic
\nand foreign credits and exports will continue to be stifled by
\nlack of imported inputs.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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