Berni K. Moestafa, Jakarta – Foreign lenders have questioned Vice President Hamzah Haz's plan to announce an economic recovery program, fearing it could push aside reforms agreed on with the International Monetary Fund (IMF), an economist said.
Hamzah told daily Tempo in an interview on Tuesday that his blueprint for economic recovery contained parts that contradicted those under the IMF's reform program. "There is a genuine concern out there ... how come we have two different documents on the same program [for reforms]," economist Sri Mulyani Indrawati told The Jakarta Post on Wednesday.
Sri, who has close contacts with officials from multilateral lenders, such as the IMF, the World Bank and the Asian Development Bank (ADB), said lenders were "not pleased with what was going on inside the government".
The Vice President has come into the spotlight over the past few weeks, as his economic team is seen to be encroaching on the authority of the government's team of economic ministers in setting out the priorities for the country's economy.
Hamzah said he was told by President Megawati Soekarnoputri to help her out with economic affairs, but analysts saw in this Megawati's fading trust in the team, led by Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti. The delegation came on the heels of speculation over Dorodjatun's waning influence within the Cabinet.
Sri warned that this question of credibility would pose a serious problem during negotiations with foreign lenders. "The Vice President's office is higher in rank compared to all three officials who signed the letter of intent for the IMF, so how much is their signature worth now?" Sri said.
She was referring to the letter of intent, which outlines Indonesia's reform targets for the IMF. The document is signed by the coordinating minister for the economy, the finance minister and the governor of Bank Indonesia.
A new letter of intent is expected later this month or early April, as a requirement for debt rescheduling talks with the Paris Club of creditor nations. Indonesia seeks to reschedule sovereign debts of about US$5 billion to $6 billion, but Sri warned that Hamzah's plan might come in the way. "It's only understandable, that they [Paris Club] would question Hamzah's program," she said.
Details of the blueprint, once called the stimulus package, remain sketchy so far. Several economists, who were earlier invited by Hamzah to discuss the plan, described it as a domestic letter of intent that would set the guidelines for economic policies.
Hamzah said he proposed to revitalize state-owned assets so that they could stimulate the domestic economy, and demanded creditor nations to shoulder more of the country's debt burden. Sri pointed to three points in Hamzah's program that could spell trouble.
One was that Hamzah proposed to stop financing the state budget using proceeds from the privatization program. That, she said, was against the letter of intent, which required the government use cash to unload its debt burden from the budget. Hamzah instead offered the privatization proceeds to be used for raising capital in an unexplained effort he called "value creation".
The second point, she said, was a plan to offer small and medium-scale enterprises some Rp 20 trillion (about $2 billion) in capital. "Now where is all that money going to come from? The state budget doesn't say anything about that," she said. Another possible concern, Sri said, was a plan to repatriate export earnings in a move that smacked of capital control.
David Chang of Vickers Ballas Tamara said so far, the market was unconcerned over Hamzah's foray into economic policy-making. But he warned that once it started to affect the foreign lenders' stance on Indonesia, it would cloud market sentiment.
A senior staff member at the Coordinating Ministry for the Economy, Mahendra Siregar, said Hamzah's team and senior economic officials had met over a consultation of the planned program. He said the program still needed some fine-tuning, but in doing so, Hamzah was not required to consult the government.
"We hope there will be similar meetings in the future to nail down the concept," he said. He added that the final say on whether or not to adopt Hamzah's plan would rest with the Cabinet meeting.