Reform package set to stabilize economy

Sat, 01 Nov 1997, 00:00 WIB | Source: JP

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)