Total reform of the economy not practical: Expert

Total reform of the economy not practical: Expert

JAKARTA (JP): The view that Indonesia needs a complete
structural economic reform to lift its economy out of its worst
ever economic crisis might not be practical, a foreign expert
said here yesterday.

"This is a very radical view. It suggests that you need to
have a clean sweep of everything," said the deputy director
general of the Australian Agency for International Development
(AUSAID), Peter McCawley, yesterday at a seminar organized by the
Indonesian Institute of Sciences (LIPI).

He explained that this view was based on the perception that
Indonesia's current economic crisis was the result of imperfect
market conditions caused by over 20 years of corruption,
collusion and nepotism in the economy.

Indonesia will, therefore, need complete reform to eliminate
the structural problems across the economy, he said.

"This interpretation is a very pessimistic view. You need 20
to 40 years to tackle the entirety of this problem. The agenda
is too large," he said.

The International Monetary Fund has been considered the
strongest supporter for complete market reform to help the
country recover from the economic crisis. The Fund is organizing
a multibillion dollar bailout to finance the country's economic
reform programs.

McCawley, however, warned that proponents for complete reform
should consider the possibility of unexpected consequences.

"When you introduce reform, you are often faced with
unexpected results," he said.

He pointed to the country's 1988 banking reform which
liberalized the financial sector, but then became one of the
major causes for the current crisis.

"To let market forces work, you need a strong regulatory
environment," he said.

He added that the weak legal system had also dislodged the
World Bank-sponsored liberalization policy in the real sector,
which only created a transfer of state assets to a small group of
conglomerates.

"The World Bank was very naive. They thought there was free
competition," he said.

He stressed that to move toward pro-market reform, there must
be a proper balance between the market and the regulatory side.

He, however, added that overhauling the country's legal system
was quite expensive, as was the case in Australia.

"Can you afford an expensive rule of law while many are living
in poor conditions?" McCawley asked, adding that this was a
dilemma for developing nations.

The government, supported by the IMF, is currently preparing
various new laws including the anti-monopoly law, bankruptcy
code, and the new central bank law.

He also said that Indonesia must manage its international
support well because the country would need foreign aid,
particularly to cover the large fiscal gap resulting from the
government's huge subsidy commitments at times when domestic
revenue is declining.

"I can assure you that Australia will provide positive support
for Indonesia," he said.

He, however, added that the European view on the country was
still cautious.

"Its rather difficult for investors and donor institutions to
make predictions amid the political instability," he said.

He also said that the government should not control price
increases too tightly, especially those which were being
subsidized, including electricity. (rei)