On the ground the economic recovery is continuing and there are more encouraging news. But recovery remains driven by consumers catching up on delayed purchases during the crisis. With deposit rates of interest sharply lower that in 1998, and the rupiah rate of exchange more stable and favorable, people spend rather keeping their money in the bank. Many consumer goods manufacturing companies are reporting gratifying profits for last year. There are telltale signs (no hard statistics as yet) of recovering non-oil exports for the first quarter of this year, but capital inflows for investments in plant and equipment are still a trickle. On the other hand one sees building cranes working again in Jakarta and that is a good sign. International flights are often fully booked and domestic flight frequencies are moving towards pre-crisis numbers. The IMF now thinks that economic growth in 2000 will be over 4%.

But investors are still worried about the political prospects, and by lack of security on the ground. President Abdurrachman Wahid continues to enjoy broad popular support. Gossips of a possible military coup are sheer speculation and he has now greater control over the military than ever. But even such impressive feat is not enough. At the time of this writing, 20 March, the news from Aceh and the East Timor border still reflect parts of the army, perhaps rogue elements, not following the political guidelines of the Jakarta. A few days after the highly advertised friendly encounter between Gus Dur’s top envoy, Bondan Gunawan, and the commander of GAM (military arm of the Aceh Freedom Movement), Teungku Abdullah Syafi’ie, government security forces undertook sweepings again around the area, spreading terror again in the Pidie region. From East Timor the US Ambassador complained about elements of the TNI perhaps illegally arming pro-independence militia infiltrating East Timor from Republican territory. Gus Dur also complained that one military area commander, he did not want to disclose his identity, held secret meetings to “mobilized anti-Gus Dur forces”. This still continuing psy-war between Gus Dur and the Army (which, we trust, in the end will be won by Gus Dur) will for the time being color the state of political stability.

President Wahid is also not happy about the performance of his economic cabinet, and especially with the minister of economic coordination, Kwik Kian Gie, who is still obsessed with his old prejudice against the big Chinese conglomerates, whom he loathes. On the other hand, Gus Dur cannot revamp his cabinet at this stage, and at least until August 2000, when the MPR convenes, he has to do with the present composition. He announced the formation of an informal team to facilitate economic policy coordination. This team will be led by Prof. Widjojo Nitisastro, the economic architect of the New Order prosperity. This tinkering with the present system may work or not work. It does not remove the basic deficiency of the cabinet, which had been the product of horse trading among political parties at its inception. If Gus Dur will gain strength politically, he may remedy this in time.

An ominous statement came from John Dodsworth, senior representative of the IMF in Indonesia. He said at a media lunch that if the legal follow up to the Bank Bali scandal was not satisfactory, “we would have to reconsider the program as we did previously”. A few days later Economic Coordinating Minister Kwik Kian Gie warned that the year 2000 budget will be in serious trouble if the IMF withholds disbursements. There will not be funds enough even for the routine budget. Kwik also insists that IBRA must deliver the Rp17 trillion in cash, not in illiquid bonds, to support the budget.

This underlines the hold, which the IMF has on the Indonesian economy and on government policy execution. The Letter of Intent with the IMF is a long list of government commitments on policy and its execution. Because of the nature of the Wahid government, there is some uncertainty whether or not the government who has signed it is really committed to its implementation? Perhaps the IMF and the World Bank also held such reservations, and that is why the present LoI is a lengthy and detailed one.

One contentious sentiment may be “economic nationalism”. The present government would not want to be seen as buckling under foreign dictation (IMF conditionalities). The LoI also demands privatization of IBRA and State Enterprises, ostensibly to help finance the government budget with the proceeds. But selling state assets wholesale (perhaps even through a fire sale) will not go well with the public. Hence, what about if key economic ministers will drag their feet because of such sentiments? The answer is that it may well be so, but if the minister of finance and the economic coordinating minister are faced with a serious budget shortfall, because of actions of the IMF, they may not lightly invoke nationalist sentiments. Dodsworth even has praise for the new IBRA chief, Cacuk Sudarijanto. He said: “I've been quite impressed by the new chairman of IBRA. He's quite dynamic and appears to have the ear of the president". (SADLI)