New team told to regain market trust

New team told to regain market trust

JAKARTA (JP): Economists have urged the upcoming Cabinet
economic team to focus on regaining market confidence immediately
through credible economic policies while optimism still remains
after the peaceful appointment of President Megawati
Soekarnoputri, which ended months of political instability.

Senior economist at Danareksa Research Institute Raden Pardede
said credibility was the key to winning back market trust.

"The government often makes promises it cannot deliver," Raden
told The Jakarta Post.

Examples, he said, could be found in abundance in the
government's track record in meeting its own economic reform
targets.

"You see them (the targets) on the LoI (Letter of Intent) even
though we can't deliver; here we put our credibility at risk," he
said.

Raden was referring to the economic reform targets contained
under the LoI signed with the International Monetary Fund (IMF).

The IMF's stance toward Indonesia is seen as a benchmark by
the international finance community in dealing with Indonesia.

Lagging behind on a number of targets, the previous government
had pushed the IMF into suspending its loan program in December.

Raden said the new Cabinet team should be more prepared in
setting the LoI targets.

To boost market confidence, he continued, it must also show
more consistent fiscal and monetary policies.

The government and the central bank were often at odds when it
comes to monetary policy, he explained.

Experts have warned that if Bank Indonesia continues to keep
interest rates high, the government may not be able to meet its
fiscal targets.

The government has pegged a large portion of its bonds' coupon
rates on the interest rate of Bank Indonesia's SBI promissory
notes.

"For every 1 percent increase in the SBI rate, we must spend
Rp 2.5 trillion (about US$250 million) on interest rates to
service the bonds," Raden explained.

He also said the new economic team's priorities should involve
the stabilization of prices, as they directly affect the budget.

These, he said, should cover the prices of the rupiah exchange
rate, commodities and private assets under government control.

The new economic team must further secure financing to plug
the hole in the budget, he added.

At present, proceeds from privatized state enterprises, asset
sales and foreign loans are used to finance the deficit.

But several experts have questioned the government's ability
to keep the budget deficit at the targeted 3.7 percent of gross
domestic product (GDP).

They pointed out that so far two main indicators, the rupiah
and interest rates, had missed their budget targets by a long
way.

The rupiah started this year at around 9,500 against the U.S
dollar, but quickly lost ground to hover at 11,000. This compares
to the average 9,600 required by the budget.

Instead of the targeted 15 percent, interest rates
have been steadily rising to 17.17 percent from 14 percent
earlier this year.

"The team's performance will show by the end of this year,
based on its achievement to stabilize the state budget deficit,"
Raden said.

Economist Umar Juoro said the new economic team should seize
the current positive momentum to push ahead with its
privatization and asset sales program.

"They should sell off one or two state firms and get done with
the BCA sales in less than two to three months time," Umar said.

The delayed divestment of government stakes in Bank Central
Asia (BCA) was one of the reasons the IMF retained its loans.

Umar said pressing ahead with sales and privatization after
months of inaction would stimulate the market into buying more.

"The government must act quickly, or else this honeymoon (with
the market) will be over as quickly as Gus Dur's did," he said,
referring to former president Abdurrahman Wahid.

Economist Hadi Soesastro said the market now wanted to hear
convincing statements that reflected a government that knows its
job.

"It's all about explanations," he said, adding:" what the
market doesn't want to hear is that we are doing something just
because the IMF tells us to do it." (bkm)