Economic recovery needs greater transparency

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)