Encouraging news offers only short-lived boost: Analysts

Encouraging news offers only short-lived boost: Analysts

JAKARTA (JP): The government's success in rescheduling most of
its debt due this year and in landing multibillion dollar
overseas funding are not enough to effect long-lasting confidence
in the faltering economy, experts have said.

They said yesterday recovery from the year-long economic
crisis remained in the distance, dependent on solving lingering
issues such as private debt and banking sector problems,
uncertainty over the domestic political situation and the
market's negative view of the government's populist policy.

"It's difficult to be optimistic," said head of research at PT
SG Securities Indonesia Goei Siaw Hong.

He considered the debt rescheduling to be only a temporary
remedy for the ailing economy because debt pressure still
existed.

"What Indonesia needs is a reduction in the amount of both the
sovereign debt and private sector overseas debt."

He added that the implementation of a new bankruptcy law would
help in reducing pressure from the private sector's overseas debt
because a bankrupt entity would no longer be required to pay its
debt.

But uncertainty on the domestic political front created a
jittery environment which deterred investors, he said.

Markets would pay particular attention to the special session
of the People's Consultative Assembly in November, the general
election in May and the presidential election in December 1999,
he added.

Associate director of PT Bahana Securities Andre Cita agreed
the uncertain political situation was a primary contributor to
persistent low confidence.

"There is still concern on the social and political situation.
People are still waiting to see whether there will be more social
unrest or rioting."

Coordinating Minister for Economy, Finance and Industry
Ginandjar Kartasasmita said Monday that foreign lenders had
committed to rescheduling about US$1.25 billion in the country's
sovereign debt due this year.

The agreement is expected to be signed at the Consultative
Group on Indonesia (CGI) donors meeting in Paris at the end of
this month.

The government has allocated Rp 33.26 trillion ($3.1 billion)
for principal payment of its debt during the remaining period of
the 1998/1999 fiscal year.

The postponement is expected to help the country in financing
its huge subsidy commitments to help the people survive the
country's worst economic crisis in three decades.

The IMF has also announced that several donors including the
World Bank, Asian Development, Australia and China had agreed to
provide an additional $6 billion on top of the $43 billion IMF-
arranged loans to cover the financing gap in the 1998/1999 State
Budget, which was allowed by the IMF to have a deficit of 8.5
percent of gross domestic product.

The news briefly lifted the rupiah to around Rp 13,000 to the
U.S. dollar last Wednesday, but the currency plunged back to more
than Rp 14,000 during the following days. The rupiah has lost
more than 80 percent in value from its precrisis level of Rp
2,450 in July last year.

The additional funding is needed to provide subsidies for
fuel, basic food items, and a credit program for small
businesses.

Populist policies

"But these are populist policies which will drain our forex
reserves. The market doesn't like this," said Goei.

He explained that subsidies would be tolerable at difficult
times if they were prioritized to the poor.

"It would be a serious problem if President Habibie is trying
to satisfy everyone."

He also lambasted the government's decision to raise the
export tax on crude palm oil.

"Why shouldn't we export CPO when we really need more
dollars?" He feared the high export tax would only lead to more
smuggling of CPO out of the country.

Cita said one of the key factors in returning confidence to
the economy was the restoration of the shattered banking sector.

"There's still a lot of focus on the banking sector," he said,
adding that investors were also waiting to see the implementation
of the bankruptcy law.

Minister of Justice Muladi said Tuesday that new bankruptcy
regulations would be effective by Aug. 22, in which it would only
take 30 days to process a bankruptcy case.

The IMF's Asia Pacific director Hubert Neiss arrived in
Jakarta yesterday on an expected two-week visit to continue
reviewing the country's economic reform programs. (rei)