Wed, 28 Jun 2000

IMF sees three economic problems hampering recovery

JAKARTA (JP): The International Monetary Fund (IMF) Jakarta representative John Dodsworth said on Tuesday that there are three structural problems hampering Indonesia's economy from achieving a sustainable recovery.

Dodsworth said that these include the huge amount of public debt, the large number of private assets under state control, and the massive amount of corporate overseas loans.

"If we can tackle these three issues then Indonesia can recover," he said at a seminar in celebrating the 35th anniversary of Kompas, Indonesia's largest daily.

He said the economic crisis had caused a huge amount of private debt turning into public debt particularly due to the costly bank restructuring and recapitalization program, estimated to reach some Rp 600 trillion (US$69.77 billion).

He said that the huge public debt was straining the country's budget.

Dodsworth said that the crisis also had transferred a lot of assets from the private sector into the hands of the state through the Indonesian Bank Restructuring Agency (IBRA).

IBRA is currently controlling some Rp 600 trillion worth of assets transferred from the banking sector.

Dodsworth said that the agency must accelerate the restructuring and disposal of its assets to help finance the state budget as well as to help revive confidence in the economy.

He admitted that the market condition might not be "very good" at the moment for the sale of assets, and that some people were using this reasoning to delay asset disposal.

"But further delay will only deteriorate the assets ... And there's no guarantee that the longer you wait the better the price will be," he said.

IBRA has long been criticized for its slow progress in the disposal of its assets.

IBRA is charged with raising Rp 18.9 trillion this year to help finance the state budget.

So far IBRA has only raised around Rp 2.8 trillion.

Dodsworth said that selling back the assets to the private sector including foreign investors would help revive market sentiment in the economy.

"It may not be the best solution, but to change market sentiment there must be some assets sold," he said.


Finance Minister Bambang Sudibyo said late on Monday at a hearing with the House of Representatives commission IX on state budget and finance, the government is planning to divest a majority of its ownership in Bank Internasional Indonesia (BII), Bank Universal, Bank Central Asia (BCA) and Bank Niaga this year.

The government become the largest shareholder of the four publicly listed banks after it financed more than 80 percent of the recapitalization costs of the banks.

IBRA has also said that it plans to sell between 14-20 companies this year including through initial public offerings.

Dodsworth said that another important challenge that must be tackled is the huge amount of corporate overseas loans, estimated at about US$70 billion.

He said that the loans, most of which have not been serviced since 1998, must be restructured to help revive the creditworthiness of the country's companies and to allow them to obtain new foreign financing.

"If these structural problems are not addressed quickly, the current (economic) recovery will fall again," Dodsworth said.

"There has to be a national consensus to tackle the problems," he added.

He said that Indonesia was now moving toward economic recovery as showed by the latest statistics particularly economic growth, and export performance.

The IMF agreed in January to provide some $5 billion in bailout cash to the administration of President Abdurrahman Wahid to help finance the country's three-year economic reform program.

So far, the Fund has disbursed more than $700 million, while another $380 million is expected to be disbursed in August after the government and the IMF agree a new letter of intent next month.

There is now increasing calls for Indonesia to quit the IMF program on the basis of the country's stronger balance of payments condition.

But economist A. Tony Prasetiantono of the Gadjah Mada University said that although the IMF loans are not so significant in terms of the amount, the role of the Fund is still important to help revive market confidence in the economy.

Economist Sri Mulyani conceded. "If we quit now from the IMF, we'll surely be dead."

She said that Indonesia could only abandon the IMF if it already had strong discipline to implement the economic reform program.

"So the timing is very important," she added. (rei)