RI may collapse unless IMF reforms realized: Analysts

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)