Bold reform, not money, will win confidence

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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