Crisis will be a blessing in disguise: IMF chief
JAKARTA (JP): International Monetary Fund (IMF) Managing Director Michel Camdessus predicted yesterday that Indonesia's battered economy would recover from its financial crisis in less than three years.
Speaking after meeting with President Soeharto, Camdessus said Indonesia, with the help of the massive IMF-backed reform package, would lead the recovery in Southeast Asia.
Camdessus, who was here on a 24-hour visit, said he received President Soeharto's assurance that the government would implement all the reform measures designed by the President's economic officials and backed by the IMF.
"I was happy to hear from the President that he was personally committed to this program," Camdessus said.
"With this program, I trust that Indonesia will be in better shape and better equipped for long-lasting growth after the time of difficulty.
"I'm certain that the crisis will be a kind of blessing in disguise and that Indonesia will leave this crisis stronger than it was before," he said.
He cited Mexico as an example, saying that after experiencing an economic downturn following its 1995 economic crisis, Mexico now enjoyed a much higher economic growth rate than before the crisis.
Indonesia would also experience an economic downturn this year and possibly next, but then it would regain its momentum to grow even more, he said.
The government sought long-term assistance last month from the IMF as well as the World Bank and the Asian Development Bank to back its reform program to tackle the crisis.
After three weeks of negotiations, which Camdessus described as "smooth", the IMF agreed to arrange "the first line of defense" fund for Indonesia.
The IMF provided US$10.14 billion to complement Indonesia's foreign exchange reserves and help it with market intervention and payment of external debt.
The World Bank and the Asian Development Bank together committed some $8 billion to strengthen the banking sector and modernize the administration.
Indonesia also received bilateral aid commitments as a "second line of defense" from Singapore, Malaysia, Australia, China, Hong Kong, Japan, Malaysia and the United States.
Some estimates put the total aid pledges at some $40 billion.
The massive reform program, Camdessus said, would first reestablish market confidence in the rupiah, which had lost about 35 percent of its value against the U.S. dollar since early July.
"I believe the stabilization of the rupiah and financial stabilization itself shouldn't take a long time," Camdessus said.
But he warned that the rupiah's stability would not spell the end to the crisis and urged the government to give more push to structural reforms to make the economy more efficient and competitive.
Under the agreed upon package, Indonesia will maintain tight fiscal and monetary policies, keep the budget in surplus, and restore the health of the financial sector, which included the closure of 16 insolvent banks.
The government will also engage in a broad range of structural reforms, including liberalization of foreign trade and investment, dismantling of domestic monopolies, expansion of private sector participation and an increase in transparency in public sector activities.
Camdessus said further reforms would be announced by the government after every quarterly review of the program by the IMF and the government.
The reforms would mean slower growth over the next couple of years, Camdessus said.
"But the program has been designed so that by 1999 Indonesia will return to a high growth rate of 7 percent," he said.
He said the economy should recover before the end of the three-year program.
"The faster these measures are taken, the sooner you will harvest the fruit of your labor," Camdessus said.
Besides meeting with Soeharto, Camdessus also held a breakfast meeting with businesspeople and bankers yesterday.
Camdessus, who arrived here Tuesday evening, left for Singapore yesterday from which he will proceed to Thailand, Malaysia and the Philippines. (rid)
Stagflation -- Page 5
Photo -- Page 10
Growth -- page 12