Reform package set to stabilize economy

JAKARTA (JP): The Indonesian government will further trim its budget spending, abolish monopolies in several food commodities and liquidate insolvent banks in another concerted bid to stabilize the economy, which has been battered by the rupiah turmoil since July.

The measures, announced yesterday, are part of a new, three- year reform package agreed on by an IMF-led team and the government after two weeks of tough negotiations which often lasted until midnight.

"The reduced spending and economic activities will obviously depress economic growth within two years," Minister of Finance Mar'ie Muhammad said after he and several other ministers reported to President Soeharto yesterday.

But he added that robust growth of about 7 percent a year would be restored after 1999/2000.

The package, however, did not go as far as scrapping the national (Timor) car program, the passenger jet project in Bandung and the clove monopoly, as had widely been expected by most businesspeople and analysts.

The reform measures, which will be directly supervised by the IMF and experts from the World Bank and the Asian Development Bank, will be supported by a financial aid package made up of loans from multilateral institutions and governments.

Businesspeople and analysts expressed disappointment yesterday over the brevity of the announcement as they wanted to know immediate details, and notably the name of insolvent banks to be liquidated.

A prepared statement read out by Mar'ie provided only a broad outline of measures to be taken over the next three years.

Ministers with economic portfolios are scheduled to elaborate on the technical details of the package at a news conference at the State Secretariat this afternoon.

Remarks by the ministers and the governor of the central bank, who accompanied Mar'ie at the news conference yesterday, did not deviate much from the prepared statement.

Minister of Trade and Industry Tunky Ariwibowo said the national car project would continue.

"However, the government will abide by any decision made by the World Trade Organization," Minister/State Secretary Moerdiono added.

The car program is now being judged by a WTO panel in Geneva on complaints lodged by Japan, the European Union and the United States, which have accused the project of being discriminative and in violation of WTO rules.

The only indication of the likely fate of the aircraft development project was contained in a stipulation of the statement which said "the government will review investment and expenditures by the public sector, including government expenditures for state-owned enterprises and strategic industries".

The statement said budget discipline would be improved so that this fiscal year the government would minimally avoid a budget deficit.

"But we are targeting a budget surplus of 1 percent of the gross domestic product in fiscal 1998/99 and subsequent years," the statement added.

The structural adjustments also include a gradual reduction of import tariffs, reduction of obstacles to exports and adjustments in public sector investment and expenditure programs.

"Starting Jan. 1, trading in commodities monopolized by the state, including wheat, wheat flour, soybeans and garlic, will be freed for companies with general importer status," the statement said.

The government will adjust interest rates and liquidity to stabilize the exchange rate and to stimulate the economy.

"Considering the very broad scope of the program and the fact that it covers various economic aspects, the program can only be implemented over a three-year period," the statement said.

The government said import tariffs, including those on chemical products, iron and steel, and fishery products, would gradually be cut to between 5 percent and 10 percent by the year 2003.

The local content program for automobiles, which provides special tariffs for automakers who achieve high local content, will be eliminated by 2000.

Moerdiono said the fundamental objective of all these measures was to improve the overall efficiency and competitiveness of the national economy.

Moerdiono said the trade liberalization of several commodities currently monopolized by the National Logistics Agency (Bulog) would be enacted through regulations and presidential decrees which would duly be announced.

"But I think the basic role of Bulog as an institution (in charge of stabilizing the prices of basic food commodities) will remain unchanged," Moerdiono added. (prb/vin)

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