Experts, legislators unimpressed by Habibie's speech

JAKARTA (JP): Economists and legislators were unimpressed by President B.J. Habibie's Independence Day speech on Monday as it contained nothing new to solve the current economic problems.

"There's nothing new in the speech," said Pande Radja Silalahi, an economist at the Centre for Strategic and International Studies (CSIS), a prestigious private think tank.

Budi Hikmat, an economist at PT Bahana Securities, said: "Habibie put pressure on the importance of the bank restructuring program. We all know that. People are now waiting for the implementation."

Habibie said in his state-of-the-nation address that the country's crisis-hit economy was already on the recovery path.

"Several economic indicators show that our economy has entered the recovery stage," Habibie told parliament on the eve of the country's 54th Independence Day.

Habibie pointed out the strengthening of the rupiah over the past year, negative inflation during the past five months, positive economic growth in the first and second quarter of the year, and lower interest rates.

But Habibie added that restoring the banking sector and reviving the real sector are crucial in sustaining the economic recovery process.

"The economic indicators are still not enough to justify that the economy has recovered," Pande said.

He said that the deflation rate reflected more of a weakening in the people's purchasing power.

Legislators also expressed disappointment over Habibie's speech.

Ekky Syahruddin, a legislator for the ruling Golkar Party, said that Habibie failed to address the most urgent issue of how to handle the high profile Bank Bali scandal which has caused a serious threat to the government's bank restructuring program.

"President Habibie should have mentioned a political move that would provide confidence to the public that there will be change," he said.

Ekky said that Habibie only promised to take firm action, but didn't mention any clear plans.

Although Habibie didn't mention the Bank Bali case in his 37- page speech, he admitted that obstacles at the bank restructuring program had contributed to the recent weakening in the rupiah.

"We are striving to settle things that hinder bank restructuring so that we can expect the rupiah to rebound," he said.

Bank Bali has paid some Rp 546 billion (US$78 million at the current rate) in commission to private firm PT Era Giat Prima (EGP) to help the bank recoup some Rp 904 billion in interbank claims on closed down banks.

EGP is a company controlled by two businessmen affiliated to the Golkar Party, raising speculation that the money was used to help finance Golkar's campaigning activity during the recent June election.

Reports also said that senior government officials and a deputy chairman at the Indonesian Bank Restructuring Agency (IBRA) were also involved.

Bank Bali was not supposed to pay commission as the interbank claims on closed down banks are guaranteed through the government blanket guarantee program.

Pande said that the Bank Bali scam caused a great loss to the economy as confidence plunged.

The rupiah hit a low of Rp 8,250 to the U.S. dollar last week, its lowest level since late April, in the wake of the Bank Bali scandal and other political and external factors.

Habibie also mentioned the importance to secure funds to help finance the state budget particularly as the cost of the bank restructuring program would peak over the next two years.

The government, which is financing some 80 percent of the bank recapitalization program, has estimated that the bank restructuring cost will reach about Rp 550 trillion.

Habibie said government spending will also be higher due to the continuing cost of repairing damage from last year's riots.

In order to raise more funds domestically, Habibie said the government would seek to boost tax revenue to 16 percent of gross domestic product or around $5 billion to $7 billion a year from around 11 percent of GDP now.

He said the program to sell stakes in state-owned companies would also be able to reduce the country's dependency on foreign debts.

Habibie also said that between 1999 and 2005, the government expected to be able to raise US$91 billion from the sale of minority stakes in state companies.

"If the privatization of state enterprises and the optimalization of tax revenues can be done in a sustainable way, Indonesia will gradually be able to reduce its dependence on foreign loans and even finance its development in a more independent manner," he said. (rei)