IMF must address problem of crony capitalism: Econit

JAKARTA (JP): The third International Monetary Fund (IMF)- reform package for Indonesia, to be signed next week, will likely fail to revive the dying economy unless it dismantles the culture of crony capitalism, the Econit economic research group said yesterday.

Econit directors Laksamana Sukardi and Rizal Ramli told journalists that the IMF package would very unlikely directly address the main cause of the crisis, namely "free, unbridled crony capitalism."

"It is obvious to all that the crony capitalist system has brought on the economic crisis," Laksamana said.

"If we are intent on saving the Indonesian economy and regaining investor confidence, we must focus on efforts to root out the blood-leaching system of crony capitalists."

Laksamana said crony capitalists only thrived in the absence of controls or a balance of power within the political system.

In Indonesia, he said, crony capitalists had openly created a "power franchise" system of businesses.

"Exclusive licenses, concessions and economic privileges like monopolies and cartels are only enjoyed by the cronies who are capable of paying the 'power franchise fees' or the costs of collusion; bribes, graft and other malfeasance," he said.

Laksamana suggested that the IMF make efforts to root out crony capitalism in Indonesia the first condition for disbursing its loans to the country.

To eradicate practices of cronyism, Indonesia needed fundamental changes of character and attitude on the part of the power holders.

"If the IMF is not convinced of these changes, then crony capitalists will continue to exist and obstruct IMF reforms in Indonesia and the IMF aid program to Indonesia is doomed to fail," Laksamana said.

Rizal added he was pessimistic that the current cabinet could implement all points of the new agreement with the IMF.

"We don't believe that this crony, kitchen cabinet is able to implement what will be signed next week," Rizal said.

He said the challenges for the IMF and the current cabinet would be much tougher than previously thought because the crisis had only just started to really bite with the onset of spiraling inflation.

Another problem would be the amount the economy shrinks. The IMF and the government have predicted economic growth will be minus five percent.

"When we expect minus growth, foreign investors will not come back here. They will rather go to eastern Europe or Latin America which offer high growth," he said.

The other imminent major problem was how to tackle the already rotten banking sector and huge public and private offshore debt burdens, Rizal said.

More than 50 problem-ridden banks have already been put under the receivership of the Indonesian Bank Restructuring Agency.

"The other banks have been kept afloat by financial support from Bank Indonesia, amounting to more than Rp 100 trillion (US$11.7 billion) so far," Rizal said.

He predicted that non-performing loans could expand to as high as 70 percent.

As for debt problems, Laksamana said, there would be no way to solve them without a write off and rollover of a portion of the foreign debt. (rid)