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)