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.