Marianne Kearney, Jakarta – Indonesia's economic growth will exceed previous conservative estimates of between 3 and 4 percent, but the International Monetary Fund's new representative here, Mr John Dodsworth, has warned that the growth will slow down if the government does not quickly restructure the banking, corporate and legal systems.
He predicted yesterday that Indonesia's growth could be 2 percent more than what was forecast for the coming year on the back of higher consumer spending. But he expressed reservations about the new government's ability to attract foreign capital necessary for sustained economic growth.
"Corporate restructuring is absolutely essential for attracting foreign investment. If Indonesia does not restructure debt, then it will lose creditors and it basically cannot go very far," he warned.
He said one of the major problems with the pace of corporate restructuring was that although the government had committed itself to pursuing bad debtors, the courts were still too weak to do so. He added that the IMF was waiting for Indonesia to clean up its legal system.
He said signs that Indonesia was speeding up its corporate debt restructuring were crucial in attracting foreign capital and warned that Indonesian growth could not be sustained by domestic demand only.
Foreign investors fled Indonesia in the wake of the 1997 economic crisis and have only just started trickling back. In the wake of political uncertainty, foreign investment plunged 22 percent or US$10.6 billion last year, according to Indonesia's investment board.
Mr Dodsworth also expressed concern that moves to clean up the legal system and introduce a new system to investigate spurious cases of bankruptcy were not being implemented speedily.
He said one way to return investor confidence would be for the Attorney-General's Office, rather than the creditor, to bring some cases of bankruptcy before cleaner courts signalling that judicial corruption was being tackled.
He added that the IMF and international investors would watch closely negotiations between the Indonesian government and international power suppliers, such as American-Japanese consortium Pt Paiton. He said he was "hopeful the negotiation would be successful".
President Abdurrahman Wahid's announcement yesterday that he would honour all contracts made with foreign companies under the Suharto government was praised by Mr Dodsworth.
The previous Habibie government sought to cancel its contracts with international power suppliers arguing they were void because the contracts were negotiated by the corrupt Suharto government which they said set an artificially high price for electricity.