BI vows to continue economic reforms

BI vows to continue economic reforms

MANILA (Dow Jones): Indonesia's top central bankers pledged Saturday to push ahead with painful economic reforms but failed to offer fresh details on some of the thorniest issues that threaten to slow its economic recovery.

The officials, speaking during an Indonesian country seminar at the Asian Development Bank in Manila, reiterated their intention to restructure the ailing banking sector and weed out piles of corporate debt that continue to bog down an economic recovery. The seminar was lead by Bank Indonesia Governor Sjahril Sabirin and Managing Director Miranda Gultom.

Together, they predicted that Indonesia's economy is close to bottoming out and that a return to positive growth is likely in the second half of 1999.

"The worst of the crisis is over.... We are turning the corner towards solid and strong recovery," said Miranda, according to a copy of her speech. "Some signs of recovery are increasingly apparent, and the economy is expected to bottom out in the mid- 1999," added Sjahril in his speech.

The optimistic forecasts, they said, are rooted in gradually improving economic fundamentals: falling interest rates, a strong local currency and signs that foreign investment is starting to pick up. These factors should allow Indonesia to show positive growth in the third quarter, narrowing the economy's full-year contraction to between 1 percent and 3 percent and setting the stage for a stronger performance next year. Price pressure, they noted, should also continue to fall, freeing up room for further interest rate cuts in the months ahead.

Few details

Absent from the officials' comments, however, were new details on a long-awaited government bond sale needed to finance state- bank recapitalizations. They noted that as of January, there was some US$72 billion in total external debts between banks and private companies, highlighting the need to restructure and write-off debts.

The officials didn't offer a clear timetable for writing down these debts or for when the government bonds will be sold. They also declined to put a final price tag on the initiative. And they said they didn't know how much of the total debt figure is held in the form of inter-company, or triangular, debts.

"The total cost of full bank restructuring will be substantial, and will be announced later in the year," said Miranda.

She noted the final cost may fall slightly if inflation and interest rates continue to decline. Indonesia's rate of inflation remained negative for the second straight month in April, falling 0.68 percent year on year.

Sjahril, according to a copy of his speech, said the government is preparing to sell three different types of bonds to recapitalize the banks. They include: variable-rate bonds, fixed- rate bonds and index-linked bonds.

Miranda, meantime, pledged again to stick to "every aspect" of the International Monetary Fund's program, including tight-money policies, the break-up of monopolies and new legal reforms.

Later, in an official statement delivered during a separate Indonesia country presentation, Sjahril didn't offer further details on bank recapitalization plans, other that saying macroeconomic stability and falling interest rates will make the job easier.