Tough times ahead
Tough times ahead
The nation is in for the roughest stretch of the economic
reform process over the next six months as all price subsidies
for essential commodities, except rice and soybeans, will be
eliminated by October.
The target dates for the implementation of the structural
reforms, as agreed on by the government and the International
Monetary Fund on April 7, call for the phasing out of subsidies
on sugar, wheatflour, corn, soybean meal and fish meal. Fuel and
electricity subsidies must also be eliminated within the current
fiscal year.
This means that for most households the economic crisis will
get much worse before it starts to stabilize and eventually
recover.
These hardships are unavoidable if we are to strengthen the
foundation of our economy by cleansing it of past excesses and
inefficiency carried over from the economic boom of the past 20
years.
But higher prices for essential goods are not the only source
of economic suffering. More companies may have to fold, with the
consequence of massive layoffs and bigger bad debts, as the
government is required to maintain or even to further raise the
already punitively high interest rates during the stabilization
period.
The banking industry, also, may be in for bigger jolts as the
operation of more banks, battered by high interest rates and huge
sums of bad loans, may have to be suspended. Cumulative inflation
for the calendar year is projected at almost 50 percent.
It is nonetheless a consolation to know that the revised
reform package already has a much better built-in social safety
net.
Unlike the Jan. 15 package, which required the phasing out of
subsidies for essential commodities by this month, the latest
program allows for a more gradual subsidy reduction over a longer
period of time. Furthermore, the subsidy scheme has been expanded
to cover generic medicines.
Of importance too is that preparations are already underway
for massive labor-intensive projects with extensive financing
from the World Bank and Asian Development Bank, to provide jobs
for the millions of workers left unemployed by business failures.
International aid will also enable the state budget to
continue subsidizing credit for cooperatives, small businesses
and low-cost housing programs.
But there is a possibility that the hardships ahead may not be
as devastating as the prognosis or may not last as long as
predicted if consistent reform implementation speeds up the
process of restoring confidence in both the government and the
economy.
In fact, the package predicts that the rupiah exchange rate
will strengthen rapidly between this month and June and will
eventually stabilize below 6,000 to the U.S. dollar possibly
later this year, compared to about 8,000 at present.
A strengthening and stabilizing rupiah will help remedy the
difficulties and accelerate the economic stabilization process,
thereby reinvigorating businesses.
But, once again, this possibility depends entirely on how able
and willing the government is to execute the reforms in
accordance with the set schedules and on how the government
responds to the demands of the demonstrating students, notably
those related to the development of good governance and the
elimination of corruption, collusion and nepotism.
A superficial response, let alone suppression of these
demands, would affect the political stability and consequently
disrupt the implementation of reform.
Backtracking again on the reforms during the package's three-
year implementation period will not only negate the hardships the
nation has and will suffer but will also bring about the collapse
of the economy and political leadership.
Given this crucial moment for the nation's future, the public
-- citizens, politicians, businesspeople, the mass media, non-
governmental organizations -- are not only required to sacrifice
but are also duty-bound to actively monitor and supervise how the
government goes about implementing the reforms.