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)