APSN Banner

Indonesia heading for 'new crisis'

Source
Straits Times - January 7, 2001

Shefali Rekhi – Indonesia is lurching towards another crisis given the vulnerability of the economy and differences among the political elite, the head of a prominent Indonesian think-tank warned yesterday.

"This crisis will be triggered by a banking or a fiscal crisis and looms on the horizon," Dr Hadi Soesastro, executive director of the Jakarta-based Centre for Strategic and International Studies, said at a regional seminar in Singapore.

He said the seriousness of the economic and political situation was not being realised by the leadership, and they were holding the country "hostage". The bickering among the elite would only contribute to the crisis and, in the process, there would be disastrous economic-policy decisions, he told participants of the Regional Outlook Forum 2001 organised by the Institute of South- east Asian Studies.

Dr Hadi said the weakening of the rupiah in recent months was, in part, due to this bickering and the attempts by some legislators to unseat President Abdurrahman Wahid.

Admitting the shortcomings in the current state of the economy, he said that "Indonesia's scorecard on structural reforms is still much in the red ... The agenda for reform and recovery is largely unfinished three years after the first IMF-supported programme had been in place".

It also did not surprise him that last year's economic recovery was, at best, fragile and its sustainability was an issue. Recovery thus far was driven by domestic consumption, exports and an increase in investments. But the current year's outlook was not encouraging.

Noting that recovery was "selective" and limited to a few sectors – construction, transportation and communication – he said "while Singapore will talk of a new versus old economy ... in Indonesia, we continue to talk about the sick versus the healthy economy".

Turning to the critical banking and fiscal sectors, he criticised the reforms now in place. Indonesia's banking structure was "not different from what it was pre-crisis", he said, adding that the system remained fragile and vulnerable to a crisis.

Critical reforms such as a clear division between bank owners and users had not taken place. There has been little injection of fresh capital, and privatisation of state-owned banks was yet to be taken up.

He was also alarmed over limited spending on development that would have severe long-term repercussions, and the problems with managing the fiscal deficit. Looking ahead, he felt that "politically, there was no way out until 2004, when elections take place again".

Nearly 400 people attended the seminar to discuss the outlook for the various regional countries.

Country