Foreigners seek reform commitments from Habibie

Foreigners seek reform commitments from Habibie

HONG KONG (Reuters): B.J. Habibie's appointment as the new President of Indonesia lacks credibility and authorities have only days to resolve an outstanding succession issue with the economy at a standstill, investors and analysts said.

"Any kind of international trade and payments system is not functioning at all at the moment, so they'll have to come up with something credible, basically immediately," said Gary Greenberg, managing director at Van Eck Global Asset Management.

"And I don't think they have a lot of options."

"It's bought them some time, maybe a day or two," said a Hong Kong-based chief economist, who did not want to be identified.

"I can't see him lasting more than a couple of days," the economist said.

President Soeharto resigned yesterday and immediately handed the reins to vice-president Habibie rather than wait for elections by the end of the year.

The move won credit as an effort to stay with the constitution but analysts and investors said they were hoping for more.

Foreign investors wanted to see a timetable for political reform along with some convincing reassurance of a halt to the implosion of Indonesia's economy, with the banking system effectively at a standstill.

"This is not the solution that was looked for," said Stewart Aldcroft, director of marketing at Templeton Franklin Investors Services. "This in no way solves the issue. All it does is put Soeharto's nominee in power."

"The situation is confused," said Richard Margolis, vice- president at Merrill Lynch Asia-Pacific.

"It remains to be seen what the new president is going to do to meet the expectations of reform that have been aroused by recent events," he said.

Habibie is expected to speak publicly at 1230 GMT.

Moments after Habibie's swearing-in, Indonesian Information Minister Alwi Dahlan said the new president would continue reforms agreed with the International Monetary Fund.

But Habibie's profligate reputation sent the rupiah tumbling to an all-time low in January when he was appointed vice- president by Soeharto.

"The system is falling apart and there is no doubt that this does nothing address the problem," said one economist, who declined to be named. "Habibie is quite clearly there to protect the interests of the first family."

Habibie's lack of broad-based support among the army and the existing powerbase added to expectations he would not last long, especially given outstanding questions about his commitment to political reform following Soeharto's apparent cancellation of a promised reform committee and cabinet reshuffle.

In his resignation speech, Soeharto also failed to mention plans announced on Tuesday for an election as soon as possible and said Habibie would rule until 2003.

"So in terms of political reform one could argue this is actually a step backward rather than a step forward," said Don Hanna, regional economist at Goldman Sachs.

Margolis said yesterday's speech by Habibie was critical.

"The big issue are those promises of reform. Are they going to be adopted by the new president? So far we haven't seen anything to suggest an answer to that question."

The issue of reform is central to arresting the virtual paralysis that has gripped Indonesia's economy. But World Bank country director Dennis de Tray said his organization was poised to move extremely quickly to reinstate loans to Indonesia once political stability was re-established.

The first necessary step would be the appointment of an "extremely credible and highly technically competent cabinet", he said, following the reported resignation of 11 Indonesian ministers.

"Things are a little uncertain on the cabinet side," said de Tray, adding that before he formally resigned President Soeharto indicated that the sitting cabinet would continue.

"So I don't actually know ... whether or not they remain resigned or whether their resignations were not accepted."