Government told to sell assets quickly

Government told to sell assets quickly

JAKARTA (JP): International economists urged the Indonesian
government to accelerate sales of assets to speed up the pace of
recovery and strongly warned against resorting to any form of
exchange control as a quick fixer to stabilize the rupiah's
exchange rate.

The economists, speaking at a panel discussion here on
Tuesday, also strongly suggested that Bank Indonesia (the central
bank) ease monetary policy to fuel economic expansion.

"I don't think Indonesia can now afford to introduce exchange
controls. Nor is a currency board system appropriate for the
country," asserted economist Paul Krugman of Princeton
University, U.S.

Krugman argued that even though Malaysia achieved a stronger,
quicker recovery under a regime of exchange control, the
Indonesian government simply lacks administrative depth and
credibility to manage such an exchange system.

Krugman, one of few economists who accurately forewarned of
the East Asian economic crisis in late 1997, was a keynote
speaker at the meeting on Indonesia's road to recovery that was
organized by Strategic Intelligence, an economic research agency.

Other economists participating in the panel discussion that
attracted quite a large audience were: Hubert Neiss, former
director of the Asia and Pacific Department of the International
Monetary Fund and the architect of Indonesia's bailout program in
November 1997, IMF senior resident representative in Indonesia
John Dodsworth, World Bank Country Director for Indonesia Mark
Baird, Bank Indonesia's Deputy Governor Miranda Gultom, Standard
Chartered Bank's chief economist for Southeast Asia Wong Yit Fan.

"The monetary policy should not react too much to inflationary
pressures and should not be too cautious about lowering interest
rates," Krugman added.

Bank Indonesia has steadily raised its benchmark interest
rate since early May after the tightening of monetary policy in
the U.S. and in reaction to the recent deterioration of the
rupiah against the U.S. dollar.

The central bank's benchmark interest rate is now around 13.3
percent, compared to less than 11 percent in April.

Krugman conceded he was out of new ideas on how to speed up
Indonesian economic recovery, but cited speedy resolution of the
corporate and government debt trap and corporate and bank
restructuring as top priorities of current policy measures.

The government's debts are now estimated at more than US$146
billion, of which $74 billion are foreign debts and $72 billion
domestic debts in the form of treasury bonds issued to
recapitalize banks. Foreign corporate debts are estimated around
$65 billion.

Krugman stressed the urgent need for the development of
strong, independent institutions to execute reform and a credible
system to broaden the tax base, as well as acceleration of the
privatizing of state companies.

Neiss, currently Deutsche Bank's Asia chairman, shared
Krugman's view that Bank Indonesia should not raise interest
rates to cope with the rupiah's depreciation.

He also warned that any form of exchange control would scare
away investors.

Miranda noted that the central bank's monetary policy has to
deal with challenging situations due to the weakening rupiah and
increasing inflationary pressures.

"The banking industry has not yet resumed significant lending
and that is very worrisome," Miranda added.

Baird, Dodsworth and Neiss agreed that accelerating sales of
the assets currently managed by the Indonesian Bank Restructuring
Agency is pivotal for fueling economic recovery.

Dodsworth said he understood the concern over the risk of fire
sales but the dilemma is that "without significant asset sales,
recovery will never come and the quality of the assets will
deteriorate."

The economists referred to the Rp 600 trillion (US$72 billion)
in assets taken over by IBRA from closed and nationalized banks.

While Krugman declined to comment on the economic team in the
new Cabinet because, "I don't know those people", other panelists
opined that the team should immediately set a firm policy
direction to gain credibility in the market.

"The new economic team needs to firmly demonstrate up front
policy direction to convince the market," Dodsworth said.

The panelists cited policy directions in the 2001 state
budget, fuel subsidy cuts through fuel price increases in
October, preparations for the decentralization of political and
fiscal power to the regions, civil service reform and corporate
and bank restructuring as crucial for establishing the Cabinet's
market credibility.

"The government should step up interference in the process of
corporate debt restructuring," Neiss said.

The economists also agreed that the new Cabinet should be
given a fair chance to prove itself. (bkm/vin)