Investors, donors still watching new economic team

After the presentation of the complete audit of Bank Bali to the IMF, donors and investors are still cautiously watching the new ministers and their handling of corruption, economist Sri Adiningsih of the Yogyakarta-based Gadjah Mada University, who joined recent talks with the IMF, told The Jakarta Post.

Question: The International Monetary Fund (IMF) has said it is now willing to negotiate again with the government after it received the PricewaterhouseCoopers long form report. Would you agree this is a good start for the economy?

Answer: The IMF has a high commitment in Indonesia's continued economic reform and it seems it considers the new government is serious in its economic reform program. Gus Dur's statement, requesting his ministers to resign if they were implicated in any cases like Bank Bali, reflects the government's seriousness. I think there are now no more constraints regarding Indonesia's relations with IMF and other multilateral agencies.

Q: The IMF has promised continued negotiations, without waiting for the results of legal proceedings on Bank Bali...

A: The impression that the IMF has promised to immediately continue negotiations and release the remainder of funds is not completely true; they are sending a technical team next week who will, among others things, evaluate and draw up the framework of the new Letter of Intent.

Q: So the IMF's willingness to renegotiate is more because of its trust in the new government rather than the investigation into Baligate?

A: There is some truth in that. At least until now the government has shown clear signals of its stance on the Bank Bali scandal and other reform programs.

Q: Will there be fundamental changes in the new Letter of Intent?

A: There should be because of the changes in our State Guidelines, and because of the new people in the economic team. In its meeting last month the IMF also admitted the failure of its structural adjustment program in many countries. Its new program -- poverty reduction and growth strategy -- will influence its approach in assisting countries affected by monetary crises.

Q: So where will the stress likely lie in the new Letter?

A: It will emphasize poverty reduction with more defined subsidies... on how to reduce constraints on the middle and lower classes from benefiting from economic growth, and it will also stress transparency. Other points could be on how to use fiscal policy to reduce poverty, sound monitoring and of course macroeconomic sustainability and stability. Our new State Guidelines also clearly emphasize the empowerment of the poor. The drawing up of the new Letter is likely to be smooth because of the changes from both parties.

Q: Once the new Letter is signed how much would the remainder of IMF funds amount to?

A: The government has never mentioned the actual figure, only saying it will be around $2 billion.

Q: Would capital through new investments be stimulated once the new Letter is signed and the remaining funds from the IMF are liquidated?

A: Capital inflow will indeed be greatly influenced by the release of more IMF funds or when the two parties sign an agreement. But it will also be affected by other factors such as the thorough settlement of the Bank Bali case, the government's economic policies to get the economy moving again and completing the banking and corporation restructuring program.

Another factor will be the seriousness of the government in wiping out corruption, collusion and nepotism and upholding law enforcement to enable the establishment of a healthy and conducive business environment in the country. Investors seem to have been convinced by one factor -- the resumption of social and political stability.

Q: Which factor will be the heaviest constraint to creating a conducive climate for investment?

A: If the Bank Bali case is settled, this will hit many targets. The government's willingness to thoroughly investigate the scandal would also give signals to the market that the government is serious both in wiping out corruption, collusion and nepotism and upholding the law. The settlement of the scandal would build a large amount of trust from domestic and international investors in the performance of the government, particularly its economic team.

Q: The market has not positively responded to the publication of the complete report of the PricewaterhouseCoopers audit...

A: The rupiah actually strengthened when the new government was formed but the market was indeed still unsure of the performance of the new economic team. They were unfamiliar names to the market. There are still waiting to see the actions of the new officials. I think the main question reflecting anxiety in the market is whether the coordination of the team can work well, given that this Cabinet resembles gado-gado (a dish consisting of a variety of vegetables). There were contradicting policies among previous ministers. Economic policies (need) solid teamwork.

The audit's long form is indeed still unclear regarding the flow of funds, but its publication will at least lead to clarity and make it difficult for those implicated, including investigators, to cover up (their actions). What is unclear can be made quite clear once the government is willing to do so. The publication of the long form means there is no turning back for the government. It must continue a thorough investigation into the scandal. The publication also means that the big fish in the case have been revealed. The government only need reveal the names of those whose accounts are mentioned in the long form.

Q: Will the attitude of the IMF in the future still depend on the legal process of Baligate?

A: In general, yes. Perhaps the negotiation of the first agreement letter and the liquidation of remaining funds from the earlier package does not depend too much on the legal settlement of Bank Bali. But there will be other Letters of Intent... and I think its legal settlement will be a determining factor. (Asip A. Hasani).