Economists frown upon Habibie's economic report

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)