Regional restlessness 'could sabotage recovery'

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)