Economists call for replacement of leadership

Economists call for replacement of leadership

JAKARTA (JP): Noted economists on Wednesday called for a
replacement in national leadership in the face of a possible
worsening economic crisis in the coming few months.

Sri Adiningsih, an economist from Yogyakarta-based Gadjah Mada
University, said political instability, especially the continuing
conflict between the House of Representatives and the executive
body, would likely result in the continuing downfall of the
rupiah against the U.S. dollar in the next three months.

"Besides the government's failure to make significant
improvements to the economy, the planned issuance of the second
memorandum of censure against the President is likely to trigger
violence among supporters of the political elite and draw a
negative response from the market," she said in a seminar on the
economy organized by the Kagama Business Society.

Adiningsih said the government's main fault was its failure to
admit the seriousness of the country's economic problems and its
failure to improve cooperation with the central bank in order to
tackle the monetary crisis.

She said the issuance of the House's second memorandum of
censure at the end of this month could drive the rupiah down to
around Rp 13,000 against the U.S. dollar from the present level
of Rp 11,000.

"Such a downfall in the rupiah will further increase the 2001
state budget deficit and shake the political situation," she
said.

The 2001 state budget was set with US$1 equal to Rp 7,500.

She added that the temporary closure of oil and gas firm PT
ExxonMobil Indonesia's operations in Aceh and a possible delay of
the disbursement of the IMF's $400 million loan tranche would
certainly affect the domestic political situation over the coming
three months.

Adiningsih warned that the government's plan to lower the
interest rate would not be helpful and could pose increased
risks.

"The question is whether the government is able to create a
conducive climate, win international confidence in Indonesia and
settle problems with international creditors," she said.

Benny Pasaribu, an economist from the Bogor Institute of
Agriculture (IPB), criticized embattled President Abdurrahman
"Gus Dur" Wahid for his economic team's failure to implement the
economic policy made with the IMF.

"The conflict between the House and the government has a lot
to do with the crisis in national leadership. The President has
made numerous economic policies that will take the nation into a
second phase of the crisis," Benny, also a legislator from the
Indonesian Democratic Party of Struggle (PDI Perjuangan), said.

He cited the President's questionable decisions, among others,
the delay of the planned 20 percent, or Rp 50 trillion ($5
billion), cut of fuel subsidies this April and that of the
planned investigation into alleged mismanagement of Rp 144
trillion bank liquidity (BLBI) funds.

Benny, also chairman of the House's Commission IX for
financial and development planning affairs, said that if the
planned cut in fuel subsidies was conducted, the deficit in the
state budget could be reduced.

"The delay of the fuel subsidy cut will not benefit low-income
people, but those in a high-income bracket, the fuel smugglers
and Malaysia where smuggled fuel is sold," he said, adding that
it was unfair for him as a legislator, paid Rp 18 million
monthly, to enjoy the fuel subsidy.

The government has recently decided to cut fuel subsidies for
industries only.

Benny said the delay would only worsen the economic situation
and, as a result, the country's state budget would continue to
depend on foreign loans.

"The ironic thing is that a larger proportion of foreign loans
is not being used to develop economy-building sectors, but is
instead being embezzled through marked-up projects," he said,
citing that the country's foreign loans have so far reached Rp
1,600 trillion.

Meanwhile, Mohammad Sadli, a Cabinet minister under former
president Soeharto, said "the wheels of the economy" and business
activities could only continue if several conditions were first
met.

"The wheels of the economy would be able to turn: if the 1997
economic and financial crisis had not devastated all assets and
infrastructure built in the past; if market forces were allowed
to continue to dominate the economy; if the government complied
with a more open economy; if the independent central bank was
able to keep the inflation rate below six percent and if the IMF
continued to play its role in the domestic economy and reform in
the banking sector," he said.

He said that, despite lack of foreign investment, economic
growth reached five percent in 1999 and 2000 and such a record
could be maintained this year if conditions were met.

He admitted the weakening conversion rate of the rupiah
against the U.S. dollar had to do with political instability
because it had fallen by almost 50 percent from Rp 7,000 to the
current rate of approximately Rp 11,000 over the President's 15-
months in power. (rms)