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.