Opposition parties offer alternatives

JAKARTA (JP): Two major opposition political parties may introduce fundamental changes in Indonesia' economic policy if they win the upcoming June 7 general election.

The Indonesian Democratic Party of Struggle (PDI Perjuangan) said on Thursday it would seriously consider reintroducing a fixed exchange rate system to bring the rupiah to around Rp 5,000 against the US dollar in order to spur an economic recovery.

The party's economic adviser, Kwik Kian Gie, said the crippled business sector could repay its debts and resume production only if the rupiah strengthened to the Rp 5,000 level, especially because the manufacturing industry relied heavily on imported raw materials.

He was addressing a seminar on Indonesian business prospects, in which the economic advisers of four other major political parties, including the ruling Golkar Party, also presented their economic platforms.

Leading opposition parties the National Awakening Party (PKB), the National Mandate Party (PAN) and the United Development Party (PPP) said they would make creating a system of good governance and providing greater support to small and medium-size businesses their top priority.

The ruling Golkar Party said it would focus on restructuring the debts of small and medium-size businesses in order to restore their production rates to 1996 levels.

"I think in this situation, we have to go back to that system," Kwik said, referring to the fixed exchange rate system which Indonesia employed between the late 1960s and the 1970s.

The country has been devastated by the current economic crisis, which began in August 1997 when the rupiah collapsed after the government abandoned its managed float system and allowed the rupiah to move in a free float system.

The rupiah plunged to more than Rp 17,000 to the dollar in January, compared to around Rp 2,400 to the dollar before the crisis began. Strengthening the rupiah is the cornerstone of the country's economic reform programs.

The rupiah is currently hovering at around Rp 8,800 to the dollar.

Kwik said his party would endeavor to reintroduce the fixed exchange rate system if it won the general election, but added it would first seek international support for such a drastic move.

He explained that the support of the international community was essential because the country would need more than US$20 billion in foreign loans to bolster its foreign exchange reserves in order to make the system credible.

Early last year, then president Soeharto mulled reintroducing the fixed exchange rate system under the currency board to stabilize the currency, but the plan was dropped after strong opposition from international creditors, most notably the International Monetary Fund (IMF).

Kwik urged the IMF, which has been organizing a multibillion dollar economic bailout for Indonesia, to review its programs for the crisis-hit country.

"Do they (the IMF) really believe that by following this (the IMF's reform programs) the rupiah will be strengthened," Kwik asked.

However, PAN secretary-general Faisal Basri, who also is an economist, disagreed with Kwik.

"Introducing a fixed exchange rate system will require a strong banking sector," he said.

He prefers a capital control system like the one currently employed by Malaysia.

He said such a system would quell currency speculation because it would curb the full convertibility of the rupiah against foreign currencies.

He said a capital control system would allow an immediate drop in domestic interest rates, fueling economic recovery.

Indonesia is scheduled to hold its first free and open general election since the fall of former president Soeharto last May. Many foreign investors are postponing investments in the country to await the outcome of the election.

Chairman of the Indonesian Chamber of Commerce and Industry Aburizal Bakrie hailed the five political parties for their economic platforms, which he saw as "probusiness".

"We should not be afraid of the general election or the country's next government because it's clear these parties are probusiness," he said.

He urged investors not to wait for the completion of the election before investing in the country.

PAN chief Amien Rais said he was optimistic about the future of the economy because of the country's rich natural resources, cheap labor and large potential domestic market.

Amien pledged to honor the state's business contracts with foreign investors if he won the election, and said he would encourage businesspeople to return the money they moved overseas back to the country. (rei)