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)