Return of confidence vital: Mari

JAKARTA (JP): The government's target to lift the country out of its economic crisis by 2000 will largely depend on efforts to win back hard-to-obtain confidence in the country, according to economists.

Mari E. Pangestu, executive director of the Centre for Strategic and International Studies, said a turn around in economic growth by the year 2000 would mean that investment must significantly return next year because domestic consumption could no longer be expected to stimulate growth amid plunging purchasing power and soaring inflation.

"To rejuvenate investment we have to win back investors' confidence," she told the Jakarta Post on the weekend.

She added that confidence would only return if the country could create a feeling of security and political stability.

"A return of confidence will also depend on whether next year's general election is fair and clean, and produces a legitimate government," she said.

In a letter to the IMF, the government reported its progress in implementing fund-sponsored economic reforms, and said it expected the devastating fall in economic output to bottom out by early 1999, a return to significant economic growth by the following year and a single-digit inflation rate within two years.

The government forecasts that the economy will contract 10 percent in 1998, with inflation reaching 80 percent in the wake of the country's worst economic crisis in three decades.

15 percent

However, the government said the economy could shrink to as much as 15 percent this 1998/1999 fiscal year.

Mari said that achieving significant economic growth would also depend on how successful the government was in reaching a single-digit inflation rate.

"Controlling the money in circulation and restoring the shattered distribution system are keys to curbing inflation," she said, adding that distribution problems had caused a scarcity in the supply of basic commodities which had partly caused prices to soar.

The country's distribution system was badly affected by bloody rioting in May which led to the resignation of former president Soeharto.

Umar Juoro, an economist at the Center for Information and Development Studies, said the government's economic and inflation targets were too optimistic.

He said inflation might jump to a yearly average of 100 percent during the next three years if the government failed to deal with the country's massive private sector overseas debt, reform the banking sector and stabilize the ailing rupiah.

The government's corporate debt restructuring program might not work if the rupiah remains at more than Rp 10,000 to the U.S. dollar and creditors do not write off a significant amount of debt, he said.

The Indonesian Debt Restructuring Agency, which was officially launched last Monday, intends to invite both debtors and creditors to participate in an eight year debt restructuring program, in which debtors would pay their principal and interest to the agency in rupiah based on a fixed exchange rate. The agency would then pay the foreign lenders in U.S. dollars, though only the interest during the initial three-year grace period.

Umar also said insolvent banks must be close down immediately and the banks' owners taken to court if they were guilty of banking crimes.

"These steps must be taken to bring back confidence in the banking sector," he was quoted by Antara as saying.

According to the government's latest letter to the IMF, four troubled banks under the Indonesian Bank Restructuring Agency have been declared insolvent, but it was not mentioned what action would be taken against the banks.

Umar also said restoration of the banking sector was one key to stabilizing the rupiah, which had lost more than 80 percent of its value from the precrisis level in July.

Separately, businessman Iman Taufik said he was optimistic that the government's new economic target could be obtained because the current regime was "making good progress in cleaning up the economy from corruption, collusion and nepotism".

A group of 15 leading economists last week lambasted the crisis-handling policies of President B.J. Habibie's administration.

They said the current fiscal year's huge budget deficit of 8.5 percent of gross domestic product reflected a populist policy which would only lead to an uncontrollable inflation rate.

The economists also said the current government had no legitimacy because it was run under the corrupt system that prevailed during the Soeharto regime. (rei)