Economist says new government could oppose IMF

Economist says new government could oppose IMF

JAKARTA (JP): A new Indonesian government which is expected to
be formed later this year would most likely force the
International Monetary Fund to renegotiate its harsh economic
measures, said a prominent economist.

Sri Mulyani, an economist at the University of Indonesia, said
on Wednesday the future government would not have "a sense of
belonging" to the current IMF economic reform programs. They were
designed together with the present administration, deemed by many
as lacking in political credibility.

"There is no guarantee that a new government will stick with
the (current) economic reform programs," she told a seminar on
the Indonesian post-election economy held to celebrate the 10th
anniversary of the Warta Ekonomi economic weekly.

"This is a general problem with launching economic reform
programs in developing countries."

Indonesia is scheduled to elect a new president in November.
The two leading contenders for the presidency are popular
opposition leader Megawati Soekarnoputri of the Indonesian
Democratic Party of Struggle (PDI Perjuangan), and the incumbent
President B.J. Habibie supported by the ruling Golkar Party.

The IMF has not had any cause for concern that a new
government would not recognize fund-prescribed programs. The
position was evident after IMF first deputy managing director
Stanley Fischer received assurances in June from leaders of the
country's top five political parties resulting from the June 7
legislative elections.

Such confidence is reflected in the government's new
Memorandum of Economic and Financial Policies signed recently
with the IMF which says: "There remains a strong consensus for
the economic program and its continuity is expected to be
safeguarded."

A back down from the earlier commitment could affect market
confidence in the economy.

"Although several political leaders have given Fischer their
commitment, once they're already in office for one or two months
they'll realize that some parts of the program are not suitable,"
Sri Mulyani said.

"But this (a renegotiation) isn't necessarily a bad thing. I
think Washington has already prepared contingency plans," she
added, referring to the IMF home base.

The IMF is organizing some US$46 billion in bailout cash to
help finance Indonesia's economic reform programs. The fund has
so far disbursed more than $9.5 billion out of its total
commitment of some $12.3 billion.

Kwik Kian Gie, a senior economic advisor to Megawati, recently
proposed a fixed exchange rate system for the rupiah against the
current free float system.

Faisal Basri, an economist with the National Mandate Party
(PAN), also one of the top five political parties, has in the
past proposed a Malaysian style of foreign exchange control.

Some politicians have criticized the IMF economic programs,
particularly as they seem to benefit foreign investors picking up
local assets at bargain prices.

Indonesia's economy was the most badly hit by the economic
crisis that started to plague the region in mid-1997.

The economy contracted by some 13.68 percent in 1998 with
inflation skyrocketing to more than 77 percent. Millions of
people have been laid off as many companies have either gone
bankrupt or significantly reduced their production capacity. Some
66 banks were closed down.

Several macroeconomic indicators, however, have started to
show signs of an economic recovery during the second quarter of
this year. Inflation has dropped, the rupiah has strengthened,
and the economy grew by 1.8 percent in the second quarter of this
year compared to the same period last year.

"But macroeconomic stability is still very fragile," Sri
Mulyani said, pointing to the banking system, which is still not
operating efficiently and the huge corporate overseas debt
problem.

Sri Mulayani said the post-election government would still
have to deal with the grim economic conditions, including the
country's already huge foreign debts. At the same time it would
have to secure financing sources to finance the various subsidy
programs.

"This will be the biggest challenge of the upcoming new
government."

She said Indonesia's total overseas loans as of March this
year amounted to $152 billion, compared to $110 billion during
the pre-crisis period.

The country's debt service ratio was now running near the
alarming 60 percent level, she said. (rei)