Further reforms needed to ensure certainty

JAKARTA (JP): Economists and businesspeople hailed yesterday the government's decision to slash spending and delay major projects in a bid to convince foreign investors about its seriousness in dealing with currency and stock market upheavals.

But they said the government should continue to send other positive signals to the market by further reforms and actions to regain investors confidence in Indonesia.

Minister of Finance Mar'ie Muhammad announced Tuesday a cut in budget spending on development programs amounting to Rp 3.28 trillion (US$1.1 billion), or 8.4 percent of its development budget for the current 1997/1998 fiscal year.

State-related projects worth Rp 39 trillion (US$13.22 billion) would be postponed and other similar projects worth Rp 63 trillion would be reviewed, Mar'ie said.

But interested parties are still waiting on further details of the proposed cuts to assess the impact on earnings this year and the next.

For instance, details of participants in some of the projects were lacking.

"The government is moving in the right direction. But the devil remains on details and implementations," said Raden Pardede, an economist at state-owned Danareksa Securities.

He said the whole Southeast Asian region was overshadowed by China's reform program announced at the close of the ruling Communist Party's 15th congress last week.

"It means we have to do more than China to attract foreign investment," he said.

Former cabinet minister and economist Moh. Sadli said public and private businesses should not blame the government for the current currency and stock market crises but instead help with their own retrenchment program.

"We should not let the government fight alone. We must help the government by reviewing our consumption pattern and our business expansion program. It is time to eye our investment plan," Sadli said.

He said the retrenchment of major projects would slow down economic growth to about 5 percent this year and the next, but it was the most effective way of containing the current account deficit and avoiding a "crash landing" from the current crises.

The International Monetary Fund (IMF) also applauded the government's action to cut budget spending and delay major projects.

IMF's first deputy managing director Stanley Fischer described the move as "a very good example of the way Indonesia has taken positive action to deal with the crisis".

Industries hardest hit by the cutback measures include mines and energy, public works and transportation.

Among projects postponed were two oil refineries and 14 electricity generation projects.

Power projects

Nine more power projects would be reviewed while 29 toll road projects were postponed, along with the $176 million Surabaya- Madura bridge in East Java and 14 power generation projects.

Director of electricity and energy development at the Ministry of Mines and Energy, Endro Utomo Notodisuryo, said the decision would give a chance for state-owned electricity company PLN to renegotiate power purchase agreements with private power firms to reach a "fairer" value.

A power purchase agreement could be considered fair if private power companies and PLN equally shared the risk of loss, he said.

"The current power purchase agreement put most of the risk of loss on PLN," he said.

Endro said he was not afraid the postponement of power projects would result in a lack of power supply in the future because power growth demand would also decline following the postponement of other giant projects.

Finance director of publicly listed toll road developer PT Citra Marga Nusaphala Persada, Tito Sulistio, also welcomed the government's move to reschedule some mega projects, including toll roads.

The company would continue to develop the Waru-Tanjung Perak toll road project in Surabaya, East Java, as it had secured the financing for the project, he said.

The Waru-Tanjung Perak toll road project is included in the list of projects to be reviewed. This means the projects can go ahead as long as the investor has the finances.

Tito argued that his company had raised Rp 500 billion from the rights shares issuance earlier this month. (jsk/aly/rid)

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