RI's macroeconomy affected by graft, monopoly

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)