Minister blames crisis on creditors' recklessness
JAKARTA (JP): Minister of Finance Bambang Subianto blamed on Friday foreign creditors for exacerbating the scale of Indonesia's monetary crisis by their wanton lending habits to local companies before the turmoil hit the country.
Bambang said that creditors exercised rash judgment over their loans to Indonesia, and now that the crisis had swept the country, leading to mountains of unpaid debts, their acts had completely impaired the country's ability to recover.
"The creditors failed to make distinctions between the good guys and the bad guys in good and bad times," he told a session on state-driven economies on the last-day of the Indonesia Forum business conference here.
He recalled that in 1996, a year before the currency crisis hit Asia, there was a high inflow of capital to Indonesia in the form of short-term financing facilities.
The screening was so relaxed that almost every request for loans was accepted, he said.
However, since the beginning of the crisis in July last year, almost every corporation in the country has been considered "incapable, untrustworthy and unable to survive", he said.
"Our face changed from a beautiful angel to a frightening monster in creditors' eyes," he said.
The central bank has said that of the total US$144.2 billion of Indonesia's overseas obligations, debts owed by private sector and state-owned companies amounted to US$83.6 billion.
Of the remainder, $54.4 billion is made up of long-term government debt and $6.2 billion in commercial papers.
The government has set up the Indonesian Debt Restructuring Agency to help resolve the private sector's overseas debt overhang by brokering debt rescheduling over an eight-year period, including a three-year period in which only interest will be paid at a predetermined rupiah rate against the U.S. dollar.
The agency became operational on Aug. 3, but not a single indebted company has reached agreement with its creditors to sign up for the program.
In Thursday's session of the Indonesia Forum, former Philippine finance minister Roberto de Ocampo agreed that excessive loan exposures had worsened the economic chaos.
"In a number of financial institutions without proper monitoring and prudential regulation, the access to easy money led to politically desirable, but economically unjustifiable showcase projects," he said, citing high-rise infrastructure monuments to high-profile car industry programs.
People's economy
Bambang told the gathering that the Indonesian government was shifting its policy toward establishing a "people's economy" focusing on developing small and medium enterprises (SMEs) and cooperatives.
He said this would simultaneously boost both growth and enhance equitable distribution of wealth.
At its Special session last week, the People's Consultative Assembly enacted a decree on political economy which stipulates that the government must prioritize SMEs and cooperatives.
The move is seen as a shift from the strategy adopted by Soeharto's New Order regime that concentrated wealth in the hands of large corporations, many of which were controlled by ethnic Chinese, to small businesses and cooperatives which are mostly owned by indigenous Indonesians.
However, economist Sri Mulyani Indrawati dismissed the new economic strategy as merely another sugar-coated government political move.
"For me, this is just the repetition of the same mistake made by the previous regime," Sri said at the same forum.
She cited the reports of various studies on SMEs as concluding that most small businesses and cooperatives had failed not because of lack of assistance and technical guidance but due to unfair market competition and invisible costs imposed by gross inefficiency in the economy.
The government had not made any headway in removing the high- cost elements of the economy, she said.
"Granting more subsidies and privileges to SMEs and cooperatives and pronouncing more political rhetoric on their importance won't be effective in developing a people's economy in the real sense," she said. (das)