Regional restlessness 'could sabotage recovery'
JAKARTA (JP): The American Express Bank's chief economist John Calverley said the manner in which the Indonesian government addresses the restlessness in several provinces will strongly influence the economy's prospects.
"Foreign investors interested in Indonesia are greatly concerned about the escalating tension in several provinces as it could build up tension and invite military intervention," Calverley said in an interview in Hong Kong last week.
He warned that military intervention could mean violations of human rights and consequently make the problem into an international issue.
"The government should prevent regional disillusionment from being fanned," the economist cautioned in reference to what he saw as unhappiness in Aceh and Irian Jaya.
He acknowledged that the Indonesian government is treading a delicate path in coping with disillusionment in several provinces that was caused by perceived injustices in the sharing of revenues from natural resources.
Calverley warned that a too sudden and sharp increase in provincial shares of revenues might adversely affect the central government's ability to service its domestic and foreign debts.
"Such a development could in turn increase the premium risks of Indonesian sovereign debts which are already quite huge," he added.
Calverley, who is based in London, was in Hong Kong last week to attend an American Express (Amex) corporate travel management forum which discussed latest trends and issues in business travel.
He said, however, apart from the regional instability, Indonesia's macroeconomic conditions are now conducive for a recovery process.
"The election of a legitimate government has broken the logjam to economic recovery, and with inflation well under control and the rupiah rate stabilizing at a narrower band, I am optimistic about seeing a positive growth of at least 2 percent next year." he added.
Indonesia suffered an economic contraction of about 14 percent last year, and expects between zero and 2 percent expansion this year.
Calverley said during his latest visit to Indonesia in the first week of November he observed the restoration of consumer confidence, as reflected in increased sales of durables such as cars.
American Express itself demonstrated its stronger confidence in the economy by launching its first credit card in Jakarta early last week, in addition to its charge card that was introduced almost 24 years ago.
Calverley, however, cautioned against overly high expectations of foreign direct investment inflow in the near future.
" A more promising development in the near future is the return of capital of Indonesian businesspeople, notably Chinese Indonesians, which flew out of the country at the peak of the crisis last year," he said.
He said the flow of foreign direct investment would depend largely on how quick and satisfactorily the banking crisis and the huge corporate debt were resolved.
"The restructuring of domestic and foreign corporate debts and the banking industry should be accelerated, otherwise the real sector will remain moribund," Calverley said.
He said he was greatly concerned, especially about the banking problem, warning that it could drag on the economy for many years to come.
"I therefore would like to see more foreign banks enter Indonesia's banking industry to introduce higher standards of disclosures, auditing and general accountability," he added.
He said foreign businesspeople also wanted to see a more capable commercial court to enforce the bankruptcy law, as inadequate law enforcement has discouraged bad debtors from negotiating in good faith.
According to the Amex economist, Indonesia should speed up the privatization of its bluechip state companies to raise more revenues, in order to prevent an explosion of unmanageable fiscal deficit.
Calverley discarded as excessive foreign concern about the recent introduction by Bank Indonesia of compulsory reporting on foreign exchange transactions by banks and non-bank financial institutions.
He said it was groundless to worry the rule would be the first step towards a partial or total control of foreign exchange flows.
"Indonesia was able to resist strong pressures to impose foreign exchange control early last year amid the massive capital flight. So it is entirely groundless to speculate about an imminent control of foreign exchange now, when the most likely trend is capital inflow," he added.
Calverley said he was greatly optimistic about robust growth within the next few years, provided the structural problems were resolved satisfactorily.
"Once these structural problems are resolved, your rich natural resources provide you with more opportunities to grow than other Southeast Asian countries," Calverley said. (vin)