Robert Go, Jakarta – Some recent developments suggest that Indonesia's economy is moving on the right track, but observers also warned that there is no light at the end of the tunnel yet given the severity of the problems faced by President Megawati Sukarnoputri's government.

Since January 1, foreign players have been buying into Indonesian blue-chip shares, boosting the Jakarta index by some 12 per cent. The rupiah has remained stable near the 10,200 mark against US$1 so far this year.

The Indonesian Bank Restructuring Agency (Ibra) met its 2001 asset-sale target of 27 trillion rupiah (S$5.1 billion), and finally seems set to sell major retail-bank Bank Central Asia after two years of delays.

Paris Club lenders seem likely to allow Indonesia to reschedule payment on debt and interests totalling US$3 billion when they meet in April. The International Monetary Fund (IMF) and the World Bank also praised the government for its tight macro-economic policy.

Mr Kour Nam Tiang, director of auto-giant Astra International, said: "We are cautiously optimistic. Rupiah stability is good for investments, IMF support is also key." But then he added: "Of course, the business community would love the government to do things faster. But we understand it's better to go slow than to rush and have things backfire."

Mr Jan Van Heeswijk, country director for Asian Development Bank, said: "We see positive developments, but there is little prospect the economy can regain the potential for rapid growth experienced before the crisis. The government has to do more on some key issues to see sustainable recovery."

Others remain less optimistic, pointing out some crippling problems, like a huge debt burden and high unemployment, that the government has barely begun to tackle. Government debt, at US$135.7 billion, is just under 90 per cent of the country's yearly output. This year's budget earmarks more than US$13 billion, around 40 per cent of all expenditures, for debt payments.

Professor Sri Adiningsih of Gadjah Mada University in Yogyakarta said: "That's the money that could be used for development. If Jakarta can't figure out how to reduce its debt, it will haunt us for years to come."

There are now some 40 million unemployed people in the country, and that number balloons each year, as projected growth of 3 per cent to 3.5 per cent is insufficient to cope with the number of new entrants to the labour market.

Mr Thee Kian Wie of the Indonesian Institute of Sciences (Lipi) said: "The economy is not growing fast enough for creating new jobs. This is yet another reason the country is not on a sustainable path towards recovery.'

The government's progress on anti-poverty, anti-corruption and legal reforms also came under fire. Mr Van Heeswijk said: "The government still needs to show more commitment to these governance issues, as they are crucial to improving economic performance."

Ms Adiningsih agreed: "There is growing dissatisfaction with the Megawati government. The people continue to see corruption at the highest levels of politics, while the real situations at ground level deteriorate. Lack of improvement on the economy will affect political stability, especially with political parties already preparing and bickering ahead of the 2004 elections."

The good news

• The Indonesian Bank Restructuring Agency (Ibra) met its 2001 asset-sale target of 27 trillion rupiah (S$5.1 billion).
• Rupiah stable at around 10,200 to US$1 (S$1.84).
• Government still projects growth of 4 per cent for 2002.
• International Monetary Fund and the World Bank back Jakarta's tight macro-economic programme.
• Ibra's plans to sell several key banks this year, including Bank Central Asia and Bank Niaga, could boost investor confidence and the rupiah.
• Stock market has grown by 12 per cent so far this year as foreign players buy into Indonesian blue-chip shares.

The bad news

• Foreign debt of US$71.4 billion and domestic debt of US$64.3 billion cost 40 per cent of all government expenditures this year to service.
• Exports fell by nearly 10 per cent to US$56.03 billion in 2001.
• Inflation of 14.42 per cent, year on year, in January, making life more difficult for the poor.
• Forty million jobless, over half of 210-million population vulnerable to poverty.
• Growth of 4 per cent creates around 1.6 million new jobs, but this is not enough for the estimated three million new job seekers who enter the labour market each year.