Commitment to full spirit of reform key to recovery

JAKARTA (JP): Implementing the ideas behind the tough IMF- sponsored economic reform package is the key to Indonesia's recovery from its worst-ever economic crisis, analysts and businessmen have said.

Implementing only specific points of the reform package may not be enough to regain the public's confidence in the government and the economy, said Faisal Basri, an economist from the University of Indonesia.

"If the government can also implement the spirit of the new deal, we can be optimistic that the economy will recover," he told the Jakarta Post over the weekend.

Following a three-week marathon meeting with the IMF, Indonesia finally agreed to a revised version of the Jan. 15, 1998, reform package, which is backed-up by a multibillion bail- out fund organized by the fund. The concrete measures and timetables for their implementation were announced last week.

However, some remained skeptic as to whether the government would truly be committed to carrying out the reform program, citing a possible reemergence of new forms of monopolies as one of the major concerns.

"It's still a question mark whether the government will be committed to implementing the spirit of the reforms," Faisal said, adding that the new package, though outlined in very specific details, still provides loopholes for backtracking.

He said although the government had canceled 12 mega infrastructure projects in January, it would be meaningless if it pushed ahead with other big-ticket projects, including the triple-tier transportation system in Jakarta.

The same logic applies to the promise of abolishing specified monopolies.

"So, the important thing is implementing the substance," Faisal said.

The Indonesian Chamber of Commerce and Industry (Kadin) also stressed the importance of a strong commitment to the revised reform package.

In a media statement, Kadin chairman Aburizal Bakrie said: "Kadin expects consistency in the implementation (of the reform package)."

He said that the monetary policy under the reform package was expected to stabilize the ailing rupiah so that businesses could make plans.

Faisal stressed, however, that the IMF medicine was not a magic formula for a quick cure to the battered economy, especially the battered private sector.

Although the new package also addressed the problem of corporate foreign debts of $73 billion, Faisal was pessimistic about a reinvigoration of the private sector in the near future.

"Recovering some 50 percent of the debts is the best creditors can expect," he said.

He explained that the momentum for the debt solution had evaporated and many companies have shown strong resistance to repaying their foreign liabilities.

He pointed out that even if the rupiah could stabilize to Rp 6,000 against the dollar, many companies would still find it unreasonable to pay their debts because the debts would still be much larger than their assets.

The rupiah has been under severe pressure since August, plunging to its lowest level of Rp 17,000 in January, compared to Rp 2,450 in the precrisis period in July.

A very high interest rate regime introduced last month, and an improvement in relations between the IMF and Indonesia, has managed to bring the rupiah to about the Rp 8,500 level.

"Bankruptcies will be a trend in Indonesia's corporate scene," he said, pointing to the adverse impact of the high exchange rate and interest rate.

"The high interest rate and exchange rate provide a double punch for the corporate sector," he said.

The IMF prescription to curb inflation and help strengthen the rupiah is maintaining a high interest rate environment.

"There isn't any company that could operate soundly with an interest rate of more than 50 percent," he said.

Faisal also criticized the framework of the corporate debt settlement, which was modeled on the Mexican Ficorca scheme, for its bias in favor of foreign creditors at the expense of the government, which would be obliged to provide the foreign exchange needed at a special rate.

He noted that although the IMF had agreed on further subsidies for basic commodities, most would be eliminated in October.

The reform package stipulates that subsidies on sugar, wheat flour, corn, soybean meal, and fish meal must be eliminated on Oct. 1.

"This is not enough," he said, adding that an inflation target of 17 percent for the 1998/1999 fiscal year was impossible to attain, "unless there's miracle in the economy".

Research director of PT SocGen Crosby Securities Indonesia, Goei Siauw Hong, agreed: "This will create a social problem for Indonesia."

Hong cautioned that the government must implement the full spirit of the reform program since certain vested interest groups currently benefiting from the subsidy scheme might try to lobby for further continuation of the subsidies.

He stressed the utmost importance of nondiscrimination in the enforcement of the upcoming new bankruptcy regulations because many well-connected businesspeople might try to avoid their obligations.

"Indonesia is notoriously popular for its bribery environment," he added. (aly/rei)