Emergency measures

Emergency measures

Instead of simply tinkering with the figures of basic
assumptions on key economic indicators, the Indonesian government
is now preparing what should have been in place and firmly
implemented since at least last year. Chief economics minister
Dorodjatun Kuntjoro-Jakti said on Tuesday that the government is
now preparing a package of emergency measures to prevent the
economy from total collapse.

That announcement reflects the government's full realization,
although rather belatedly, that it should now act firmly to set
in motion a crisis management mechanism to cope with a severely
critical condition, which has been worsening due to the grimmer
outlook of the global economy as a result of the September 11
terrorist attacks on the United States.

The revised key assumptions used for the 2002 state budget,
including a lower economic growth of 4 percent, average rupiah
rate of Rp 9,000 to the American dollar, average interest rate of
14 percent and inflation rate of 9 percent, are all realistic
given the bleaker economic outlook for most of Indonesia's
largest trading partners.

However, the new assumptions will not mean anything in the way
of reviving confidence in the economy if the main causes of the
economic bleeding do not get urgent and intensive treatment under
the auspices of what we have often suggested as being a separate
crisis management center.

In another encouraging signal, Dorodjatun also said the
government would soon convene a national brainstorming conference
to gather suggestions from various institutes and organizations
on how the right set of emergency measures should be packaged
and enforced. This shows that the government is aware that it
badly needs a supportive social and political environment to cope
with the economic crisis.

Hopefully, it will not take much longer to formulate the
package of appropriate emergency measures as the bleeding has
steadily been weakening the economy.

Whatever suggestions are proposed by domestic think tanks and
multilateral agencies, such as the World Bank and International
Monetary Fund, one thing is crystal clear: the package of
emergency measures should include asset recovery, debt
restructuring, fiscal consolidation and privatization of state
companies.

As we and most other analysts have often argued in this
newspaper, a faster pace of asset recovery would reinvigorate
hundreds of companies through the infusion of new capital and new
management, and would help plug the hole in the budget. An
accelerated process of debt restructuring would enable many other
businesses to obtain new working capital loans and the government
to retire bonds used to recapitalize banks early. This would in
turn reduce bond interest expenditure, which has been a major
cause of the budget hole.

Equally positive impacts would accrue from the privatization
of selected state companies, as proceeds from the sales would
help cover the budget deficit and new investors would improve
efficiency within the companies. Reduction of wasteful subsidies
and more vigorous tax collection would enable the government to
set aside bigger allocations for social safety net programs and
other labor-intensive projects for economic pump priming.

All of these measures have actually been stipulated in the
series of reform agreements between the government and the IMF
since November, 1997. They are also the emergency measures
implemented by other crisis-hit countries such as Thailand and
South Korea, which have now seen much stronger economic
recoveries.

Critically absent in Indonesia is a lack of urgency being
adopted among the three branches of government -- the executive,
legislature and judiciary -- as reflected by the "business-as-
usual" manner in which the government is managing the economic
crisis.

It is now high time for the whole government to unite in
setting in motion a crisis management center to implement
whatever emergency measures are necessary to resolve the crisis.
Without compromising their respective independence, the three
branches of government, as well as local administrations and
local legislatures, should now think about and implement only one
agenda: leading and managing to resolve the crisis.

Further delays caused by political bickering or due to
inordinate nationalistic sentiment will only worsen the suffering
of the people who have been living in great pain since the
outbreak of the economic crisis in late 1997.