ECONOMIC OUTLOOK FOR JUNE 1998
> Kadin Indonesia Bulletin <
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ECONOMIC OUTLOOK FOR JUNE 1998 |
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> Kadin Indonesia Bulletin < |
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June 1998 Grim enough for sure! Hubert Neiss, the IMF director for Asia and the Pacific, who spent four days in Jakarta trying to gauge the situation, concluded that the riots, looting and burning on that fateful Thursday, May 14, and the ensuing major change in the political landscape, have set the economy back from its already precarious position. Macro-economic management to stabilize the economy is immensely more difficult. Inflation will only get worse, although hopefully not exceeding 100% this year, thanks to the repression through a lot of subsidization. The crisis in the banking system has been aggravated by the run on BCA, the biggest private bank, because of collapse of confidence of depositors seeing complicity of the bank with the Suharto family. The resignation of the old president will take its own toll in the virtual collapse of many, many companies. The government is virtually broke. The disbursement of the June tranche of IMF money, originally scheduled for June 4, may have to wait till the third week of the month. Hubert Neiss seemed to be impressed about the need of helping Indonesia urgently. He said, however, that the decision rests with the IMF Board of Management, a political body virtually controlled by the major country shareholders, such as the US and large European countries, who may have their own (political) agenda. "Political stability" has become a condition for further IMF disbursements, but who can guarantee this in a period of major political changes when the shackles of three decades past have been suddenly removed? Because Indonesia has never been prepared for orderly succession and embracing full democracy, Western style, the process of transition will, by definition, be messy indeed. Hence, perhaps the month of July will have a better outlook , after the IMF $1 billion disbursement has been realized. This IMF decision is awaited by all other donors, multilateral and bilateral. It will likely trigger resumption of other flows, such as bank credits and equity investments, and perhaps repatriation of the flight capital, e.g., of the Chinese who fled the country after a traumatic experience. The key word is "confidence". Confidence in Habibie and his government, return of confidence of the market, confidence in the team of coordinating minister Ginanjar. At the time of this writing (June first) that is still distant. President Habibie has little legitimacy, while the response of the market is still resoundingly negative (the rupiah rate still close to Rp 11.000 per US dollar, far from the desired Rp 6000). The Chinese who took a beating in the riots still are licking their wounds. Habibie could only offer them a lot of sympathy and the promise of no discrimination, but no cash for damage compensation. Hopefully the credit window for small and medium scale business will be made available for them too. Can we see some silver linings among the dark clouds? We must think positively. The planes from Singapore, Hong Kong and Tokyo are full with returning businessmen and their families. The Japanese are back, trying to see whether they can restart their businesses in Indonesia. Many Chinese are back and picking up the pieces. They need sympathy, encouragement and capital for rehabilitation. Hopefully the state banks and the foreign banks could see some mutual benefit. The small and informal business, e.g., the small warongs and tokos, was quickly back in business as usual. This sector by itself cannot pull up the national economy, but it is a good start because it employs a lot of people. Exports of primary commodities and products of agro-business are picking up, because of the over-depreciation of the rupiah. The labor intensive, manufacturing, exports, like textiles and footwear, may resume soon. Some new export orders are coming in, and as soon as physical infrastructure of transportation and communication is restored, this flow will amplify. Examples: Bata Shoes have received such new orders, TIFICO (artificial fiber) is doing well because of exports of its downstream clients. On the other hand, exports orders have been lost to other countries because Indonesia has been perceived as an unstable source country. Some major international shoe brands have decided to move production to other countries. Hopefully, the Japanese business and banks will help normalizing trade and investment flows. Bank of Tokyo and Mitsubishi is already doing so. Can the IMF, World Bank, CGI donors and international banks soon come to the conclusion that Indonesia needs a lot of assistance and they are ready to chip in? That depends on the outlook of greater political stability. Multilateral institutions and bilateral donors must take the lead and take some chances. The Habibie government is in an unenviable position. It is perceived as politically tainted and transitory, that is, until the general elections and the new political set up. How can it make the greatest historical contribution? Only by openly recognizing such role and position, assuring the public that it has no special political agenda of perpetuating itself. Perhaps, and then, the reform movement, the students and the public will give it greater support. (SADLI) |
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