Politics, disaster may slow down economic recovery

JAKARTA (JP): A major political event next year and natural disasters will slow down Indonesia's effort to recover from the economic turmoil caused by the currency crisis, former finance minister Frans Seda said yesterday.

"It will take Indonesia about two years to recover from the current condition," Seda said.

He said next year's formation of a new cabinet, which would most likely consist of new faces, and this year's severe drought would impede efforts for a full recovery.

"Although it is unlikely there will be a presidency succession next year, the President will appoint a new team of ministers which will slow down the recovery process," he said after a panel discussion on globalization.

The new cabinet would be expected to implement an economic reform package, which was currently being planned by the existing cabinet with the help of the International Monetary Fund (IMF), he said.

The government is currently negotiating with the IMF for financial assistance to cope with the currency crisis, in which the rupiah has depreciated by about 35 percent against the U.S. dollar since July.

Seda said the government needed to act immediately to prevent the crisis from escalating, he said.

"Christmas and New Year is coming soon, followed by Idul Fitri in January. If everything is left as it is, prices are going to skyrocket," he said.

"The government must prevent the economy from collapsing and take necessary steps soon to revive the economy. Otherwise, unemployment will rise from company layoffs before these major festivals," he said.

Economist Djisman Simanjuntak said yesterday the discussion between the IMF and Indonesia would intensify as both parties discuss detailed conditions.

"Negotiations with the IMF always get tight when it comes to details, as there are always differing opinions, as with what happened with Thailand and Mexico when they were asking for help from the IMF," he said.

Djisman said the IMF would probably demand that Indonesia abides by certain conditions before giving it financial assistance.

These conditions could include certain tough measures such as tight fiscal and monetary policies to reduce public demand to check inflation and the current account deficit, he said.

Simanjuntak said the IMF would also most likely demand the elimination of market distortions, including monopolies, high custom fees and the government-determined prices of fuel and electricity.

The IMF might also demand Indonesia remedy some of the unhealthy sectors in the country, including the banking sector, he said.

"I do not know how the banking sector is going to be revamped, since the issue of banks with problems and bad credits is usually always swept under the carpet," he said. (das)