Any extension of transitional govt will be costly: Emil

JAKARTA (JP): Noted economist Emil Salim warned President B.J. Habibie on Tuesday that any extension of his transitional administration would create a huge economic cost for the crisis- hit country.

He said that badly needed investment would not arrive until a new government resulting from a fair general election had been formed.

"A longer transitional period will have an expensive cost," the former environment minister told reporters on the sidelines of a seminar on forestry.

He urged the government to implement a free and fair general election because it would be a determining factor for investors contemplating whether to invest in the country.

"People are now questioning whether the general election will go smoothly," he said.

A new government should be established immediately after the general election, he added.

The country is currently experiencing its worst economic crisis in three decades. Analysts say foreign investment will be the primary means of recapitalizing the battered economy.

Investors, however, have expressed concern over the country's political instability, partly due to the transitional status of the current administration.

Habibie took over the country's leadership in May from his mentor Soeharto, who quit after massive rioting rocked the country in the middle of the month.

The new administration has been shaken by a continuous wave of student protests questioning the government's sincerity over delivering political reform which would enable a free and fair general election to be held quickly.

The House of Representatives (DPR) is expected to pass a new law on a reformed electoral system in January.

The government, however, has said that a general election cannot be held immediately because of the preparation required, especially as the number of political parties has surged to more than 100. Only three were allowed during the Soeharto era.

The government expects to hold a general election in the middle of next year, which will be followed by presidential polls and the formation of a new Cabinet in December.

Emil said that although the rupiah had managed to stabilize at about Rp 7,500 to the U.S. dollar lately, compared to around Rp 14,000 in June, it should not be a cause for celebration because the strengthening of the currency was not followed by a surge in real sector investment due to worries over the current political instability.

"What is important is that the strengthening of the currency has to be beneficial to production activities," he said.

The government claims the strengthening of the currency was due to increasing confidence in the economic reform programs, pointing out that despite the recent bloody riots the rupiah had not weakened.

The stable currency has helped stabilize inflation, which in November rose 0.08 percent, from a deflation of minus 0.27 percent in October, sparking optimism that the year-end target of 80 percent would not be exceeded.

These positive developments have provided Bank Indonesia with greater flexibility to further lower the currently crippling high interest rates. (rei)