Habibie warned of impending collapse

Habibie warned of impending collapse

JAKARTA (JP): A group of leading economists urged President
B.J. Habibie's administration yesterday to quickly abandon its
populist economic crisis-handling policy and follow basic
economic principles to prevent a total breakdown of the economy
and the state.

The 15 economists asserted that the administration's economic
crisis management had failed to produce positive developments and
had instead led to rapid economic deterioration.

"This is because the 3-month-old administration, which is
being run under the same corrupt political system as that of ex-
president Soeharto, has yet to gain any political legitimacy,"
the economists said in a joint statement.

"This (lack of legitimacy) is the main stumbling block to
economic recovery. That's why we urge the government, or anyone
else who will lead the country, to abide by basic economic
principles," said Sri Mulyani Indrawati, the group's spokeswoman,
in a news conference held to announce the declaration.

The economists concluded that most of the government's major
economic policies to date were merely populist measures that did
not hold up to sound economic principles. They added that such
policies could destroy the country's long-term economic
foundations.

The "Declaration for Saving the Indonesian Economy" was signed
by Anwar Nasution, Sjahrir, Mari Pangestu, Thee Kian Wie, Rizal
Ramli, Faisal Basri, Didik J. Rachbini, Arief Arryman, Umar
Juoro, Rozy Munir, Revrisond Baswir, Anggito Abimanyu, Ari
Kuncoro, Chatib Basri and Sri Mulyani.

The statement said the massive bank bailout program, which had
seen more than Rp 140 trillion pumped into the banking sector,
should be stopped and that legal action should immediately be
taken against bank owners, managers, debtors and central bank
supervisors responsible for the financially distressed industry.

"Security and business certainty must be guaranteed for all
citizens irrespective of their race to restore a sound and strong
economic foundation" the two-page statement said.

Sjahrir said that although subsidies and a budget deficit were
currently unavoidable, the government should be selective with
the commodities it subsidized by targeting certain groups in
society.

"We totally disagree if the subsidy is provided at all costs.
The 8.5 percent (of GDP) budget deficit this year is too big.
We're greatly concerned that this could lead to uncontrollable
inflation," he said.

The economists forecast that the inflation rate may reach 100
percent this year, helped along by the government's spending
spree.

Sjahrir said that if the inflation rate broke the 100 percent
barrier, it could quickly skyrocket to 700 percent.

"If this happens, our economy will totally disintegrate," he
warned.

"In terms of economic principles, I agree with Sjahrir,
although in politics we may be in different camps," said Umar
Juoro, a senior economist at the Center for International and
Development Studies (CIDES), a private think-tank linked to
Habibie.

The government last month managed to procure more than US$14
billion in foreign aid to finance its 1998/1999 budget subsidies.

"The foreign aid pledge must not be seen as a restoration of
foreign confidence in our country," Sri Mulyani said.

Sjahrir expressed apparent disgust at how the government had
not shown any sense of crisis and that it had instead rejoiced
over the new aid commitments.

Habibie proudly stated late last month that the multibillion
dollar aid commitment by Indonesia's official creditors in Paris
reflected a vote of international confidence in his
administration.

When asked how subsidies could be reduced and whether a
general election should immediately be held to create a
government with political legitimacy, Sri Mulyani said: "These
are interesting questions which may make us, now sitting at the
same table with the same view, to break apart."

"But Didik will answer the political question since he's now a
member of the MPR," Sri Mulyani added, pointing to a startled
Didik J. Rachbini, who was recently appointed by Habibie as a
member of the People's Consultative Assembly.

"A general election is needed to obtain new political
legitimacy to implement the economic program," he answered
briefly.

Revrisond Baswir explained that the 15 economists were divided
over whether the Habibie administration had the ability to
implement policies based on sound economic principles.

"But in order to be able to sit together at one table here we
finally agreed that we all have doubts (about Habibie's
capability)," he said.

Revrisond argued that an immediate general election or a
special session of the MPR would not guarantee a capable,
legitimate government.

"That's why we stated in our declaration that any government
(not specifically Habibie's) which runs the country must hold
firmly to economic principles," he said.

Pointing out the dire economic situation, which is projected
to see an estimated 15 percent contraction this year and at least
some 80 million people living below the poverty line (up from
22.5 million in 1996), Arief Arryman warned: "We must quickly
solve the political uncertainty because time is not on our side."

Revrisond added: "The only reason our nation is not bankrupt
now is because the private sector and the government have stopped
paying their foreign debts."

"The critical situation prompted us to make this
declaration... hopefully, Umar Juoro will deliver this message
to Habibie and ask him to do what Amien Rais (a leading political
opposition figure) calls a "Big Bang" departure from the old
system of Soeharto. This would be the arresting of corrupt
officials, including past untouchables and even those who are
close to the President," Sjahrir said. (rei)