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Tough reforms to last years, says IMF boss

Sydney Morning Herald - November 13, 1997

Louise Williams, Jakarta – Indonesia must push through with successive waves of tough economic reforms, including a possible second round of bank closures, the managing director of the International Monetary Fund, Mr Michel Camdessus, said in Jakarta yesterday.

On his first visit to Indonesia since the recent announcement of a rescue package worth up to $US38 billion ($54 billion), Mr Camdessus said present strategies to prop up the country's currency, the rupiah, were just the beginning.

Significant structural reforms were still needed, he said. These would effect politically sensitive monopolies and the lack of transparency in decision-making and end practices such as leaving parts of the national Budget off the public books.

After meeting President Soeharto yesterday, Mr Camdessus said Indonesia needed a strong economy to deal with social ills such as the gap between the rich and the poor.

"I was happy to see that President Soeharto was convinced that this [the three-year reform program] is what is needed.

"If this is done, and I have no reason to doubt that, I am certain this crisis will be a blessing in disguise and Indonesia will emerge stronger."

At the same time the Administrative Court in Jakarta announced that Andromeda Bank, 25 per cent owned by President Soeharto's son Bambang Trihatmodjo, had withdrawn its legal challenge to its closure as part of the first round of bank liquidations announced recently.

Bambang had publicly admitted breaking the banking laws by exceeding the legal lending limit and had come under pressure from members of his father's Government to show some willingness to share the pain the economic reforms will bring.

Sixteen banks were liquidated on November 1, and yesterday Mr Camdessus revealed that a second list of non-performing banks had been drawn up and served notice that they must recapitalise or negotiate mergers to survive.

Mr Camdessus said: "The closure of the [first] 16 banks is a powerful signal, but restructuring goes far beyond this and tries to save what can be saved.

"I hope we will have more rehabilitations [of the second list] than closures, but if the [additional] banks can't meet the conditions they will have to be closed.

"We are confident that at the end we will have a strong banking industry. You cannot construct a strong economy on sand. If you do that you are building a house of cards and that is dangerous."

As further details of the massive IMF package were revealed it was clear that many of the future reforms would directly challenge the business empires built under President Soeharto's New Order government using political power as a source of business advantage.

Many of Indonesia's remaining monopolies are linked to President Soeharto's children or other members of the elite, and some analysts have questioned the willingness of the richest business groups to give up the advantages they have used to build their conglomerates.

Mr Camdessus said each wave of reforms would follow IMF three-monthly reviews of progress which came with each disbursement of funds.

"If you want confidence you have to have measures to strengthen the supervision of the financial sector.

"The faster these measures are taken the sooner you will harvest the rewards."

The reforms would be accompanied by an economic slowdown, he said, but he was confident high growth rates would be restored within three years.

Crop failure "puts 36 million at risk"

Jakarta: About 36 million Indonesians are at risk as rice crops fail and drought conditions persist and the Soeharto Government must anticipate starvation in isolated areas, an agricultural expert says.

Dr S.H. Dillion, the executive director of the Centre for Agricultural Policy Studies, near Jakarta, said the impact of the present drought was compounded by the most significant economic downturn in three decades leaving the poorest sector of the community at risk.

Thirty-six million people earned less than $15 a month, he said, and warned officials not to "remain in denial until the press reports mass starvation".

"What we are witnessing now is a double bind, and poor households are going to find it very difficult to cope without external assistance."

More than 500 deaths in Irian Jaya, and reports from East Kalimantan of villagers who had died because they could not afford food, had shown that mass starvation was not a thing of the past, he said.

Officials have announced that fires and drought have destroyed more than half of Indonesia's palm oil crop, reducing the productive area from 2.7 million to 1.5 million hectares. This year's coffee crop would be 30 per cent less than last year, they said.

Rice production has already fallen by 4 per cent in the past four months. With planting now impossible in the harsh, dry conditions, there are fears of shortfalls in production next year.

Many rice farmers are small producers and Dr Dillion said the Government must start to use basic yardsticks for the crisis such as identifying families who had already run out of rice and water and were selling personal belongings to survive.