Confidence crisis not yet over despite aid: Expert
Confidence crisis not yet over despite aid: Expert
JAKARTA (JP): The turmoil that continues to hit the rupiah and
the local stock market indicates that confidence has yet to
return to the country's economy despite an International Monetary
Fund bailout, an economist has said.
The executive director of the Center for Strategic and
International Studies, Mari Elka Pangestu, said yesterday the
global economic downturn and domestic uncertainty had slowed down
efforts to strengthen both the rupiah and the stock market.
"We are experiencing the contagious effect of the region's
jitters," she said.
She said in Japan, the market was nervous about the possible
closure of the country's securities companies.
People wondered whether China would adjust its currency to
compete with the lowered value of other currencies in the region,
and whether the currencies of India and Brazil would be hit by
the domino effect of the downfall of Southeast Asian currencies,
she said.
Speculative attacks, triggered by the devaluation of the Thai
baht, had led to about a 35 percent drop of the rupiah against
the U.S. dollar.
The currency crisis also hit other countries in the region,
dragging down the values of the Malaysian ringgit, the Filipino
peso and even the usually robust Singaporean dollar.
Last week, the Jakarta Stock Exchange composite index hit a
four-year low, breaking through the psychological 400-point
barrier, upon the central bank's announcement of the country's
foreign loans. The index has since sluggishly picked up.
Mari said internal factors also greatly affected the low
confidence in the country's economy.
Foreign and local investors were still waiting for the full
implementation of the government reform package established early
this month as a concession for the IMF-led financial package.
The market was also fazed by the uncertainties regarding the
private sector's short-term loans that were going to mature soon,
she said.
The private sector was wondering whether the government would
help bail out the companies with the maturing loans, and whether
the loans would create more problems, she said.
Both the government and the private sector must take an
approach to reduce this uncertainty, she said.
Mari said the IMF package, containing standby loans of about
$23 billion, did not necessarily help in solving the problems.
"The IMF cannot 100 percent guarantee that we will get out of
this shackle. We will have to wait until the implementation of
the reforms takes effect on our economy," she said.
Unless the uncertainty was reduced, the country would not be
able to improve its weaknesses and avoid similar crises in the
future, she said.
Mari predicted the crisis would likely be over after several
more months.
However, the crisis would be followed by an after-shock in the
forms of an economic recession and stagflation as the result of
the financial turmoil in the next one to three years, she said.
Japan still suffered from lower growth and a recession since
the early 1990s when its economy bubbled, while Mexico has
finally begun to recover after two years, she said.
In an optimistic scenario, Mari said the economy might recover
by the end of next year or the beginning of 1999, if supported by
the return of foreign investors and good governmental measures.
After the recovery, the government must set a mid-term and
long-term strategy to prevent similar crises from occurring
again.
This would show people and investors that Indonesia was
serious about its economic vision, she said.
The mid-term reforms would focus on how to boost non-oil and
gas exports, and improve human resources and infrastructure, she
added.
Mari said the crisis was also a wake up call for large
companies and conglomerates to be less diverse in the future.
Many companies expanded too rapidly and took out too many
loans, resulting in a desperate situation now.
These companies must instead focus on their core business to
increase their exports, she said. (das)