Bloomberg: New Indon govt likely to stick to reform path -Analysts

[Robert Weissman <rob@essential.org>]

Bloomberg
October 22, 1999
RI new govt likely to stick to reform path: Experts
JAKARTA ? Indonesia?s new government led by Muslim cleric Abdurrahman Wahid
is likely to retain the currency?s free float and rely on international
help
to reform the banking sector, analysts said.
Much of the economic program is already in place as part of a US$49 billion
bailout agreed with the International Monetary Fund (IMF) after the
country?s
stocks and currency tumbled in 1997.
The IMF, which recently froze aid after a scandal involving a local bank,
is
planning to send a mission to Jakarta next month to discuss the economic
policies of the new government and may soon resume the aid, IMF officials
said.
"I don?t expect any significant changes in economic polices,?? said Lin Che
Wei, research director for SG Securities in Indonesia. "As long as (Wahid)
is
accommodative, IMF?s stance is likely to ease ? that is, they won?t take a
hard stance as with (former president B.J.) Habibie.??
Indonesia, the world?s fourth most populous nation, suffered the worst
fallout from Asia?s financial crisis over the past two years. Its economy
contracted almost 14% in 1998 and has been wracked by political and ethnic
strife.
The economy should contract another 1% this year before returning to a 3.3%
expansion in 2000, a Bloomberg economic survey showed.
The IMF has been quick to support the new government.
"Indonesia has immense economic potential, which the IMF is determined to
help the new government fully realize,?? said Michel Camdessus, IMF?s
managing director.
Investors also showed support. The benchmark Jakarta stock index gained
5.5%
while the rupiah rose as much as 8% a dollar.
Challenges
One challenge for the government may be winning backing from a newly
democratic parliament without a dominant party.
Many legislators, for instance, may bristle at foreign pressure, especially
after international criticism of the country?s botched handling of the East
Timor independence vote.
The United Nations sent peace keepers after pro-Jakarta militia, opposed to
East Timor?s separation, wrecked widespread death and destruction on the
former Portuguese colony.
The fractious parliament may mean "decision making may be much slower than
before,?" said Mari Pangestu, a former director at Indonesia?s Center for
Strategic and International Studies.
Wahid will have push through tough policies while seeking broad support,
analysts said.
"He will go for people with a commitment to market forces forces but not a
blunt commitment,?? said Robert Elson, a professor at Griffith University?s
School of Asian and International Studies in Brisbane, Australia.
"People who can tread the perilous line between taking heed of market
forces
and making sure those market forces are not destructive to small,
defenseless
people."
His party, National Awakening Party, or PKB, said yesterday it wants the
religious affairs, foreign affairs and education portfolios, said Alwi
Shihab, a high-ranking party official tipped to be the next foreign
minister.
Needs
The economic challenges are formidable.
Some 35 million workers are under-employed, more than a third of the
workforce in a population of about 211 million.
The country also needs to rebuild a banking industry losing money on every
new loan and unable to recover much of its existing credits. The government
estimates that bank repair bill will top Rp570 trillion (US$81 billion).
Speed will also be important, with the Wahid government having to prepare
its
new budget by January next year.
"The government?s fiscal situation is very serious," said Yuwa
Hedrick-Wong,
managing director of research at Strategic Intelligence, a consultancy.
There
is a major funding gap even taking into account some of the optimistic
forecasts of donor funding," he said.
The World Bank estimates Indonesia?s sovereign debt will swell to 102% of
gross domestic product this year.
Trimming spending won?t be easy, with much of the outlays going on food and
fuel subsidies aimed at the poor. One source of revenue, however, may come
from the stepped-up privatization of state companies such as oil and gas
monopoly Pertamina and the ports.
Personnel
The election of Megawati Soekarnoputri as Wahid?s deputy will open the
possibility of her advisers, including Kwik Kian Gie, to fill top
government
posts.
"Kwik is a strong contender," SG?s Lin said.
In June Kwik said he favored re-pegging the rupiah to the dollar, while
acknowledging it would meet IMF resistance. Last week, he gave the
assurance
the country?s economic policy will not change.
If Kwik rejects the post, "it?s likely Gus Dur will reach out to (Amien
Rais?) PAN party and Sri Mulyani (Indrawati) is a strong contender," Lin
said.
"She?s an academic from central Java, and a staunch critic of the Habibie
government and also close to the IMF."
Mulyani is director of the University of Indonesia?s Institute of Social
and
Economic Research.
Syahril Sabirin, meanwhile, is likely to retain his post as governor of the
central bank, as "the central bank itself is independent and they have
their
term for the next 4 years, unless parliament intervenes," SG?s Lin said.
?Bloomberg