Economists say Indonesia needs credible government

JAKARTA (JP): The country's most pressing agenda in extricating itself from the devastating economic crisis is to put a new and credible government in place, participants in a seminar concluded on Tuesday.

An economist from Gadjah Mada University in Yogyakarta, A. Tony Prasetiantono, said a credible government was crucial to restore weakened confidence because the administration of President B.J. Habibie was a lost cause.

"The toughest agenda is to restore confidence. And this can no longer be done by the present government because it has committed too many mistakes," he told the seminar on "The economic and political agenda of the new government", which was organized by the Bisnis Indonesia daily.

Noted economist Faisal Basri agreed that "it would be the worst-case scenario if Habibie were reelected".

The presidential election is scheduled for late in October or early November.

The economic crisis struck the country in the middle of 1997 in a region-wide contagion which began when the Thai baht was assailed by speculators.

But while Thailand and other neighboring countries have started to pull themselves out of the worst of the crisis, Indonesia's prospects appear grim in the wake of the Bank Bali scandal, in which several close Habibie aides have been implicated, the debacle in East Timor and bloody student demonstrations last week in which at least eight people died.

The rupiah is hovering around 8,800 to the U.S. dollar, compared to about 6,500 in June before the new problems emerged.

"We're on the brink of a second-chapter crisis," Tony said.

He said that restoring confidence was a key factor in effecting economic recovery.

"What we need is a conducive environment to prevent capital flight."

He said an estimated US$80 billion was taken out of the country from 1997 to 1999.

"It's grossly misguided to solve the current economic crisis only through economic instruments. The capital flight problem can't be solved by a high interest rate policy."

Many Indonesian businesspeople, particularly those of Chinese descent, have transferred their money overseas in the wake of the political unrest that followed the economic crisis. Chinese- Indonesians have often been targeted in riots.

Tony said monetary and fiscal policies would be more effective once a restored confidence put an end to capital flight.

"Imagine the huge cost inflicted by the central bank's move to raise interest rates to as high as to 70 percent last year, only to see the rupiah weakening again today."

Faisal said the return of funds currently deposited overseas by Indonesian businesspeople was also crucial to woo back foreign investors.

"Don't expect that foreign investors will return to Indonesia as long as the money of the Chinese-Indonesian businesspeople is still held overseas. To foreign investors, the return of the money signals political stability and legal certainty," said the secretary-general of the National Mandate Party (PAN).

Tony said a credible government would need to keep the nation united and prevent ethnic conflicts.

"This is very crucial. If the new government can bind this nation in unity, capital will flow back so that we won't need much IMF help," he said, referring to the US$43 billion bailout arranged by the International Monetary Fund.

The political temperature is rising nationwide before the presidential election.

The ruling Golkar Party has nominated Habibie for the presidency and Military Commander Gen. Wiranto for vice president despite strong opposition from a reformist faction within its ranks.

Students have decried the choice of Wiranto, saying the military is bent on sabotaging the movement for democracy.

Considered the most popular presidential candidate among the people is Megawati Soekarnoputri, chairwoman of the Indonesian Democratic Party of Struggle (PDI Perjuangan). Although the party won 34 percent of the vote in the June general election, it lacks a majority to ensure Megawati's presidency. (rei)