RI needs to strengthen financial sector: WB
JAKARTA (JP): Indonesia is not another Thailand but needs to strengthen its financial sector and address competitiveness and reputational concerns to recover from the regional currency crisis, the World Bank said yesterday.
The bank's country director for Indonesia Dennis de Tray said at a seminar here that Indonesia was different in very important dimensions from Thailand and yet in some sense investors saw Indonesia "as a sort of Thailand".
"That's a problem of information and we need to get the message out that this is a quite different and much firmer, much better-managed economy than Thailand's," de Tray told journalists after the seminar.
The rupiah and other Southeast Asian currencies have been under attack following the devaluation of the Thai baht. The rupiah has lost about 20 percent against the U.S. dollar since then.
Indonesia differed from Thailand because it had a lower account deficit, less short-term financing, better reserve management policies, less exchange rate appreciation and better recent export performance, he said.
"But there are disturbing similarities," de Tray conceded, citing weak financial sectors, competitiveness concerns and reputational concerns.
But de Tray said Indonesia's banks and financial institutions were still in better shape than their Thai peers.
"The financial sector is by no means in the same kind of difficulty that the Thai sector is. It is a much healthier financial sector," he said.
He said that Indonesia's financial sector, like any other financial sector in the region, had been subject to shocks and would find itself in more difficulties than before.
"It is still going to take some time to work through the effects of high interest rates and the rupiah's depreciation," he added.
He said the government firstly needed to deal with financial sector problems to restore investors' confidence in Indonesia.
"The government needs to move more quickly and firmly to reassess the quality of the elements of the financial sector, particularly the banking sector," he said, arguing that the government's problem had been in keeping up with the growth in the financial sector.
The government should help banks that could be helped and liquidate others. "Fix the fixable, close the rest," he said at a leadership seminar.
This should be followed by regulatory reforms. He said the government should "launch a strong and credible program to strengthen bank supervision so that this doesn't happen again".
On other reforms, he said the government should "take on some sacred cows", remove export restrictions and accelerate deregulation in the real sector.
Micro-reform of this nature would help repair negative perceptions of the country and complement its already reasonable macroeconomic management.
He said one of the ways of improving Indonesia's image was to achieve greater transparency and make more credible information available to investors worldwide.
"What worries investors? The quality of information they receive, the 'levelness' of the playing field and the effect of 'political' decisions on the efficiency of investment," he said.
"Business as usual won't do. Indonesia needs a new cross sector framework for private provision of infrastructure, improved sector frameworks for private provision of infrastructure and a uniform and evenhanded approach to the reform process," he said. (rid)