New govt should plug on with IMF program: Analysts

New govt should plug on with IMF program: Analysts

JAKARTA (JP): Whoever comes to power after the general
election should stick to the International Monetary Fund-
economic program to prevent the country from falling into another
debilitating crisis, analysts warn.

Inconsistencies in the reform agenda would be a fatal blow to
the country's economic recovery because it would further
undermine international confidence, they add.

Irvan Nasution, an analyst at securities firm PT Andalan Artha
Advisindo Sekuritas, said in Friday social unrest and riots were
now lower in relative importance to the market than consistency
in economic policies.

"The market is now paying more attention to policy
inconsistency rather than social unrest," he said.

He added that despite several incidents of unrest in parts of
the country ahead of Monday's general election, the rupiah's
exchange rate to the U.S. dollar remained relatively stable, but
the rupiah tumbled when the government delayed the closure of 38
banks in March.

Irvan said investors perceived that rioting on one island
would not easily spark unrest in another area due to Indonesia's
particular geographical composition as an archipelago.

Jordan Zulkarnaen, an analyst at PT Pentasena Securities,
concurred.

He said foreign investors would not be jittery over a bloody
riot in a country still in the early stages of embracing
democracy as long as both the legal and economic system worked.

He stressed it was essential for the country to proceed with
both the bank recapitalization and debt restructuring programs.

"Don't let petty politicians damage what we've already
started," he said, citing efforts to delay or cancel the
elections on the pretext of unrest.

Monday's general election is touted as the country's first
open and free polls after 32 years under the authoritarian rule
of Soeharto, who resigned the presidency last May.

The new legislature will be formed in July and the president
will be elected in November to pave the way for the establishment
of a new government.

Several major parties have voiced general commitments to the
IMF-sponsored economic reform programs.

The government will have to work hard to improve the country's
sovereign risk, particularly as it is banking on foreign
investors pouring in large amounts of money to help revive the
crisis-hit economy. They are expected to do this either through
the purchase of local banks and companies seized by the
Indonesian Bank Restructuring Agency (IBRA), or investment in
government bonds.

In addition to corporate risk, investors also will consider
the country risk before making investment or buying into a
company or bank.

IBRA currently controls more than US$10 billion worth of
companies, which were surrendered by local conglomerates to repay
their obligations to the government. The agency is planning to
sell the companies in four years time to raise cash to help
finance the government's costly bank recapitalization program.

The government also expects foreign investors to buy into the
local banks to ease the government burden in recapitalizing the
banks. Investors are expected to buy into part of the estimated
Rp 351.62 trillion in recapitalization bonds to be issued by the
government.

They are expected to start being traded in the secondary
market in January 2000.

Sovereign risk is an important consideration for bonds
investment.

Irvan said that Indonesia's sovereign risk greatly improved
since last year following the implementation of economic reform
programs.

He pointed out that the swap rate used by foreign investors
for rupiah-based investment was now hovering at 23 percent to 24
percent compared to about 67 percent last November when the
economic crisis heightened.

Several economic indicators also improved during the past
couple of months as inflationary pressure eased, interest rates
declined and the rupiah stabilized at about Rp 8,000 to the
dollar.

The economy also expanded by 1.34 percent during the first
quarter of this year, raising hope that the crisis was bottoming
out.

But Jordan said the economic improvement was not structural as
the country would have to swallow more "bitter pills" of economic
reform.

He pointed out that in addition to the bank recapitalization
program, the restructuring of the country's bad debtors was
commensurately important for an economic recovery.

Efforts to recover the massive amount of bad debt of local
banks, particularly that owed by well-connected businesspeople,
have progressed slowly because debtors were reluctant to enter a
debt restructuring agreement.

The government earlier publicly disclosed the names of some of
the bad debtors to encourage them to negotiate for debt
restructuring. (rei)