Interview: IMF's Indonesian agenda (fwd)

[Robert Weissman <rob@essential.org>]

Asiaweek
June 25, 1999
'THE CHALLENGES ARE STARK'
Interview with Anoop Singh, No. 2 to the IMF's Asia chief Hubert Neiss
The IMF's Indonesian agenda
The IMF on deficits, debts and safety nets
 ANOOP SINGH, DEPUTY DIRECTOR of the IMF's Asia and Pacific Department, is
encouraged by Indonesia's elections and its future ruling coalition. "We
see
the new government as a major opportunity to intensify and accelerate the
program," he says, "whichever government it is." Educated in Bombay,
Cambridge and the London School of Economics, Singh, 48, oversees Thailand
and, of late, Indonesia. The Fund, he says, has discussed restructuring
with
major parties and "everybody agrees this is needed." Excerpts from a talk
with Asiaweek:
What are the challenges for Indonesia?
The challenges are starker than for other [Crisis] countries. We're dealing
with bigger banking insolvency and deeper corporate insolvency. The
challenge
is to restore a fully functioning banking system quickly at a fiscal cost
that is sustainable. A related and intertwined challenge is the
restructuring
of corporate balance sheets. In banking, the challenge is restructuring
state
banks, in two ways: to launch a credible loan and asset recovery program,
initially targeting the largest borrowers; and to apply this strategy
uniformly and fairly. But there must be a stringent effort to recover loans
-
that is the most important. Without that, the cost of restructuring will be
very large. The other [issue] is the strategic design of how state banks
will
be restructured and downsized. That does not yet exist for most state banks
or banks taken over by [the bank restructuring agency] - collectively,
three-quarters of the banking system. Once bank restructuring is on the
way,
it should accelerate corporate restructuring. Here, there has to be a more
credible threat from the bankruptcy law.

What about macroeconomic and fiscal policy to spur recovery?
In Korea and Thailand, entrenching the recovery necessitated temporarily
having a fiscal deficit focused on the safety net [programs for Crisis-hit
people]. For Indonesia this is very important: not only must spending rise,
but it must be high-quality spending focused on the safety net. Now that
exchange rates have been stabilized and confidence has come back, interest
rates can also decline. With confidence consolidating, interest rates will
fall into the teens, not very far from [levels] before the Crisis.
Supporting bank restructuring will be a major burden on the budget in the
coming years. The current budget targets gross interest costs of about 2.8%
of GDP; they are likely to be larger, possibly significantly higher. But
Indonesia has very low or no domestic public debt. There is room to issue
bonds. Second, we assume the government will be successful in increasing
loan
recovery and in recovering assets, and that will help offset costs. Then
there is privatization. In the last six or seven months there has been a
lot
of interest from foreign investors in buying state assets. About $800
million
[worth] have been sold.

Is transparency a concern in restructuring and privatization?
In loan recovery the strategy will be made transparent. That is why the
government has released the names of the largest borrowers. Credibility can
only be achieved if there is transparency. We have tried to make the
program
as transparent as possible, and are looking for ways to make it more
transparent.

If major anomalies arise, will the IMF withdraw support or offer criticism?
We have no reason to believe that situation would arise. Everybody we have
spoken to, from the government and outside, is convinced that market
confidence needs to be rebuilt, but it cannot be done unless there is
transparency . . . We are at a stage where transparency has been built into
the program, and reversing it is very difficult.