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.