Bold reform, not money, will win confidence

JAKARTA (JP): Indonesia needs to introduce a bold reform package to deal with deteriorating international confidence in its economy, analyst Laksamana Sukardi said.

Laksamana, chief executive officer of ReFORM consulting firm, said borrowing more money, either bilaterally or multilaterally, would not be effective in regaining international confidence.

"A financial solution alone would not work. Even if we get US$50 billion in new loan commitments, the market would still react negatively," Laksamana told The Jakarta Post.

Any financial aid should be supplemented with a bold reform package to restore confidence in the economy and in the government's capability to manage the economy, he added.

"The quality of the forthcoming reform package, and not the amount of financial aid, will determine whether the global market will vote with its feet or with its money," Laksamana said.

When asked what would be the key elements of such a bold move, Laksamana said: "Just tell the market that we will scrap the national car program, abandon the N-2130 jet project, abolish monopoly practices, improve the transparency of policy making and strengthen the financial sector."

"And this must be announced by the President himself, not by his aides, to put more weight to the move," he added.

Currently, Indonesia is seeking both bilateral and multilateral financial assistance within an IMF-led package to tackle the crisis. It has already got aid commitments from Malaysia, Singapore, Japan and Australia.

Nevertheless, the government is still negotiating with international institutions led by the International Monetary Fund (IMF) for a financial and reform package.

"We should differentiate financial crisis from a crisis of confidence," Laksamana asserted, adding that confidence must be restored with the reestablishment of the basic norms of confidence.

Too much emphasis on new offshore debts, he said, would only worsen the crisis as investors were fully aware that Indonesia was burdened by a large amount of foreign debts.

"It was this huge debt which triggered this crisis in the first place. How can you restore confidence by borrowing more money?" Laksamana marveled.

He pointed out that global investors' confidence in Indonesia was vital for the revival of Indonesia's economy.

He contended that Indonesia's high economic growth of past years was fueled largely by global investment elements like foreign debts, foreign portfolio and direct investment.

Market discipline

In addition, Indonesia's economy has become increasingly dependent on the global market.

"The global market has become the main constituency of our economy now. But we often forget that this global market is a well-organized market, where transparency and a level-playing field are compulsory," Laksamana said.

Therefore, he said, the government must fulfill global market requirements of transparency and a level-playing field to restore confidence in Indonesia's economy.

He cited the deteriorating quality of economic management as one of the main reasons for global investors losing confidence in Indonesia's economy.

According to him, the deterioration of economic management was caused by inconsistencies in government policies and confusing statements from government officials.

Besides, government officials had displayed no real awareness of the crisis. Before the crisis occurred, for instance, they tolerated the widening current account deficits, swelling foreign debts and worsening banking problems.

When the crisis struck, it turned out that the government (central bank) was in the dark about how much the private sector owed to foreign creditors and about the maturity dates of these debts.

"In addition, there is too much powerful vested interest in the country's economy, as reflected in the monopoly and oligopoly in various sectors, relaxed attitude toward corruption and off- budget financing," added Laksamana, a former managing director of Lippo Bank.

All these factors, combined with the separation of the de jure power from de facto power, lack of transparency, the politicization of the financial market and inadequate control in the political system, led to poor economic management.

"The policy-making process has increasingly become personalized instead of being institutionalized," he pointed out.

Consequently, Laksamana added, the global market assessment of the risks in Indonesia's economy became distorted. It was becoming more difficult to measure the real cost of investment and to make profit projections. (rid/vin)

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