Govt moves to avoid crisis

JAKARTA (JP): The government moved yesterday to revise its budget, liberalize foreign purchases of shares, strengthen the banking industry and raise the luxury sales tax on several goods.

Minister of Finance Mar'ie Muhammad said the government was revising its investment budget to adjust to an expected decline in tax revenues caused by the rupiah's sharp depreciation since July.

"Some projects will have to be postponed or rescheduled," Mar'ie told a news conference after the monthly cabinet meeting on economic affairs.

He said he would meet with State Minister for National Development Planning Ginandjar Kartasasmita to decide on which projects should be postponed or shelved altogether.

"These measures are needed to prevent the currency turmoil from leading to an economic crisis," Mar'ie said.

"All this is a very positive move and will give the right signal to the market," said Sofyan Wanandi, chairman of the Gemala Group, yesterday.

But this important political decision should immediately be followed by concrete measures, added Sofyan, widely known as the spokesman for the Prasetya Mulya forum of big conglomerates.

"Quick action is essential to maintain the credibility of the government's policy-making mechanism," Sofyan asserted.

He said big projects by private and public sectors such as aircraft development, the national car program, luxury apartments, Jakarta's tallest tower, power projects and modern shopping malls should be rescheduled.

Ginandjar told reporters before the cabinet session that he would meet with the monetary authorities tomorrow to review the state budget.

"We have set the criteria and the scale of priority for selecting which projects should be continued and which ones should be rescheduled," Ginandjar said.

Ginandjar said projects with large import financing and those which had yet to be implemented would be the first to be axed.

"But projects for the greatest benefit of the common people such as health, educational and rural development programs will be continued. Likewise, programs funded by foreign soft loans will not be affected," he added.

But he hastily asserted that the government had no intention to ask for foreign debt rescheduling despite the severe financial havoc caused by the rupiah's depreciation.

"The projects undertaken by state companies will also be reviewed," Mar'ie said at the news conference which was also attended by Minister of Information Hartono and Bank Indonesia's Governor Soedradjad Djiwandono.

The government, he added, also urged the private sector to reset the priorities of their projects and reschedule projects which could be postponed at least costs.

Soedradjad reaffirmed the present liquidity tightening is temporary and will therefore be eased gradually in accordance with the overall situation.

"The relaxation of liquidity which has already started will be continued gradually and prudently according to circumstances. Similarly, interest rates will be reduced gradually as appropriate," he added.

Soedradjad said Bank Indonesia's foreign reserves totaled US$20.37 billion as of last month, down from $21.06 billion in July. The reserves are equivalent to five months of imports.

"The $690 million decrease in international reserves was caused mainly by the central bank's intervention to defend the rupiah (before it was floated on Aug. 14)," he said.

But Soedradjad said the reserves did not include $2 billion in standby loans from various international banks which could be drawn in case of emergency.

He said that since the rupiah floated its rate against the U.S. dollar it had stayed in the range of Rp 2,800 to Rp 3,000.

"The rupiah is still fluctuating because of regional and global pressures. However, market confidence in the rupiah has started to show positive signs," Soedradjad said.

But he did not specify what would be the range preferred by the monetary authorities.

Mar'ie said the government would assist solvent national banks which faced liquidity problems.

"But banks which are not solvent will be encouraged to merge with solvent ones. But if this effort fails insolvent banks will be liquidated," he added.

He said the Jakarta Stock Exchange, like other capital markets throughout Southeast Asia, had suffered from the currency crisis.

"In order to stimulate the capital market, the 49 percent limitation for foreign investors to buy shares to be traded on the exchange will be abolished," Mar'ie disclosed.

Analysts estimate the Jakarta Stock Exchange has so far lost 30 percent of its market capitalization due to the currency turmoil and the punitively high interest rates imposed by the central bank.

The government also announced yesterday its determination to continue reform measures to reduce market distortions and high cost elements in the economy.

More concerted efforts will be launched to bolster exports and the luxury sales tax on several goods will be raised, Mar'ie added.

"The minister of industry and trade will conduct concrete steps to boost exports and all related ministers should help and fully support these efforts," Mar'ie said.

Citing several economic indicators discussed at the cabinet meeting, Minister of Information Hartono said inflation last month was 0.88 percent. That brought the cumulative inflation for the first eight months of this year to 4.08 percent, lower than 4.98 percent in the same period last year.

In a related development, Minister of Mines and Energy I.B. Sudjana said yesterday the government had no intention of raising the price of domestic oil fuels despite the dollar's sharp appreciation against the rupiah.

"The higher revenues we get from our oil exports still exceed the rise in our costs of importing crude oil and petroleum products," Sudjana said. (prb/vin)

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