RI's macroeconomy affected by graft, monopoly

JAKARTA (JP): The International Monetary Fund's first deputy managing director, Stanley Fischer, sees Indonesia's economic problems as complex because macroeconomic conditions are actually sound and robust.

But what looked stable on the surface was actually suffering several major problems related to an unsound financial sector, monopolies, economic restrictions, and corruption and collusion, Fischer said in an interview with the Jakarta-based Detektif Dan Romantika news magazine in Washington.

The interview, conducted two days after the IMF Board of Directors approved US$10 billion in loans last Wednesday to support Indonesia's reform package, will be published by the magazine in this week's issue.

Fischer said the impact of those problems had been hidden by the robust macroeconomic conditions, as was reflected in high growth, prudent fiscal management and adequate foreign reserves.

But the weaknesses, according to Fischer, reared their ugly head when the rupiah's turbulence hit the economy soon after the financial crisis in Thailand. Market and investor confidence in the economy consequently disappeared.

He said the first priority of measures suggested by the IMF was improvement to the financial sector, cleansing it of insolvent banks. Whatever the consequence, bad banks should be closed and liquidated so the financial sector could stabilize.

Next on the priority list, he said, would be the elimination of monopolies and economic restrictions, and the strengthening of trade reform and good governance, which would take some time to complete.

The IMF, he added, had issued guidelines on good and clean governance. These guidelines had to be implemented by member countries which received aid from the IMF.

Indonesia was not the only country encountering problems related to the creation of good and clean governance, he said. But Indonesia would make remarkable progress in this area if it followed through with the IMF-sponsored programs.

Fischer admitted that creating good governance was not an easy task, but he was convinced that conducive public opinion in Indonesia itself would support the drive.

The business community, many among the government's bureaucracy, and the general public have been asking for reform. Hence, according to Fischer, it was not the IMF that asked for reform, but the forces within Indonesia itself.

He said the IMF was confident that reform measures would be carried out to restore the economy's strong foundation.

Fischer said $3 billion of the $10 billion already approved by the IMF would immediately be disbursed to support the implementation of the measures. Evaluation would be made periodically to evaluate progress. If targets were not achieved, then the remaining loans would not be disbursed.

The IMF, he said, also considered the social and political implications of the measures it recommended. The IMF, therefore, had agreed with Indonesia that budget appropriations for health, education and other social programs would remain intact.

He cited the reimbursement of small depositors at 16 closed banks as a measure to reduce the political impact of the closure.

Fischer reaffirmed the importance of closing insolvent banks, however strong the political influence of the owners. A sound financial sector was central to economic reform. What was at stake was international confidence in the Indonesian banking sector.

According to Fischer, companies or banks which survive the reform measures will grow to become big, strong assets for the economy. It was therefore much better for national economic interests to close the 16 insolvent banks.

He said President Soeharto himself had agreed with conditions attached to the IMF assistance. But the IMF also had taken into account the risk of being a scapegoat if things went wrong.

He said one should keep it in mind that sooner or later all bad things in the Indonesia economy had to be removed.

Fischer did not see any problem with Indonesia's national car program being continued. But privileges such as subsidies could not be perpetuated. The issue, according to him, was not who owned the project -- whether a son of the President or others -- but that special privileges, such as subsidies, were inimical to sound economic development. (vin)