Govt moves to avoid crisis

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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