Reform agenda set

Reform agenda set

An important element of the uncertainty responsible for the
plunge in the rupiah's value in the past eight days was removed
when the government finally signed on Wednesday the new letter of
intent (LoI) that details the country's economic reform agenda
for the next few months.

The signing of the agreement with the International Monetary
Fund (IMF) will not only free up early next month the second
disbursement of US$400 million from the $5 billion bailout fund
for Indonesia, but also will reassure the market that economic
reform is fully back on track again. The new agreement signaled
to the market that the government has now regained the confidence
of the IMF, which postponed its second loan from early April due
to its disappointment with the implementation of reform measures
in the first quarter.

The financial and capital markets are expected to stabilize
soon, not because of the new loan to strengthen the central
bank's reserves, but more due to the reassurance that the sorely
needed reform measures will be realized.

Indeed the reform measures are precisely the policies that the
government has to pursue, with or without support from the IMF,
to strengthen the foundation of its economy. The restructuring
programs are all designed to remove the woes that have been
dogging the economy since the outbreak of the crisis in mid 1997.

The basic programs stipulated in the new agreement are not
much different from the previous one signed on Jan. 20. Its
thrust continues to focus on sound fiscal and monetary
management, bank and corporate restructuring and good governance
in the public and private sectors.

Programs in the fiscal and monetary sectors cover concerted
efforts to improve budget discipline, through better
accountability of extra-budget funding and off-budget funds and
better tax administration, and to realign the intergovernmental
fiscal balance to support the decentralization process.

Obviously, banking and corporate debt restructuring remains
central in the reform policies because the nascent economic
recovery will be sustainable only when the ailing banking
industry -- the conduit of lifeblood to the economy -- becomes
sound again. State and private bank recapitalization programs
which could not be completed as scheduled in the first quarter
will have to be wholly finished before the end of June.

However, sound banks alone are not fully effective to fuel
robust economic growth if the corporate sector remains buried
under mountains of more than Rp 300 trillion ($35.3 billion) in
domestic debts and almost $70 billion in foreign debts. The new
LoI stipulates stronger measures to accelerate the debt
restructuring process. Further delays in the process might
sabotage the budding economic recovery because most companies in
the upstream and downstream sectors will remain closed to new
financing facilities.

Both the government and IMF fully realize that the
restructuring programs cannot by themselves guarantee that the
economy will no longer be stifled by the excesses of corruption,
collusion and nepotism, which were primarily responsible for the
prolonged crisis.

The new document therefore also elaborates measures to audit
greatly important government and state agencies and state
companies as the Directorate General of Taxes, the Indonesian
Bank Restructuring Agency, Bank Indonesia, toll road operator
Jasa Marga, domestic telecommunications company Telkom and
national flag carrier Garuda. A new governance framework will be
set up for IBRA, which for at least the next five years to seven
years will remain the most important economic organization in the
country since it manages more than Rp 600 trillion in assets. The
government is also required to follow up on the findings of
previous independent audits on state oil and gas company
Pertamina, the State Logistics Agency and state electricity
company PLN.

Also as part of the promotion of good governance in the public
sector, an independent commission will soon be established to
audit state officials and good corporate governance standards
will be applied to state and private companies.

It is imperative that the government meets the entire reform
agenda set for completion before the end of June so that the next
IMF review, scheduled for late July, will run smoothly. Another
botched effort could once and for all destroy the credibility of
the government and kill whatever little market confidence still
remains in the future of the country's economy.