Consistency behind New Order's success: Siber

JAKARTA (JP): A former International Monetary Fund (IMF) representative to Indonesia, Kemal Siber, said yesterday that consistent policies in fighting hyperinflation were behind the New Order government's success in rehabilitating and stabilizing the Indonesian economy in the late 1970s.

But Siber would not say whether the new order government is as consistent as it was in the past, although he hinted that it would be more difficult for the current government to tackle inflation problems similar to those faced in 1966.

"I think in the last 25 or 30 years, Indonesia has done well. Your problem is now how to reduce inflation from 10 percent to 5 percent (per annum)."

"I found out during my last three years of experience that it's more difficult for you to reduce (inflation) from 10 percent to 5 percent, compared to (a reduction) from 600 to 100 percent in 1967," he told a seminar here yesterday titled Indonesia: Economic Rehabilitation and Stabilization 1966-1968.

The seminar was organized by the University of Atma Jaya to honor the New Order's first finance minister, Frans Seda, on his 70th birthday.

Siber said that the New Order government, after taking power in 1966 with the help of several noted economists later known as the "Berkley Mafia", tightened controls on budgetary expenditure, budget deficits and domestic credit expansion, which the Old Order government had let run wild. And on the sectors that the Old Order had tightly regulated, such as foreign trade and the payments system, the New Order had liberalized.

The policy of subsidizing essential consumer goods such as fuel and electricity ended with the New Order to eliminate price distortions, but this caused sharp price rises.

He said the main factor behind hyperinflation was monetary expansion caused by huge budget deficits.

The "Berkeley Mafia", headed by economist Widjojo Nitisastro, proved they could rehabilitate the Indonesian economy from a hyperinflation situation by gradually reducing budget deficits.

Siber said the establishment of balanced budgeting had solved the country's hyperinflation.

He also said that quarterly monitoring of budgets had helped the government to accelerate economic stabilization because quarterly expenditure could be adjusted to balance budgets.

"In short, quarterly budget programming was implemented successfully and effectively, an important factor ending the era of budget deficit financing in Indonesia."

Indonesia's annual inflation rate declined sharply from 635 percent in 1966 to 112 percent in 1967. The inflation rate fell to 9.9 percent in 1969.

On future challenges for Indonesia, Siber said that because the country had low income and low savings rates, it needed good debt management to improve its credibility. (alo)