Economists frown upon Habibie's economic report

JAKARTA (JP): Economists gave a thumbs-down to the economic achievements highlighted by President B.J. Habibie in his key accountability speech delivered on Thursday night before the People's Consultative Assembly (MPR), the country's highest legislative body.

Habibie said his administration had managed to put the crisis- hit economy on the recovery track as reflected by the low inflation, stable exchange rate of the rupiah, a drop in interest rates and second quarter economic growth.

"The economy is now in better shape," Habibie told the Assembly members, who will select the country's next president on Oct. 20.

"Habibie has failed. The MPR must reject it," retorted A. Tony Prasetiantono, a noted economist at the prestigious Gadjah Mada University.

Tony said that the various economic indicators highlighted by Habibie were misleading.

"The MPR members must be careful. The speech was designed in such a way that it only displays the impressive spotlights. But this is not the way to examine an economy. We have to see it completely," he said.

Habibie said his administration was successful in controlling inflation, as reflected in the deflation in seven consecutive months since March.

But a senior economist at PT Danareksa Securities, Raden Pardede, said the continuing deflation was not necessarily a good thing.

He said the drop in prices was primarily caused by falling prices of agricultural products, particularly food prices, while prices of nonedible items remained high.

"This means that there's a transfer of wealth from the poor farmers in villages to the richer people in urban areas," Raden said.

He also said the falling prices also reflected a lower purchasing power of people hit hard by the economic crisis.

Habibie said the falling prices was partly a result of the government's achievement in stabilizing the rupiah from Rp 15,000 to the U.S. dollar to about Rp 6,700 in July.

"He can't take full credit on this," Raden said, pointing out that the strengthening of the rupiah was primarily caused by the fact that most of the country's private companies had simply stopped servicing their foreign debts.

Economist Sri Mulyani said Habibie failed to mention the most basic element that has been damaging the economy, that is the loss of domestic and international investor confidence in the economy.

"He also failed to mention the huge costs of what he claims is his success story," Sri noted.

Benny Soetrisno, Chairman of the Indonesian Textile Association, said Habibie's speech was meaningless to him as a direct player in the market.

"The market never has any trust in him," Benny added.

Habibie heightened the positive year-on-year economic growth of 0.46 percent during the second quarter of this year, compared to last year's economic contraction of more than 13 percent.

"It's because of the law of small numbers and low base," Raden said, pointing out that the economy contracted so deep in 1998, that even a very slight improvement growth this year would seem very impressive.

Raden also said the economic growth was primarily generated by the agricultural sector, while other sectors remained mostly stagnant.

"The low interest rate doesn't mean much for the economy because the lower interest rate is not followed by a resumption in bank lending to the real sector," said Tony.

Tony said the banks were unable to resume lending because the bank restructuring and recapitalization program had not been completed.

"The bank recapitalization program has even been set back by the Bank Bali scandal," he said.

The Bank Bali scandal centers around the transfer of some Rp 546 billion (US$80 million at the June rate) from the bank to a private firm linked to Habibie's inner circle.

"The Bank Bali scandal is a symbol of all of our problems," he said, pointing out the economic, political, legal and corruption aspects of the case.

Habibie has steadfastly declined to disclose the PwC audit report, citing banking secrecy codes. The report contains the flow of funds from the scandal to the personal bank accounts of certain influential people closely associated with Habibie. (rei/jsk)