APSN Banner

IMF package for Indonesia more compromise than reform

Agence France Presse - November 5, 1997

Jakarta – Moves to deregulate the Indonesian economy following an IMF review are more a compromise than a reform measure, analysts say.

The government's decision to remove the National Logistics Agency's monopoly on the importing of wheat flour and replace it with a monopoly on distributing wheat flour is "a compromise solution," economist Rizal Ramli said.

"The government says the crisis must be handled in a firm and timely manner so why are they waiting until January 1 to implement the change and why is (the agency) still controlling distribution and subsidizing the millers?" Ramli said in an interview with AFP.

The International Monetary Fund (IMF) on October 31 announced a commitment of 38 billion dollars from multilateral agencies and individual countries to help Indonesia shore up its economy in the wake of a regionwide currency crisis.

The rupiah has plunged more than 30 percent in three months and was trading around 3,280 rupiah to the US dollar late Tuesday.

Ramli said he doubted that the logistics agency, established nearly 20 years ago, would give up its control over wheat flour. It is milled for a fee by Bogasari – part of the Indofood Sukses Makmur group whish is controlled by Sudono Salim, a long-time associate of President Suharto.

Indonesia is Southeast Asia's largest consumer of noodles and wheat importer. Imports are expected to climb from around four million tonnes this year to five million tonnes by 2000.

Ramli praised the government for eliminating the base price it sets for cement but feared that the oligopoly within the cement industry would now be able to set its own prices.

"If they do not lower the barriers to entry in the cement sector and if distribution is controlled only by a few players, will anyone be willing to set up a new factory?" said Ramli, who is also the director of the Econit Advisory Group.

Author Richard Robison agreed that many of the measures outlined by the government Monday were compromises but said they still represented challenges to the political foundations of the country.

"Structural pressure has weakened the power groups, who will now have to give way on certain polices," said the professor from Australia's Murdoch University.

But he called the government's closing of 16 problem banks "wimpish" and faulted the "unconstrained borrowing practices of large conglomerates and banks" for helping create the current crisis.

"Only 16 of the smallest and weakest banks were liquidated in the long-awaited attack on the ailing banking sector," Robison said, adding that reform of the banking and financial sector had yet to come.

One of the closures still aroused the displeasure of a son of Suharto. Bambang Trihatmodjo has threatened legal action against the finance minister for shutting a bank in which he holds a 25 percent stake.

Ramli said the first result of the banking liquidation was an increase in the interbank money rate Tuesday to 120 percent.

"It seems the banks are preferring to keep the money for themselves to prepare for the impact of the liquidation rather than give it to somebody else," he said.

He called on the central bank to be more transparent about why the latest 16 banks were chosen for liquidation. "An insufficient amount of criteria will lead to rumours being spread around," he added.

The government's closure of the banks and its subsequent trade deregulation of several commodities long monopolized by the state were part of steps taken after two weeks of negotiations between the IMF and Indonesian officials.