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?