Indonesian Financial Problems Remain
Noting that Indonesia's Parliament yesterday voted Hamzah Hah, leader of one of the country's most powerful political parties, as newly appointed President Megawati Sukarnoputri's vice-president, the Financial Times (p.5) reports that reviving the $4.9 billion IMF loan program, suspended since late last year following slow progress on economic reform, is likely to be a top priority for the new government.
The news comes as Reuters reports that the World Bank said today recent gains in Indonesia's frail rupiah currency could soon be erased unless the future government made significant and sustained progress. "The stronger rupiah does help the budget and that's good, but I think most realize this will be very short-lived if the progress is not sustained," World Bank country director for Indonesia Mark Baird is quoted as saying.
The protracted battle between former President Abdurrahman Wahid and the legislature helped shave one fifth off the rupiah's value, notes the FT, and along with fuel price rises, contributed to an expected rise in inflation to double digits this year from only about four percent in 2000. Interest rates have shot up, increasing the interest burden on the government's debt.
The IMF said yesterday it could resume loan disbursements to Indonesia by late August or early September. John Dodsworth, head of the Fund in Jakarta, said the revised economic program signed earlier this month with Wahid's government could be approved by the IMF board provided that Megawati agreed. The move would open the way for the IMF's next $400 million loan disbursement to Indonesia, says the story, noting that if the Fund releases the loans, the next task will be to resume talks with the Paris Club to reschedule $2.8 billion in debt.
The new government will also have to ratify a revised budget for this year and to begin formulating another for 2002. Investors will be looking for a credible attempt to rein in Indonesia's burgeoning budget deficit, and the new government will also have to demonstrate that it can reestablish the rule of law.
Meanwhile, concerns over whether the new Indonesian government is committed to battling corruption and carrying through democratic reforms intensified after a Supreme Court justice who took on former President Suharto's family was gunned down on his way to work yesterday, the Wall Street Journal Europe (p.3) notes. Observers said they would be closely watching Megawati's appointments to the posts of attorney general and justice minister for clues to measure her commitment to fighting graft. Corruption takes a huge toll on Indonesia's economy and its society, the story says.
The first priority for investors will be for Megawati to appoint capable technocrats to the key economic, finance and legal portfolios, notes the FT, as the South China Morning Post says the first bad sign for business people waiting for Megawati to fix the economy is her staff's announcement that finding a new cabinet line-up could take "a few weeks".
The World Bank has not minced its words, says the story, noting that in a statement by World Bank President James Wolfensohn, every positive thought was bracketed with a call for action. "With persistent effort, I am confident that Indonesia will prosper under President Megawati's leadership," he is quoted as saying.
In a related commentary, the Los Angeles Times (p.A19) notes that with a particularly sad irony, Indonesia's accomplishments since 1998 are extraordinary. The nation has gone from military-buttressed dictatorial kleptocracy to democracy, from a 15 percent decline in gross national product to a net gain this past year of a respectable 4 percent. And the nongovernmental organizations are pressing for constitutional reform or refinement, human rights activists try to bring justice and environmentalists trying to protect the forests.
Kompas (Indonesia) and Bisnis (Indonesia),the Washington Times and the Washington Post also report.
source: WorldNews, July 27, 2001