Businesspeople hail new economic reform package

JAKARTA (JP): Businesspeople and analysts yesterday hailed the government's latest reform package as a quick, concerted move to prevent the economy from collapsing.

Businessman Sofyan Wanandi, banker Mochtar Ryadi, economists Christianto Wibisono, Mari E. Pangestu and Didik J. Rachbini said the move would convince domestic and foreign investors the government was determined to address their concerns.

But they suggested the government quickly put the new reform package into action to regain investors' confidence in Indonesia.

"The policy is a very good sign. But the government needs to quickly issue follow-up measures on the ministerial level. Otherwise, its credibility will deteriorate," Sofyan said.

The government unveiled Wednesday a package of measures to prevent the country from plunging into a worse financial crisis amid the regional currency turmoil.

The package includes steps to boost the stock market, cut budget spending, raise luxury sales tax and cleanse the banking industry of unsound banks.

Banker Mochtar Ryadi said the new reform would directly address rupiah and stock market crises simultaneously as the currency crisis had dragged on the stock market to tumble.

"Domestic and foreign investors -- due to tight monetary policy, high interest rates, foreign exchange losses by listed firms and so forth -- had lost confidence in the stock market," Mochtar said.

"The currency crisis has therefore created a new crisis, a capital market crisis," he added.

Consequently, he said, investors had also lost confidence in Indonesia's economy partly because they doubted the country's ability to service its external debts.

If the government failed to address the crisis, it would eventually burn the banking industry, which was already weakened by the tight monetary policy and high interest rates, he warned.

"But the government has been aware of all of those problems. And this package is very useful to address those problems," Mochtar told journalists before attending a seminar hosted by the Indonesian Business Data Center here.

Christianto, the center's chairman, described the new reform package as the government's political goodwill to rehabilitate its deteriorating credibility.

"This is a preemptive strike conducted independently by a state in a situation which needs a serious but unpopular political will," Christianto said.

He praised the government's decision to scrap limits on foreign purchases of new shares in a bid to restore life to the stock market, which has dropped 30 percent since early July.

"This is an extraordinary move which could be taken only by a strong government which is not afraid of its political implication," Christianto said.

He suggested the government quickly ease liquidity and reduce interest rates to inject needed blood into the business sector.

The government should not panic in addressing the rupiah as it has already depreciated 25 percent. The rupiah would be stable at the current level of 3,000, he said.

"If Thailand's crisis died down after its currency depreciated 25 percent, we should not panic and worry that the rupiah will weaken further as it also depreciated by 25 percent," Christianto said.

Economist Mari Pangestu from the Center for Strategic and International Studies said yesterday the government's move was a good first step in restoring investors' faith.

But she said it was important concrete actions followed the move.

"Another question which is difficult to answer is whether more deregulatory packages are needed to restore investors trust," Mari said.

She underlined the importance of hastily restoring investor confidence to counter what she described as the "negative contingent", a domino effect which might spread here should another crisis hit neighboring economies.

Didik J. Rachbini of the Institute for Development of Economics and Finance, said the new policy was not enough to handle the current monetary turmoil.

"What is important now is how to ease the panic among the public. What happens now is no longer a purely monetary crisis but a sociopsychological problem," he said at a discussion organized by the institute.

Didiek said there were a number of individuals in the country who had the ability to either worsen or improve the current monetary situation due to huge savings.

The government should coordinate these individuals to conduct a concerted effort to solve monetary problems.

The rich could cool down the current monetary situation if they were willing to use joint action to solve it, he said.

Rijanto Sastroatmodjo, a Bank Servita commissioner, said he was not sure if the new monetary policy would be able to solve the current currency problem since the currency rate was floating abnormally and the public was in panic mode.

"Previous measures adopted by the government have failed to improve the situation. Let's see if the new package can make it. If it fails, all we can do is pray," he said.

Rijanto called on the government to focus on handling liquidity and leave the currency rate to the market. The government doesn't have enough resources to control the rate. (jsk/mds/rid)