Crisis will be a blessing in disguise: IMF chief

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