New funds considered no gauge of confidence

New funds considered no gauge of confidence

JAKARTA (JP): The injection of funds from outside agencies may
help soothe the country's economic hardships but it will take
much more to restore badly dented confidence in the country,
economists said yesterday.

Senior economist I Nyoman Moena said the commitment from the
International Monetary Fund, other multilateral agencies and
donor countries to disburse loans to Indonesia was no measure of
returning confidence.

"This is a significant improvement. With those funds, we can
solve problems related to foreign exchange financing, like
guaranteeing letters of credits opened by our importers.

"But this disbursement commitment does not at all indicate any
returning investors confidence. To win market confidence, there
are still a lot of things to be done."

Most important was to build enduring stability, be it
economic, social and, crucially, political.

If protests and clashes between demonstrating students and
security forces continued, it would be hard for investors to
regain confidence in the country, Moena said.

More violent protests broke out here and Medan, North Sumatra,
yesterday in response to fuel and electricity price hikes, tied
to IMF-imposed removal of subsidies.

The country won some breathing space in its economic
restructuring efforts when the IMF announced yesterday the
approval of US$3 billion in credits over the next three months.

The IMF board approved the immediate release of $1 billion and
said an additional $2 billion could be available between now and
July.

Coordinating Minister for Economy, Finance and Industry
Ginandjar Kartasasmita said he expected $7.05 billion in fresh
funds from the IMF, the World Bank, the Asian Development Bank
(ADB) and donor countries.

He said the ADB and World Bank were expected to release $1.5
billion and $1 billion respectively while Japan, Australia and
Malaysia would provide a combined $1.55 billion.

Christianto Wibisono of the Indonesian Business Data Center
concurred with Moena's opinion that the loan disbursement
commitments would not automatically liven up the economy because
there were many things still unresolved, especially on the
political front.

"Our duty now is to speed up political reforms to match
massive economic reforms."

Anwar Nasution expressed optimism, however, and said the
disbursement would eventually restore market confidence.

"Don't just look at the relatively small amount of money, but
look at it as a stamp indicating the IMF's support of our
economic reforms," the dean of the School of Economics at the
University of Indonesia said.

Reforms

He stressed the government must continue with the reforms, and
not resort to making confusing statements.

"We can't afford the cost of (subsequently) denying confusing
statements," he said.

Businessmen Sofyan Wanandi also welcomed the disbursement.
"The IMF economic package is the only way for us. There's no
other way."

But reform would not happen overnight.

"This, however, takes time," he said, adding that the reform
package would need between three to five years for a turnaround
in the economy.

He believed that political reform would accelerate the success
of the economic reform.

Economist Bomer Pasaribu said the IMF should be transparent
about its agenda for Indonesia, including the schedule of its
loan disbursement, to lessen the international market skepticism
about the country.

"IMF should not only demand transparency from our side, it
should also be transparent to the international community about
its program for Indonesia to reduce market pessimism," Bomer,
chairman of the Center for Labor and Development Studies, said.

Positive impacts of the disbursement were weighed down by the
government's recent decision to raise fuel and electricity
prices, said Pande Raja Silalahi, an economist with the Center
for Strategic International Studies.

"It has been tested by the market today (yesterday)," he said,
citing the slight fall in the rupiah against the U.S. dollar and
the relatively large drop in Jakarta stock prices.

He said the fuel price increase had unfairly increased the
public's share of the burden of the economic crisis, compared to
the Rp 103 trillion ($12.8 billion) injected to bail out cash-
strapped banks.

An alternative to a drastic reduction in the fuel subsidy
would be to reschedule payment of the government's foreign debts.

"I think the Japanese government would accept such a
proposal," he said, noting that Japan is Indonesia's largest
creditor. (rei/rid)