Megawati paints grim economic picture

Fabiola Desy Unidjaja, The Jakarta Post, Jakarta

President Megawati Soekarnoputri admitted on Thursday that she had done little to bring Indonesia out of its prolonged economic crisis, and offered no fresh initiatives to address the political and social woes beleaguering the country, and scaring off investment.

"It is with serious concern and humility, but also frankness, that I have to admit that there is little good news that I can report to you," Megawati said in her first progress report to the members of the People's Consultative Assembly (MPR), the country's highest legislative body.

Megawati, who assumed the presidency on July 23 after MPR members impeached erratic former president Abdurrahman Wahid, warned that the country's debts had reached an alarming level, and that most of the State Budget funds were used up on debt repayments and interest.

Indonesia's offshore debts now stood at around US$140 billion, of which 54 percent were government debts.

Fresh foreign investments had dried up over concerns that the country was a high-risk destination, she added.

"The data that we have shows that we have slid back to being a nation with a low per capita income, with the unemployment rate mounting, and with a very large part of production potential being unable to operate to the fullest," Megawati said.

She underlined the weakness of the country's banking sector, which had yet to recover fully after the financial crisis first broke in 1997, even though the government had spent a huge amount of money on recapitalizing domestic banks.

Megawati said efforts to privatize state-owned enterprises and sell assets currently managed by the Indonesian Bank Restructuring Agency (IBRA), which were expected to cover the country's budget deficit, had not been going smoothly.

The government hoped to contain this year's budget deficit at Rp 54.31 trillion, or 3.7 percent of gross domestic product (GDP).

To help cover the deficit, the government has targeted privatization proceeds of Rp 6.5 trillion (about $633 million), plus Rp 27 trillion from the sale of assets under the stewardship of the Indonesian Bank Restructuring Agency (IBRA).

The other source of financing for the deficit is foreign loans.

There have been no proceeds from privatization so far, while as of September, IBRA was Rp 8 trillion behind target.

Efforts to privatize state-owned enterprises and sell IBRA- held assets, however, have met strong resistance from both lawmakers and the public at large.

Megawati said that the government had now decided to concentrate on three priorities, namely economic recovery, normalization of the political situation, and law enforcement.

In her first state-of-the-nation address on Aug. 16, Megawati singled out six programs for her cabinet, which included maintaining national unity, continuing reform, democratization, and reviving the country's ailing economy.

Rising anti-American sentiment following the U.S.-led strike against Afghanistan, has affected the country's tourism sector, which usually serves as one of the country's sources of income.

In the past weeks, the rupiah has fallen once again to below Rp 10,000 per U.S. dollar due to the uncertain security situation.

"We have to be honest in admitting these conditions and we have put all of our efforts into preventing a further economic 4downturn ... We need the courage to make some daring decisions to get out of the crisis," she said.

"We have to improve our country's image so it will not be considered as one of the most risky countries for investment. By this means, maybe we could get investors interested in coming to the country," Megawati added.

The government should focus on economic recovery as the first step to resolving other crises, and in this regard the government may have to take unpopular measures to improve the security situation in the country.

"Achieving economic recovery will have implications and consequences, and the first consequence is to impose strict efficiency at all levels and in all fields ... we have to cut our routine expenditure so we can have more funds for productive fields," she said.

The government would also be forced gradually to raise the prices of a number of goods and services, such as fuel and electricity, and to take "other bitter steps", including in the fiscal field. She gave no details.

"The government has to take more resolute action to deal with the many problems that could endanger political stability and the greater interests of the people," Megawati remarked.