IMF pleased with Indonesia's recovery

IMF pleased with Indonesia's recovery

JAKARTA (JP): The International Monetary Fund (IMF) Asia
Pacific director, Hubert Neiss, said on Wednesday that Indonesia
had made considerable progress in economic recovery, but warned
that a consistent implementation of the economic reform program
was a must to sustain recovery.

"Indonesia has made considerable progress in the economy and
recovery, but the most important challenge is whether the
government will continue to nurture the recovery and continue the
institutional and structural changes in order to sustain it," he
told a seminar on Indonesian economy.

The seminar also presented other distinguished speakers,
including U.S. Massachusetts Institute of Technology economist
Paul Krugman, Bank Indonesia deputy governor Miranda Goeltom and
local economists Marie Pangestu and Sjahrir.

Neiss said that the country's economic reform program was so
far effective as reflected in the strengthening of the rupiah to
the U.S. dollar and other positive macroeconomic developments.

"The economy has started to grow again," he said.

He added, however, that the country's economic recovery was
not yet broad based.

Neiss pointed out that the banking sector had yet to recover
from its ailing condition and the corporate debt overhang was
still a big problem to the economy.

Neiss also acknowledged that the Bank Bali scandal was a
setback to the recent improvement in market sentiment, but said
that this could be overcome if the government solved the problem
swiftly and transparently.

The Bank Bali scandal has prompted several politicians to urge
the government to revise its banking reform policy, particularly
in regard to the blanket guarantee program.

Several economists have also warned of the likelihood of the
new government to revise the IMF-mandated economic reform
programs.

The Fund is organizing a US$43 billion bailout fund for the
country to help finance the economic reform programs.

The Fund forecasted in July that the economy would grow
between 1.5 percent and 2.5 percent in the current fiscal year
ending in March 2000.

Indonesia was badly hit by the economic crisis that started in
the middle of 1997. The economy contracted by nearly 14 percent
last year, inflation soared to more than 77 percent, the central
bank's benchmark interest rate skyrocketed to 70 percent and the
rupiah plunged to about Rp 14,000 to the dollar.

But the economy started to grow by 1.82 percent in the second
quarter of this year compared to the same period last year. The
economy has also been enjoying deflation since March, and the
rupiah has been hovering between Rp 7,000 and Rp 8,000 to the
U.S. dollar over the past several months.

National Development Planning Board (Bappenas) chairman
Boediono painted a more optimistic picture of the economy on
Tuesday, predicting that gross domestic product (GDP) would grow
between two and four percent in the current fiscal year, and up
to six percent in the next fiscal year.

But Krugman warned of such overoptimism.

He said that compared to other crisis-hit countries in the
region, the Indonesian economy was the worst hit.

He pointed out that while other crisis-hit nations suffered
"financial distress," Indonesia suffered "financial collapse".

He added that while the economic meltdown had sent only a
couple of major corporations into bankruptcy in other nations,
"most corporations in Indonesia went bankrupt".

Krugman said that Indonesia's economic recovery would not be
as fast as the government expected, but it would be "gradual".

He also suggested that a clean and legitimate government was
crucial to attain an economic recovery.

"That (recovery) depends above all on having a government that
is reasonably fair, honest and legitimate. If not, Indonesia will
be lagging far behind other countries," Krugman said.

"We hope to hear good political news from Indonesia," he said.

He noted that the recent positive economic development was
also helped by positive developments in the international
economy, which was not primarily due to the IMF programs.

Sjahrir agreed that a legitimate and clean government was
crucial for the country's economic recovery.

"Habibie is far from the criteria set by Krugman, but Megawati
is closer," he said, referring to incumbent President B.J.
Habibie and popular opposition leader Megawati Soekarnoputri, the
leader of the Indonesian Democratic Party of Struggle (PDI
Perjuangan), the front-runner in the June elections.

Asked to project an outlook for the Indonesian economy under a
Habibie-led government and a Megawati-led government, Neiss said:
"I don't know. The IMF is not in the business of political
forecasts." (rei)