Economist says new government could oppose IMF (fwd)

[Robert Weissman <rob@essential.org>]

Jakarta Post
29 July 1999
Economist says new government could oppose IMF
JAKARTA (JP): A new Indonesian government which is expected to be formed
later this year would most likely force the International Monetary Fund to
renegotiate its harsh economic measures, said a prominent economist.
Sri Mulyani, an economist at the University of Indonesia, said on Wednesday
the future government would not have "a sense of belonging" to the current
IMF economic reform programs. They were designed together with the present
administration, deemed by many as lacking in political credibility.
"There is no guarantee that a new government will stick with the (current)
economic reform programs," she told a seminar on the Indonesian
post-election
economy held to celebrate the 10th anniversary of the Warta Ekonomi
economic
weekly.
"This is a general problem with launching economic reform programs in
developing countries."
Indonesia is scheduled to elect a new president in November. The two
leading
contenders for the presidency are popular opposition leader Megawati
Soekarnoputri of the Indonesian Democratic Party of Struggle (PDI
Perjuangan), and the incumbent President B.J. Habibie supported by the
ruling
Golkar Party.
The IMF has not had any cause for concern that a new government would not
recognize fund-prescribed programs. The position was evident after IMF
first
deputy managing director Stanley Fischer received assurances in June from
leaders of the country's top five political parties resulting from the June
7
legislative elections.
Such confidence is reflected in the government's new Memorandum of Economic
and Financial Policies signed recently with the IMF which says: "There
remains a strong consensus for the economic program and its continuity is
expected to be safeguarded."
A back down from the earlier commitment could affect market confidence in
the
economy.
"Although several political leaders have given Fischer their commitment,
once
they're already in office for one or two months they'll realize that some
parts of the program are not suitable," Sri Mulyani said.
"But this (a renegotiation) isn't necessarily a bad thing. I think
Washington
has already prepared contingency plans," she added, referring to the IMF
home
base.
The IMF is organizing some US$46 billion in bailout cash to help finance
Indonesia's economic reform programs. The fund has so far disbursed more
than
$9.5 billion out of its total commitment of some $12.3 billion.
Kwik Kian Gie, a senior economic advisor to Megawati, recently proposed a
fixed exchange rate system for the rupiah against the current free float
system.
Faisal Basri, an economist with the National Mandate Party (PAN), also one
of
the top five political parties, has in the past proposed a Malaysian style
of
foreign exchange control.
Some politicians have criticized the IMF economic programs, particularly as
they seem to benefit foreign investors picking up local assets at bargain
prices.
Indonesia's economy was the most badly hit by the economic crisis that
started to plague the region in mid-1997.
The economy contracted by some 13.68 percent in 1998 with inflation
skyrocketing to more than 77 percent. Millions of people have been laid off
as many companies have either gone bankrupt or significantly reduced their
production capacity. Some 66 banks were closed down.
Several macroeconomic indicators, however, have started to show signs of an
economic recovery during the second quarter of this year. Inflation has
dropped, the rupiah has strengthened, and the economy grew by 1.8 percent
in
the second quarter of this year compared to the same period last year.
"But macroeconomic stability is still very fragile," Sri Mulyani said,
pointing to the banking system, which is still not operating efficiently
and
the huge corporate overseas debt problem.
Sri Mulayani said the post-election government would still have to deal
with
the grim economic conditions, including the country's already huge foreign
debts. At the same time it would have to secure financing sources to
finance
the various subsidy programs.
"This will be the biggest challenge of the upcoming new government."
She said Indonesia's total overseas loans as of March this year amounted to
$152 billion, compared to $110 billion during the pre-crisis period.
The country's debt service ratio was now running near the alarming 60
percent
level, she said. (rei)