Return of confidence vital: Mari

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)