Unrest may derail RI recovery

Unrest may derail RI recovery

JAKARTA (JP): The deadly protests and riots shaking the city
last week would derail economic recovery in the country, experts
said on Tuesday.

Sri Mulyani Indrawati, an economist at the University of
Indonesia, said the bloody protests and riots had created market
uncertainty, especially for foreign investors.

"It shows that Indonesia is not stable and carries high
political risks," Sri added.

She said private funds, which were badly needed to drive
Indonesia out of the crisis, would not come until political and
legal certainty was restored.

However, Sri criticized the government's repressive actions
against dissidents in a move to pursue political stability.

"Stability created through such repressive measures would be
vulnerable. It would not be strong enough to support economic
recovery."

"Therefore, the government should solve various pressing
political problems using sustainable and civilized political
mechanisms."

She said that the government was too optimistic in its
prediction that Indonesia's economy would improve in the first
half of 1999 as stated in its letter of intent to the
International Monetary Fund.

Economy, she said, would not bottom out until the second
semester of 1999, considering various political events like
general elections in the middle of next year, the convening of
the People's Consultative Assembly and various factors affecting
the decision-making process of a new government.

"It would be safe to say that our economy would likely book
positive growth in the first semester of year 2000."

Nevertheless, IMF Asia Pacific director Hubert Neiss said
continued political unrest in Indonesia may have a negative
impact on the country's shaky economy.

He noted, however, that he still saw "significant scope" for
the rupiah to strengthen, despite the unrest.

"We have to see if the (political) uncertainty continues for a
while," Neiss said. In that case, "it will affect expectations
and may have an unfavorable impact (on economic recovery)."

"To me personally, the main damage of the last few days has
been the loss of life and the reduction of confidence," Neiss
told Dow Jones Newswires.

Deadly protests and riots shook the Indonesian capital on
Friday. At least 15 people, including seven students, were killed
when the military turned on student protesters.

The violence was the worst in Jakarta since May, when much
heavier rioting swept the city and helped unseat President
Soeharto after three decades in power.

Neiss said the impact on the rupiah will depend on how long
investors see the unrest continuing.

"If they think it's the beginning of a prolonged period of
instability, then it would affect the exchange rate and capital
would flow out," Neiss said. If the unrest proves temporary,
Indonesia's improved economic performance should help the
currency, he added.

"On the economic side, all things point to further
strengthening (of the rupiah)," Neiss said.

He noted that inflation has been falling rapidly, the current
account surplus is substantial, official aid is flowing in and
the budgetary situation has improved markedly.

He praised the country's compliance with its IMF program.

"Indonesia's economic performance has been exemplary," Neiss
said. "By now, it has sunk in that economic policy is firmly on
track."