Indonesia at risk of becoming Asia's black hole

Indonesia at risk of becoming Asia's black hole

By Dewi Anggraeni

MELBOURNE (JP): A recent seminar, launching the 1998 issue of
Asia-Pacific Profiles here, hosted by Asialink of the University
of Melbourne and Price Waterhouse, projected a cautiously limited
optimism on the prospects of economic recovery in the region. The
sobering part of this projection is that this optimism, rationed
as it was, seems to have eluded Indonesia.

If a visual metaphor were to be drawn synoptically, it would
show a dust storm originating in Wall Street and covering four
big houses, representing Thailand, Malaysia, Indonesia and South
Korea. After some time, the storm passes, the dust settles and
slowly the houses come back into view. Unfortunately, while three
of the houses are beginning to return to their original shapes,
one is still covered in thick black dust. The most depressing
part of the story is that it is the house representing Indonesia.

Listening to Thailand's former commerce minister Dr.
Narongchai Nakrasanee's account of the crisis that hit his
country mid-1997, it was hard not to draw a parallel with that
which hit Indonesia fairly soon after. The flood of global
capital, too much money chasing too few opportunities, to be
followed naturally by some of the money going to unsuitable
projects.

Like Indonesia, Thailand was then in dire need of financial
institutions to manage the capital, but the flow was too fast to
wait for any competent institutions to be established in time.
Like what Indonesia was to do later, Thailand also went cap in
hand to the IMF for assistance to stem the currency crisis.

There the similarities cease. After a change of government and
a swift restoration of stability, Thailand began in earnest to
restructure its economy, albeit not without pain. A negative
growth rate of 4 percent to 6 percent, a negative fiscal balance
of 3 percent and inflation of 10 percent seem inevitable.

However, despite the complex problems of painful and difficult
economic reform, Thailand is well on the path to recovery.
Liquidity problems are being gradually solved by reinvigorated
exports, relaxation of fiscal deficit, sales of government bonds
to domestic and overseas buyers, sales of assets of government
enterprises to foreign companies, loans from the World Bank and
Asian Development Bank.

It is clear that Thailand has managed to restore investors'
and creditors' confidence. Foreign companies, for instance, have
not left the country in droves. Some of these are even taking
advantage of the bigger market shares left by the many domestic
businesses that have gone under.

If Thailand, an economy not that far ahead of Indonesia before
the crisis, has been able to crawl out of the bottom of the
crisis, why is Indonesia still stuck in the hole?

Dr. Hadi Soesastro, a noted Indonesian economist, pointed out
that Indonesia is not only suffering from crises in the economic,
political and legal fields, the country is suffering from the
most serious ailment: a crisis of confidence.

The first mistake after recognizing that the crisis had hit
the country's economy, it appears, was that the whole country
went into denial. It seemed to think that it could not really be
affected by the meltdown when the ground under it was quickly
disintegrating. While requesting IMF's help, it did not take the
signed agreements seriously.

As Hadi put it, "We lacked good faith in implementing the
policies required by the IMF." Each time the agreements were
revisited and reviewed, the economy plunged further and became
more difficult to repair. Worse still, the lack of transparency
in the process no doubt was daunting to those representing IMF,
because they kept discovering underhand deals which undermined
the efforts to implement the policies competently. And the most
opaque in this case was those in power themselves.

This absence of good governance, in the public and private
sectors alike, finally brought the economic and political crises
to the point that a change of government was no longer avoidable.

While the change of government in Thailand restored the
confidence so necessary for economic restructure, in Indonesia it
failed to do so.

"The change is not sufficiently thorough," explained Hadi.
What has prevented the restructure, namely corruption, collusion
and nepotism, appears to have remained in place. The present
government is yet to prove it is clean and competent. The fact
that it is widely regarded as an interim government only adds to
the very uncertainty about which investors are wary. How can they
feel safe opening their coffers when even the IMF has been very
cautious in injecting funds already pledged?

While Thailand has retained its foreign direct investments to
aid its liquidity problems, in Indonesia the sales of assets of
private enterprises invariably run into the familiar problem: a
lack of transparency. Thus, resolving private sector debt, part
of the IMF deal, has become an incredibly onerous task. Glaring
in the midst of this is the task of unraveling the dealings
involving the Soeharto family, the extent and nature of which
nobody is really sure.

It was very obvious to the participants of the seminar that
unless those in Indonesia's powerhouse pull up their socks,
summon their collective political will and begin to clear a path
to real political and economic reforms, Indonesia will plunge
further into the black hole. And on the regional economic map,
the country could remain a black spot for a long, long time.

The writer is a freelance journalist based in Melbourne.

Window: If Thailand, an economy not that far ahead of Indonesia
before the crisis, has been able to crawl out of the bottom of
the crisis, why is Indonesia still stuck in the hole?