RI may collapse unless IMF reforms realized: Analysts

JAKARTA (JP): Analysts said here yesterday Indonesia might be driven to the brink of collapse if it did not consistently implement the International Monetary Fund (IMF) reform package to improve its battered economy.

"It's sad," chief economist of Danareksa Sekuritas Rino Agung Effendi told The Jakarta Post yesterday.

Rino argued that implementing the economic reforms tied to the IMF-sponsored US$43 billion bailout package was the only way for the country to recover from its worst-hit crisis over the long term.

The head of research at Socgen Crosby Securities Indonesia, Goei Siauw Hong, shared Rino's view saying that the country's economy would experience a severe setback if it did not maintain IMF support.

"Indonesia should not close itself off from the IMF because it needs fresh funds from the institution to heal its ailing economy," he said.

Both were commenting on President Soeharto's latest statement saying Indonesia had to tread cautiously in implementing the IMF economic reforms because they were not in line with the country's 1945 Constitution.

The President said the IMF reform program was based on liberal economic principles not in line with the constitution, which calls for an economy based on "family principles".

Soeharto's comment was made in the wake of the IMF's decision to delay the payment of about US$3 billion, part of the total US$43 billion rescue package for Indonesia, until April because of Indonesia's pre-occupation with politics as it forms a new government.

The IMF and finance markets have also rejected moves by President Soeharto to introduce a currency board to peg the falling rupiah to a fixed exchange rate.

Rino said the country had not shown strong political will to fully implement the reform programs.

"Developments so far have shown that the implementation of reforms has been below target due to a lack of political will from the government," he said.

He contended, however, that the IMF reform package signed by Soeharto on Jan. 15 also had failed to address problems related to the country's corporate foreign debts, social safety net programs and the banking system.

"The IMF package does not state any solution to the country's mounting private debts and to the sufferings of the common people," he said, citing the soaring prices of basic necessities and drugs.

Bank Indonesia announced recently that the private sector foreign debt totaled $68.31 billion as of February.

Hong said Indonesia was not, however, in any position to bargain with the IMF as the country itself did not have any clear-cut measures to solve the economic crisis or stabilize the ailing rupiah.

The rupiah has lost about 70 percent of its value against the U.S. dollar from a 2,450 exchange rate last July.

"I don't see any clear measures from the government to heal the country's paralyzed economy," he said, reemphasizing the urgent need to carry out the IMF reforms.

"Though the pills prescribed by the IMF are bitter, we have to swallow them," Hong said.

He said he was skeptical over the government's effort to seek the repatriation of Indonesian funds currently deposited overseas.

"Who is going to repatriate their funds while they know the country's economy is on the edge of collapse," he said.

Analysts and economists shared one common view that Indonesia was suffering from a lack of confidence which was further weakening the economy and the rupiah.

"Most companies in Indonesia will likely collapse by June if the government cannot come up with positive measures," Hong said.

Hadi Soesastro, a senior economist at the Center for Strategic and International Studies, said if the IMF stopped extending its bailout funds, the impact on Indonesia would be devastating.

"The impact would not only affect the economy, it would also completely destroy confidence in the country," he said.

He expressed concern that without fresh funds from the IMF, the economy would suffer from hyperinflation and the production system could break down.

"And I don't see any alternatives," he said.

Hadi added that a bilateral government-to-government approach to secure alternative external funding might not work due to the loss of public confidence.

"Asking for Japanese money will be difficult since that country is also in trouble," he said. (aly/08)