Investors, donors still watching new economic team

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).