Economic recovery needs greater transparency
By Riyadi
NUSA DUA, Bali (JP): Continuing trade and investment liberalization, increasing transparency in economic activities and improving macroeconomic foundations would help steer the country out of crisis, a senior economic minister has said.
Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said that a relatively smooth political transition toward a more democratic system would also determine the pace of the recovery process.
Ginandjar noted in a paper for the Australia Indonesia Ministerial Forum meeting here earlier this week that the crisis has not encouraged Indonesia to close its markets.
Instead, it has helped expedite the country's trade and investment liberalization with the dismantling of various barriers, Ginandjar said.
"Our progress on the elimination of barriers to investment since the onset of the crisis has created new markets and new opportunities.
"These accomplishments should be a real source of optimism about future opportunities."
Another source of optimism, Ginandjar said, was the increasing transparency of economic activities. The government had pursued various programs and produced a number of pieces of legislation which should ensure greater transparency.
The measures include restructuring of the banking sector, with an amendment to the banking law and the deliberation of the central bank bill in the House of Representatives, corporate debt restructuring with the enactment of the bankruptcy law and the creation of a level playing field with the passage of the anti- trust law.
In the bank restructuring plan, the government is revamping both state and private commercial banks which have gone rotten due to the harsh impact of the crisis.
Following the sweeping effects of the financial crisis, 96 banks have been found insolvent as their cumulative negative net worth reaches some US$40 billion.
About half of the total banking system loans are non- performing.
Many banks, Ginandjar said, offer deposit rates substantially in excess of what they earn from money lent out just to maintain liquidity and meet daily operating expenses.
"This is clearly an untenable long-term situation. Dealing quickly and efficiently with our banking system is a top priority," Ginandjar said.
He noted that the government was determined to close insolvent private banks so that they would not burden the economy in the future.
Corporate debt
In terms of restructuring mounting corporate debt, Ginandjar said the government had established two modalities to facilitate this.
They are the Indonesian Debt Restructuring Agency (INDRA) and the Jakarta Initiative -- both providing liaison services to debtors and creditors to settle their differences.
INDRA has not yet attracted a single client but the Jakarta Initiative has received claims for assistance in 102 debt cases worth US$12.1 billion and Rp 6.9 trillion (US$775 million).
In addition, the government has also been able to restructure $4.2 billion in sovereign debt with its bilateral creditors through the Paris Club.
The government has moreover established a bankruptcy court to help both local and foreign creditors recover loans from truculent local debtors. Many creditors and litigation experts, however, have balked at the way the court is operating and at the decisions it has handed down.
Responding to these concerns, Ginandjar promised that the government would help improve the credibility of the commercial court by, among other things, increasing the salaries of commercial court judges.
What is more important is that the government has a strong commitment to pursuing greater transparency, not only in the banking and court system, but also in the whole system of economic activities.
"Greater transparency ... requires the establishment of a clear set of rules and the honest and fair enforcement of those rules," Ginandjar said.
Another heartening economic development which should create optimism about the future of the economy, the minister said, was in the improving macroeconomic indicators.
He noted that the inflation rate was moderating and was expected to fall to 17 percent this year, interest rates were declining and now leveling out at 37 percent and the rupiah was stabilizing at the 8,000-9,000 level to the U.S. dollar.
Some sectors of the economy have started to record flat or even positive growth this year after a serious contraction last year.
"It is a major indicator that the worst effects of the crisis are bottoming out," he said.
But Ginandjar warned that any disruption in the political processes toward a more democratic system would hamper the recovery of the economy.
The most important political events this year would be the general election in June, the presidential election in November and the formation of a new Cabinet by the end of this year.
"If the election proceeds peacefully and the results are accepted by most of the people, we can expect the economy to start to book positive growth in the second quarter of this year.
"And if the election produces credible members of the House of Representatives, and the elected president is able to form a credible government, we expect Indonesia to return to the positive growth path by the year 2002." (rid)