IMF reforms taking too long, says Aburizal

JAKARTA (JP): Indonesia cannot afford to wait any longer for the IMF reform program to stabilize the ailing rupiah, the chairman of Indonesia's Chamber of Commerce and Industry said yesterday.

Aburizal Bakrie said he appreciated advice from foreign governments and international financial institutions that Indonesia should fully implement sweeping IMF-sponsored reforms to deal with the economic crisis.

"But we are the ones who must decide what is best for our country. We can't wait for another six months or one year for the results of the reforms," he said at a ceremony in which several companies handed out basic commodities to low-income people.

Aburizal said the most important step toward salvaging Indonesia's wrecked economy was not scrapping monopolies and other restrictive trade practices as prescribed by the IMF, but stabilizing the rupiah.

He has previously said the government needed to launch an alternative effort referred to as the "IMF-Plus" to stabilize the rupiah.

The "IMF-Plus" concept was mentioned by President Soeharto on Sunday during his accountability speech to the People's Consultative Assembly. Analysts believe the plan would combine the IMF reform programs with the controversial currency board system which would peg the rupiah to a hard currency like the U.S. dollar at a fixed exchange rate.

The country is currently suffering from its worst ever economic crisis, which has seen the rupiah plunge in value to as low as Rp 17,000 to the U.S. dollar in January from Rp 2,450 last July. Massive layoffs and soaring domestic prices have been the result of the currency woes.

The rupiah lost further ground in thin trading early yesterday, closing at 10,500 against the dollar due to concern that the IMF might not disburse the second tranche of its loan to Indonesia.

The government announced Monday that the inflation rate for February was a record 12.76 percent, compared to only 1.05 percent in the same month last year.

Many analysts believe February's figure indicates that Indonesia's economy could fall to hyperinflation, which in turn may cause widespread protests and riots.

The rupiah's sharp depreciation has hit importers especially hard, not only due to the sharp increase in rupiah-based prices of the imported products but also due to credit difficulties.

Most letters of credit issued by local banks to import and export firms have been rejected by overseas banks due to the crisis, prompting worries over the availability of imported raw materials. Many firms have reported that they only have enough supplies to operate through April.

Analysts say many production firms import up to 50 percent of their raw materials and that they would be unable to continue production unless a solution can be found to the country's letter of credit puzzle.

"We need... to stabilize the rupiah so the inflation of imported materials can be pushed down to lower the prices of basic items," said Aburizal, who is also chairman of the Bakrie Group.

He called on Indonesians to support President Soeharto in implementing any policies to strengthen the rupiah to normal levels.

Although the President signed a letter of intent on Jan. 15 to implement IMF reform programs in exchange for a US$43 billion bailout fund, he indicated early last month that Indonesia would need to set up a currency board to stabilize the rupiah.

The currency board plan has angered Indonesia's major donor countries and the IMF, which has threatened to stop providing its funds if Indonesia went through with the idea.

The IMF provided Indonesia $3 billion in November and is scheduled to hand over a second tranche of another $3 billion in the middle of this month.

IMF officials are currently reviewing the country's seriousness in implementing the reforms and should it consider that Jakarta has not been living up to its agreement, the institution could withhold the second installment of funds.

Critics say that now is not the appropriate time for Indonesia to establish a currency board.

Analysts say a positive assessment from the IMF is also needed to get letters of credit guarantees from the country's major trading partners, many of which have agreed to open trade facilities. (08)