Can the Indonesian economy be saved?

Can the Indonesian economy be saved?

Sjahrir, Economist, Chairman New Indonesia Alliance, Jakarta

The title of this article may sound alarmist, more so in
relation to a statement by Rizal Ramli, when he was chief
economics minister, that economists were frightening the public
unnecessarily. Rizal contended that the situation then was not as
"scary" as was often portrayed by economists.

Similarly, if we look at statements by government officials
today, it is hard to avoid the impression that there is too much
complacency about. Take as an example the initial explanation by
Minister of Finance Boediono that the terrorist attacks on the
United States had little impact on the Indonesian economy. The
fact that the chief assumptions used in the 2002 state budget
have been revised, including the downward projection of economic
growth from 5 to 4 percent next year, does not mean that our
officials have, all of a sudden, grasped the gravity of the
present crisis.

The attack on Afghanistan by U.S.-led forces has dramatically
changed the domestic political landscape. Protests have not only
been held outside the U.S. Embassy, but have also been aimed at
Merdeka Palace. In the run-up to the annual session of the
People's Consultative Assembly (MPR) on Nov. 1, there has been
much political speculation, among other things, about the
conflict between supporters and opponents of the government.

But what of the economy? We seem to have forgotten that
regardless of the escalating U.S.-Afghanistan conflict, we have
been stuck in a quagmire of economic crisis for 50 months. We
have had four presidents and no less than six men take their turn
at leading the Indonesian Bank Restructuring Agency (IBRA) to try
to get the economy going and reinvigorate the banking sector.

But what do these men have to show for their efforts?

First, the rupiah-dollar exchange rate, always used as a
measure of monetary stability, remains volatile. If, in July
1997, the rupiah was Rp 2,500 to the U.S. dollar, now we need Rp
10,035 to buy a single dollar.

Second, the banking sector remains in a state of crisis,
unable to perform its function as a financial intermediary. On
average, the amount of funds channeled as loans has fallen below
40 percent. The rest have been used to buy Bank Indonesia
Certificates (SBI), adding to the burden of soaring interest that
the government has to pay.

Third, the program to restructure debt-laden companies held
under IBRA has stagnated. These sick companies have not been
treated at the "IBRA emergency room" as they should have been,
but instead, have become the target of extortion by various
"slaughter houses" -- including IBRA itself, the Attorney
General's Office and the National Police.

We have not seen any sign of improvement among these
companies, despite the huge sums of money injected into them by
the government.

Fourth, as a consequence, the government's budget has become
contractive in the wider sense of the term, instead of a narrow
contraction. Interest payments on government bonds and the
servicing of foreign debts are siphoning off so much funds that
the small budget for the development program has become something
of a joke.

We have to act now.

The government's plan to introduce emergency measures, as
disclosed by the finance minister, has been widely regarded in
business circles merely as an act of desperation.

We have an extremely acute economic crisis that cannot be
solved by the government alone.

It is clear that the MPR has an important role to play. The
2nd Ad Hoc Working Committee, which is drafting the annual
session's agenda next month, is preparing a decree to deal with
the recovery and reconstruction of the Indonesian economy.

If the decree could focus on reconstruction and recovery,
putting emphasis on IBRA, the state budget, small- and medium-
sized businesses, cooperatives, poverty, debt and tax issues, the
problem of refugees and also regional autonomy, we might just
acquire the "political umbrella" needed by the legislature and
the administration to lead the nation out of this crisis.

Under such an umbrella, hopefully there will be no more
breakdown in the functions and authority of the legislature,
executive and judiciary. Such breakdowns have frustrated past
efforts at economic recovery.

The plan to sell the Bank Internasional Indonesia (BII) to
foreign investors failed due to constant political intervention.
Even though BII has been recapitalized, it still faces large
problems connected with the debts of the Sinar Mas business
group.

The deal to sell Bank Bali to Standard Chartered Bank failed
for similar reasons, and the government ended up having to spend
trillions of rupiah to bail it out.

The sale of Bank Central Asia (BCA) shares has been delayed,
making a mockery of deadlines that had been agreed to by the
government in its letter of intent to the International Monetary
Fund. The BCA sale, which should have been completed last year,
remains a mere plan to this day.

Given that the worsening political condition will not be very
conducive to Indonesia's stability over the coming months, let us
hope that the MPR can direct the focus of attention toward the
national economic recovery effort.