Commitment to full spirit of reform key to recovery

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)