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Indonesia faces IMF praise, strains in week ahead

Reuters - November 9, 1997

Jim Della-Giacoma, Jakarta – Indonesia faces a mixed week ahead with praise expected from the IMF for its economic reform plans, but also the start of a court challenge to cleaning up the key banking sector.

Michel Camdessus, managing director of the International Monetary Fund (IMF), has commended Jakarta's attitude towards reform following agreement on a multi-billion dollar aid deal to stabilise the country's currency and boost the economy.

"Indonesia has had the courage to take the bull by the horns and to take very decisive measures," Camdessus said in Paris last week. "I have full confidence that the government...will get the Indonesian economy on the rails for durable growth."

Camdessus flies into Jakarta late on Tuesday and is due to meet President Suharto the following day to gauge for himself the commitment of the 76-year-old leader who has built his 30-year rule on economic progress.

He will then leave for Singapore on an Asian tour.

Coinciding with the meeting on Wednesday, however, a hearing starts in a court challenge to the government's closure of 16 ailing banks – which included three closely connected to Suharto's family – as part of the IMF-sponsored programme.

Political analysts said the fissures which have appeared in Indonesia's ruling elite are the first of many reform-inspired tremors likely to hit the sprawling country.

Besides thousands of confused depositors who milled outside branch offices of the closed banks, the loudest howls of outrage came from Suharto's own relatives.

The president's second son Bambang Trihatmodjo and Suharto's half-brother Probosutedjo cried foul after Bank Andromeda and Bank Jakarta, in which they hold stakes, were included in the list.

Both banks rushed to file legal challenges.

Trihatmodjo accused Finance Minister Mar'ie Muhammad of trying to hurt Suharto's re-election and discredit the business-oriented First Family while his father was abroad.

He later adopted a lower profile, leaving his lawyers to do the talking after his politically astute elder sister Siti Hardiyanti Rukmana backed the closures – as well as the right of every citizen to have their day in court.

"These packages aren't easy. These are the kinds of stresses we are going to see more and more," one analyst said, commenting of the First Family's public spat.

State Secretary Murdiono handed down the official line on Friday when he said the government stood firm on the bank liquidations, which analysts said signalled Suharto backed the order.

Bank Andromeda, 25-percent owned by Trihatmodjo, has led the court challenge, with a judge opening the first hearing in chambers in the Jakarta Administrative Court on Wednesday in a pre-trial bid for an agreement.

Bank Jakarta, chaired by Probosutedjo, followed Bank Andromeda in suing the finance minister to have its closure reversed. A third bank, Bank Industri, partly owned by Suharto's second daughter Titiek Prabowo, has not signalled its intention to challenge the closure order.

The director of the Econit Advisory Group, Laksamana Sukardi, was quoted as saying during the week the law suits were the right of every citizen.

"This will serve as a test to our court system, to see whether our bank, company or liquidation laws work," he said.

Political scientist Juwono Sudarsono said in an interview last week much was at stake for Indonesia, which was founded on the principles of a caring state looking after the basic needs of the poor, unskilled and deprived.

"But no country can escape the volatility of global capitalism," he was quoted in the Jakarta Post daily as saying.

"The question now is whether we can still be committed to translate our constitutional ideals into concrete reality in the face of global market forces which tend to benefit the privileged few," Sudarsono said.

"That creates jealousy, anger and frustration among the poor, the unskilled and the less well-connected, often leading to unilateral and violent action," he said.

Layoffs from building sites hit by a credit squeeze of high interests are already obvious on the streets of the capital as thousands of daily labourers wait in vain at curb-side pickup points for employment.

The capital, with its factory belt on the outskirts and booming skyline in the centre, has been a magnet for migrant workers from the drought-stricken countryside of densely-populated Java island.

But economists such as Kwik Kian Gie said Indonesia, accustomed to decades of rapid growth, now had to adjust to the reality of a severe economic slowdown.

"Business confidence in Indonesia is unlikely to recover in the next three years because international investors know that Indonesia is entering a recession and that the IMF's reform package is constrictive by nature," Kwik wrote in a column.