Lenders critical of Hamzah plan, says economist

Lenders critical of Hamzah plan, says economist

Berni K. Moestafa, The Jakarta Post, Jakarta

Foreign lenders have questioned Vice President Hamzah Haz's
plan to announce an economic recovery program, fearing it could
push aside reforms agreed on with the International Monetary Fund
(IMF), an economist said.

Hamzah told daily Tempo in an interview on Tuesday that his
blueprint for economic recovery contained parts that contradicted
those under the IMF's reform program.

"There is a genuine concern out there ... how come we have two
different documents on the same program (for reforms)," economist
Sri Mulyani Indrawati told The Jakarta Post on Wednesday.

Sri, who has close contacts with officials from multilateral
lenders, such as the IMF, the World Bank and the Asian
Development Bank (ADB), said lenders were "not pleased with what
was going on inside the government".

The Vice President has come into the spotlight over the past
few weeks, as his economic team is seen to be encroaching on the
authority of the government's team of economic ministers in
setting out the priorities for the country's economy.

Hamzah said he was told by President Megawati Soekarnoputri to
help her out with economic affairs, but analysts saw in this
Megawati's fading trust in the team, led by Coordinating Minister
for the Economy Dorodjatun Kuntjoro-Jakti.

The delegation came on the heels of speculation over
Dorodjatun's waning influence within the Cabinet.

Sri warned that this question of credibility would pose a
serious problem during negotiations with foreign lenders.

"The Vice President's office is higher in rank compared to all
three officials who signed the letter of intent for the IMF, so
how much is their signature worth now?" Sri said.

She was referring to the letter of intent, which outlines
Indonesia's reform targets for the IMF.

The document is signed by the coordinating minister for the
economy, the finance minister and the governor of Bank Indonesia.

A new letter of intent is expected later this month or early
April, as a requirement for debt rescheduling talks with the
Paris Club of creditor nations.

Indonesia seeks to reschedule sovereign debts of about US$5
billion to $6 billion, but Sri warned that Hamzah's plan might
come in the way.

"It's only understandable, that they (Paris Club) would
question Hamzah's program," she said.

Details of the blueprint, once called the stimulus package,
remain sketchy so far.

Several economists, who were earlier invited by Hamzah to
discuss the plan, described it as a domestic letter of intent
that would set the guidelines for economic policies.

Hamzah said he proposed to revitalize state-owned assets so
that they could stimulate the domestic economy, and demanded
creditor nations to shoulder more of the country's debt burden.

Sri pointed to three points in Hamzah's program that could
spell trouble.

One was that Hamzah proposed to stop financing the state
budget using proceeds from the privatization program. That, she
said, was against the letter of intent, which required the
government use cash to unload its debt burden from the budget.

Hamzah instead offered the privatization proceeds to be used
for raising capital in an unexplained effort he called "value
creation".

The second point, she said, was a plan to offer small and
medium-scale enterprises some Rp 20 trillion (about $2 billion)
in capital.

"Now where is all that money going to come from? The state
budget doesn't say anything about that," she said.

Another possible concern, Sri said, was a plan to repatriate
export earnings in a move that smacked of capital control.

David Chang of Vickers Ballas Tamara said so far, the market
was unconcerned over Hamzah's foray into economic policy-making.

But he warned that once it started to affect the foreign
lenders' stance on Indonesia, it would cloud market sentiment.

A senior staff member at the Coordinating Ministry for the
Economy, Mahendra Siregar, said Hamzah's team and senior economic
officials had met over a consultation of the planned program.

He said the program still needed some fine-tuning, but in
doing so, Hamzah was not required to consult the government.

"We hope there will be similar meetings in the future to nail
down the concept," he said.

He added that the final say on whether or not to adopt
Hamzah's plan would rest with the Cabinet meeting.