Economy sound, says Soeharto

JAKARTA (JP): President Soeharto stressed Saturday that the Indonesian economy was fundamentally strong despite the sharp depreciation of the rupiah against the U.S. dollar.

The President, however, said that the government would continue to maintain its tight monetary policy and also called for a curb on foreign borrowing to ensure the economy remained on the right track.

"The exchange rate upheaval is of a temporary nature, with the appropriate policy and the calmness of the domestic players, the exchange rate will find a new equilibrium in line with the prevailing economic fundamentals," Soeharto said in his annual State of the Nation address to the House of Representatives.

The rupiah has declined by around 20 percent against the U.S. dollar this year, with much of the drop taking place in the last few weeks due to speculative attacks by local and foreign fund managers.

On Thursday alone, the rupiah lost around 5 percent after the central bank removed its intervention band. It suffered another 3 percent drop on Friday to close at 2,880 as frantic traders remained confused about the direction of the currency.

Share prices on the local stock exchanges also plunged as a result of the frenzied trading on the money market.

The central bank has raised the interest rates of its promissory notes by several percentage points to shore up the rupiah, pushing up the rise in the overnight interest rate to over 25 percent. On Thursday alone, the overnight rate reached as high as 50 percent.

The President hailed the central bank's decision to float the rupiah, saying such a move was important as an adjustment to the monetary developments in the Southeast Asian region.

In his 65-minute speech on the eve of the country's 52nd anniversary of independence, the President unusually focused most of his address on economic issues especially those related to the rupiah's volatility in the past few weeks.

The President acknowledged that the fall in the rupiah could add a financial burden to businesses with large foreign loans and they therefore should better protect themselves from the currency risks by "prudently acting in borrowing, and seeking safer and steadier ways of funding".

The business and financial sectors should discover that foreign loans were no longer easily and cheaply obtained like before the storm, Soeharto said.

"What we have achieved with great difficulty can be wiped out at once by the storm, as a result of our own negligence," he said, adding that the recent storm also reinforced the importance of closer relations among nations to tackle regional and global monetary upheavals.

He called for a common safety network system to address these global upheavals.

Soeharto said that the inflation rate in the 1996/1997 fiscal year, which ended in March, was checked at 5.2 percent, down from 6.5 percent in 1996, and 8.6 percent in 1995. "It means that it moved closer to the target set for the end of the sixth-five year development plan in 1999," he said.

In addition, the latest count estimated the country's economic growth this year will be 7.98 percent, higher than the provisional estimate released to the public earlier of 7.82 percent, he said.

With a lower population growth rate of 1.58 percent, the estimated per capita income in 1997 will reach US$1,155, he said.

Politics

On politics, Soeharto said not many countries in the world could equal Indonesia's success in organizing an election, where 90 percent of its 124.9 million eligible voters exercised their voting right in last May's general election.

In his speech, Soeharto praised Indonesians who refused to be influenced by antigovernment movements and agitation to boycott the election. He thanked them for resisting "appeals that would destroy the system and degrade our democratic standing."

The dominant Golkar swept 325 of the 425 contested seats in House of Representatives, while the Moslem-based United Development Party (PPP) won 89 seats, and the Christian- nationalist Indonesian Democratic Party (PDI) 11 seats.

Seventy-five seats are allocated for the Armed Forces, whose members do not vote.

Despite the impressive achievement, the President expressed concern that the "festival of democracy", as the general election is dubbed, also claimed too many victims.

He described the casualties as related to "over-enthusiasm and emotion that easily flared up during mass rallies which involved up to hundreds of thousands of people".

Soeharto cited provocation by certain antigovernment movements, and said they were responsible for a number of disturbances that occurred during the general election campaign.

He called for a review of campaign rallies because they were difficult to control, easily became violent, and were an easy target for groups wanting to further their own political agenda.

"We do not want to have casualties, even in the name of democracy. Indeed, democracy does not need victims," he said.

The Armed Forces chief of sociopolitical affairs, Lt. Gen. Syarwan Hamid, suspected the unrecognized Democratic People's Party (PRD) of orchestrating violence to foil the election.

Observers called the 1997 election campaign the most violent in Indonesia's election history.

"A general election that ensures a democratic process and proceeds smoothly, peacefully, in an orderly manner and does not claim human lives and property losses must become one of our political development agendas in the futures," Soeharto said Saturday.

At least 300 people were killed, mostly in traffic accidents. Others died in clashes between rival parties, during the election campaign.

Soeharto's call for a review of campaign rallies received a warm welcome. State Minister of Environment Sarwono Kusumaatmadja said mass rallies should be replaced with dialog campaigns.

"We must allocate a larger portion (of the campaign) for dialogs," he said.

PDI Chairman Soerjadi said he agreed with Soeharto's idea but added that the government should not monopolize the election organization.

"Elections must be organized together with PPP, PDI and Golkar," he said.

The chief of the PPP faction at the House, Hamzah Haz, shared Soerjadi's view and urged the government to be more accommodating of people's rising demands for democratization.

"The President has given homework to us to prepare a better election in the future," Golkar faction chief Moestahid Astari said. (das/prb)

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