Misguided priorities

Misguided priorities

It is, we feel, a totally misguided priority for President
Megawati Soekarnoputri to leave the capital four days before
Sunday's summit of the leaders of the Asia Pacific Economic
Cooperation forum in Shanghai.

However important her presence may be in Shanghai to introduce
herself to other APEC leaders, the President's departure could be
postponed until Friday to provide her with more time to manage
the economic crisis, which has now become much more complicated
following the wave of anti-American demonstrations.

By leaving on Wednesday and spending two nights in Hong Kong,
Megawati demonstrates not only her virtual ignorance of the real
magnitude of the crisis she is facing, but also a complete lack
of awareness that an economic crisis needs emergency treatment
and daily monitoring.

After all, the coming APEC summit will be heavily political in
nature, thereby rather irrelevant with regard to Indonesian
economic woes, and likely be dominated by the U.S. agenda to
build up a stronger global alliance against terrorism.

Megawati and the government in general should realize that the
continuing tide of anti-American demonstrations, though
representing no more than the actions of an emotionally-charged
minority, have created a new kind of uncertainty regarding
Indonesia's economic outlook.

Businesspeople are worried about the danger of an Islamic
backlash at home due to the U.S.-led international fight against
alleged terrorist bastions in Afghanistan and how it will affect
Megawati's administration. They are nervous and apprehensive that
the anti-American sentiment, if not well-managed, could escalate
into the rising prominence of anti-foreign interests in the
country.

Even without the new uncertainty, the weak economy was already
hit severely by the far-reaching impacts of the September 11
terrorist attacks. Some exporters, faced with dwindling import
orders from the U.S., have begun laying off employees.

This uncertainty is certainly inimical to economic
activity, as businesspeople, faced with incalculable risks, are
forced to postpone decisions. Consumers with large sums of
disposable income may also be prompted to postpone purchases,
preferring to keep their savings in short-term rupiah or dollar
deposits.

This extreme lack of business and consumer confidence can be
seen in the wildly-fluctuating rupiah rate against the American
dollar and the persistently depressed condition of the Jakarta
stock exchange.

The perceived condition of insecurity and the weaker economy
are especially damaging to the restructuring process of the
banking industry, which could drag more businesses into trouble.
This, in turn, would worsen the financial distress of banks at a
time when many of them are still struggling to achieve the
mandated minimum capital adequacy ratio of 8 percent by December.

The perceived high risks within the economy are also
discouraging banks from expanding lending operations to the
liquidity-starved business sector because of the big dangers of
suffering new bad loans. This adverse condition could put more
banks in danger of failure, with more devastating repercussions
on the government because almost 90 percent of the banking
industry has been nationalized.

The new uncertainty is also hindering the process of corporate
debt restructuring, a prerequisite to a sustainable economic
recovery, as debtors have to come up with credible business plans
to support their debt-restructuring schemes. But how could one
produce a reliable business plan faced with this uncertainty?

Likewise, asset recovery by the Indonesian Bank Restructuring
Agency (IBRA) is also being frustrated by the uncertainty as
investors are jittery about acquiring assets in a country
perceived to be high risk.

It is therefore high time for Megawati and her government to
really start leading and governing the nation by focusing their
attention on managing the economic crisis that has forced tens of
millions of people into unemployment and absolute poverty, and
deprived millions of children basic health services and primary
education.