New reform agenda

New reform agenda

The government's new economic-reform agreement with the
International Monetary Fund will hopefully end the unnecessary
public debates on whether Indonesia should exit or remain under
the extended fund facility of the multilateral agency.

With all due respect to State Minister for National
Development Planning Kwik Kian Gie, highly regarded for his
impeccable integrity, we nonetheless find it mind-boggling to
fathom why Kwik broke ranks with the Cabinet and instigated
public debate on such non-issues as that of the IMF role in
Indonesia.

We loved and fully supported Kwik when he renegaded and acted
as an iconoclast of such problems as the government's alleged
preferential treatment of large corporate debtors and the
handling of numerous other corruption cases. However, bickering
in public over a policy decision that has been adopted by the
Cabinet could give the wrong signal to the market and supply new
ammunition to those, who are opposed to the reform campaign, to
discredit the government and stir up political instability.

As a member of the Cabinet, Kwik should have realized how
devastating would be the impact on market confidence in the
country, if the government, notorious for its weak leadership,
creaky and corrupt bureaucracy and judicial system, abruptly
ended its reform accord with the IMF.

Kwik, who himself has had experiences in negotiating reform
agreements with the IMF in his capacity as the chief economic
minister in 1999-2000, should know that IMF approval of the
reform program confers a kind of good housekeeping seal signaling
its economic endorsement for Indonesian creditors, private
investors and the World Bank to continue dealing with the
country.

The IMF, despite its grave errors in the past, remains an
opinion leader for the international market regarding Indonesia
because IMF credibility and competence are still held in much
higher regard than that of the government that is perceived to be
one of the most corrupt in the world and which has often
backtracked on its reform commitments.

Without an independent, international overseer of the
government reform programs, as the one now outlined by the IMF,
very few foreign creditors would deal with Indonesia since its
public sector's debts alone are already as large as the country's
gross domestic product.

As a seasoned economist it would be foolhardy for Kwik to
assert that the IMF loan did not help the government much because
its fund could not be used for budget expenditures. He should
know that IMF loans serve only to strengthen the government's
foreign reserves and are held by the central bank as a second-
line of defense for the rupiah in light of securing market
confidence in the external balance position.

Lambasting the IMF for what he called its coercion of the
government to hastily sell nationalized banks to private
investors while they still hold huge sums of government bonds
does not make any sense at all.

Kwik himself has often criticized Indonesia for being very
much like a communist country because most of the country's
economic assets are now under government control.

He is intelligent enough to realize that the longer the banks
remain under government ownership the longer would be their
recovery. Only new strategic investors will be able to accelerate
their restructuring.

Obviously, the nationalized banks should be sold together with
the government bonds because without these bonds being booked as
their capital these banks should have been liquidated years ago.

Kwik, in complaining that foreign investors have not returned
to Indonesia despite the reform agreement with the IMF, has
totally missed the point.

What foreign investors in their right mind would come to
Indonesia when its legal framework is still so creaky and
corrupt, its financial system fragile, when regional autonomy is
causing so many complications and uncertainty and many narrow-
minded, self-serving politicians are stoking xenophobia in a bid
to gain popularity.

We don't see anything wrong with the measures stipulated in
the reform agreement with the IMF. Last week's accord that
constitutes the second supplement to the 53-point agreement
(Letter of Intent) with the IMF that was signed last December
still focuses on the core areas that greatly influence
macroeconomic stability: Financial sector reform, privatization
of state companies, asset recovery, fiscal decentralization,
legal reform and public-sector governance.

All these programs are completely sensible because without
significant progress in bank restructuring, the sale of state
companies and the distressed assets currently managed by the
Indonesian Bank Restructuring Agency, legal and governance reform
as well as law enforcement, the macroeconomic condition will
remain fragile and the recovery process will never gain a strong
footing.

These reform measures should be implemented, with or without
the IMF fund facility, otherwise the economy will never achieve
sustainable recovery.